Reforms, not Bailout or Bankruptcy, Prevail in Puerto Rico Legislation

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After a long public debate over what Congress should do to address the current debt and financial crisis in Puerto Rico, free market oriented reforms have won the day. While the government of the Commonwealth requested, and our Obama Administration supported, Chapter 9 bankruptcy, many Republicans in Congress and grass-roots citizen groups opposed that and argued for reforms in Puerto Rico instead. The legislation released in Congress clearly is on the side of reform and doesn’t include or enable bankruptcy.

The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), introduced by Rep. Sean Duffy (R-WI) as well as Reps. Rob Bishop (R-UT) and Jim Sensenbrenner (R-WI) will create an Oversight Board to assist the Commonwealth in enacting reforms and reign in their out of control welfare state as well as managing their debts. The legislation does not contain any bailout provision nor does it provide for or allow Chapter 9 bankruptcy. PROMESA will bring order to the chaos in Puerto Rico, prevent a catastrophic humanitarian crisis, and will build a foundation for prosperity in the Commonwealth, and ensure its access to capital markets.

Puerto Rico has accumulated more than $118 billion in debt from bonds and unfunded pension liabilities. The government has been unable to manage this debt and has already begun defaulting on its repayment. On July 1, the Commonwealth is likely to default on an additional $2 billion in debt that includes $800 million of constitutionally backed debt.

The legislation create an Oversight Board, that will have the authority to enforce balanced budgets and government reform if the Commonwealth’s government fails to do these things. The current version of PROMESA provides for the authority to force the sale of government assets as well as consolidate agencies and reduce government workforce, and it hold supremacy over territorial law or regulations that are inconsistent with the Act or Fiscal reform plans. In short, PROMESA is a tough bill that, if enacted, will ensure that much needed reforms in Puerta Rico’s regulations, state-run enterprises, and government operations are enacted to fix the root causes of the current crisis, and prevent a future occurrence of such a debt and financial crisis.

If Puerto Rico were an independent country, it would ranked 135 out of 139 countries in the world in efficiencies for a business obtaining a construction permit. The legislation will reform and speed up this process. The legislation allows the governor of the Commonwealth to grant employers exceptions to the national minimum wage, to help create more jobs in Puerto Rico, and help bring about economic growth.

PROMESA is supported by many grass-roots organizations representing American taxpayers, including Citizens Against Government Waste, Americans for Tax Reform, as well as Niger Innis of Tea Party Forward. A number of other industry and financial groups support the legislation, because it brings about reforms in Puerto Rico rather than granting bailout and bankruptcy.

Some have claimed the legislation will bailout Puerto Rico, at taxpayer expense, or that it will allow Chapter 9 bankruptcy for the Commonwealth. Neither claim is true. There is no allocation of taxpayer money authorized in the legislation for any bailout of Puerto Rico, but PROMESA promotes economic and regulatory reform that will allow the Commonwealth’s economy to grow and meet its debt obligations. Because Puerto Rico is a territory and not a state, the reforms must be carried out at no cost to U.S. taxpayers.

 

PROMESA doesn’t allow or include a Chapter 9 bankruptcy. While Chapter 9 bankruptcy is an option for municipalities or U.S. states under the 10th Amendment, it does not apply to Puerto Rico given its territorial status. With the enacting of PROMESA, an Oversight Board will oversee the debt adjustment plan and repayment of those debts by Puerto Rico. The process created will only affect the debts in the Commonwealth and not in any other city or state in the United States.

 

This is clearly a win for the reform side of the debate over the Puerto Rico debt crisis, and clearly it guides the Commonwealth toward a future of economic stability and prosperity, while sparing the U.S. taxpayers any financial liability for paying for a bailout. That is why PROMESA already enjoys strong support for organizations representing taxpayers and many grass-roots conservative groups in the U.S. Anyone supporting fiscal responsibility, opposing the bankruptcy, and reforms for Puerto Rico should strongly support Congress enacting, and the president signing, this important legislation to address the debt crisis in the Commonwealth.


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