For too long, government elites in our country have gambled with taxpayers’ money, spending and borrowing with reckless abandon. This is evident in our $19 trillion debt and in the downgrade of Chicago’s bonds to near junk status. But nowhere have decades of failed liberal fiscal policy come home to roost more urgently than in Puerto Rico.
America’s little island territory, once considered our “jewel in the Caribbean,” is now an impoverished social welfare state grappling with $72 billion in debt. It got there the same way so many other fiscally undisciplined states, cities and countries have done the same: through years of unbalanced budgeting, suicidal spending and an addiction to borrowing money that it never really intended to repay.
Now that the merry-go-round of government excess has stopped, Puerto Rico’s governor has said that he won’t pay the debt, defiantly defaulting on payments to bondholders for a third time on May 1. Predictably, the island’s political leadership is holding out its hands to Congress and the American people, asking for them to pick up the check.
Some folks in Congress apparently see no problem with that. Rep. Sean Duffy, House Natural Resources Committee Chairman Rob Bishop and Speaker of the House Paul Ryan are all supporting a bill to address the crisis called the “Puerto Rico Oversight, Management and Economic Stability Act.”
This bill, called PROMESA by most, would be better titled “Puerto Rico’s Free Pass on the Backs of Americans to Whom it Owes Money.”
Despite fervent denial by its establishment supporters, PROMESA extends Chapter 9 bankruptcy to Puerto Rico in a way that goes far beyond anything that Congress has authorized before.
It allows Puerto Rico itself to declare bankruptcy, and bars any and all of Puerto Rico’s bondholders, a huge majority of whom are retirement savers from across the country, from doing anything if the Commonwealth defaults on its debt.
This means that Puerto Rico can stop paying all of its bondholders, even the most senior ones to whom it has a constitutional mandate to pay before any other government spending, and instead use their money as it pleases until February 2017. During this time it will pour money into its government pensions system and maybe even pay its government employees huge bonuses.
What happens next, when it has blown through all its remaining cash? PROMESA gives permission to Puerto Rico’s government to force bondholders across American to take staggering losses in a cram-down restructuring.
If you thought the congressional establishment learned its lesson after 2008, guess again. This handout, favored of course by the Obama administration, would bail out Puerto Rico’s government with the retirement savings of people across the country.
Along the way, it would rewrite the rules on investors after the fact, and override the protections afforded to them in Puerto Rican law and its very Constitution. This is as unfair as the 2008 bailouts and as lawless as President Obama’s immigration amnesty, but incredibly there are Republican politicians who stand ready to support it.
During my tenure as governor of Arizona, we took a multi-billion dollar deficit and turned it into a $1 billion surplus. What was once considered a prime example of poor government budgeting in 2008 became a beacon for responsible fiscal policy by the time I left office in 2015. We did that by making tough decisions, balancing our budget and making Arizona an attractive place for outside investment.
Puerto Rico needs to do the same and, of course, Congress can help. There are plenty of barriers to economic growth and job creation in Puerto Rico that Washington can remove.
Congress can free the commonwealth from the federal minimum wage, repeal the Jones Act, reintroduce the tax incentives that it disastrously repealed in 1996 and implement a strong control board to take the economy out of the hands of easily-influenced politicians like it did to Washington, D.C.
Under no circumstances, however, is it acceptable for politicians in Washington to allow Puerto Rico to tear up the contracts it made with their constituents and force them to pay for the crisis they played no part in making. If that is Washington’s answer to this challenge, then every retirement saver with municipal bonds faces a dark future ahead.
Jan Brewer was governor of Arizona from 2009-15. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
