Puerto Rico is in financial trouble, and everyone knows it. The declaration by Puerto Rico's governor, Alejandro García Padilla, on Monday that the island's $72-billion debt is "not payable" was stating the obvious. It was putting Washington on notice that Puerto Rico needs help.
The governor is not asking for the federal government to bail them out of this problem. Puerto Rico is only asking for the right to declare bankruptcy, which is the same right that states have. Because Puerto Rico is not a state, it cannot avail itself of the provision in federal bankruptcy law that enables cities like Detroit to restructure its debt in an orderly fashion. Puerto Rico's representative, Pedro Pierluisi, has introduced H.R. 870, the Puerto Rico Chapter 9 Uniformity Act of 2015, which would empower the government of Puerto Rico to authorize one or more of its government-owned corporations to restructure their debts under Chapter 9 of the federal Bankruptcy Code if they become insolvent. I fully support this legislation and believe that Congress should act on it when we return in July.
There are two major reasons to support this legislation. One is that all state governments are already empowered to do this under current federal law. Second, it will not cost a dime of taxpayers' money. When Detroit was in financial trouble, the Illinois legislature allowed them to restructure their debt through bankruptcy. There is no reason that Puerto Rico should not have the same ability to restructure government-owned corporations' debt.
Puerto Rico ranks among the top municipal bond issuers in the country. Puerto Rico, with its population of approximately 3.6 million people, has over $73 billion in municipal bond debt. The governor has engaged the stakeholders in restructuring the dire financial situation he inherited, which has plagued the island of Puerto Rico for generations, but the inability of Puerto Rico to declare bankruptcy means that some of the investors are not willing to negotiate. They think they have the upper hand. And due to Congress' inaction, they do.
This is not a new problem, and investors have been expecting some kind of restructuring of Puerto Rico's debt for a long time. In fact, the statement made by the governor did not impact the bond market. Puerto Rico bonds are not taxable at federal, state or municipal levels in every state in the country. That is why they are highly sought-after and widely held by bond funds. Moreover, the hedge funds have bought Puerto Rico bonds at deep discounts, hoping to make a large profit. Investors should have recognized that investing in the Island, whose per capita debt load far exceeds that of any state in the union, was a dubious risk.
The House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law held a hearing on this bill in February 2015. The support from bankruptcy experts was overwhelming. The bill is not controversial, yet it has not moved in Congress. No one seems to know why Puerto Rico was omitted from the 1984 rewrite of the bankruptcy laws. There is no logical reason that they should have been omitted. Having served on the Ways and Means Committee for decades, I know that we have inadvertently left U.S. possessions out of our laws by accident. We frequently use the term "states" not meaning to exclude the U.S. possessions that include Puerto Rico. Whatever happened, Congress should quickly correct this problem.
The lack of bankruptcy protection has created an environment of uncertainty that makes it more difficult if not impossible to address Puerto Rico's fiscal challenges and threatens Puerto Rico's economic future. It could take years for negotiations between creditors and the government to solve this problem.
This is a tragic situation -- we must not forget that Puerto Ricans are U.S. citizens, and they have been suffering for years. They have seen their living standards cut, and unemployment is running at double the national average. Puerto Ricans are leaving the island to find jobs at an unbelievable rate. The biggest tragedy is yet to come for the U.S. citizens in Puerto Rico confronted with soaring levels of poverty. We are not providing financial aid to Puerto Rico; we are just giving them a way to address some of their problems. We owe it to them to act now.