May 22, 2016
OP-ED: PROMESA Promises Hope for Puerto Rico and Its Investors
By Rep. Rob Bishop & Rep. Sean Duffy
Chapter 9 bankruptcy isn’t the only option for Puerto Rico
With great power comes great responsibility. Under the U.S. Constitution, Congress is vested with the power to “make all needful rules and regulations respecting” territories of the United States. As millions of our fellow Americans in the territory of Puerto Rico face an economic crisis with great humanitarian consequences, Congress must fulfill its responsibility. In doing so, we introduced the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).
Following decades of fiscal mismanagement, Puerto Rico currently faces $72 billion in debt obligations and over $40 billion in unfunded pension liabilities, an amount that eclipses its economic productivity. Making debt re-payment even more challenging, the island’s economy is strapped by burdensome labor policies, over-regulation, over-spending, and tax collection based on political patronage. Its market is crippled by subsidies and a state-run energy monopoly that provides “free” electricity to power private businesses, music festivals, and ice rinks with disco balls.
As a result, unemployment and energy prices are twice the rate of the national average. Nearly half the island — including nearly six in ten children — live below the poverty line. It’s no wonder that Puerto Ricans are literally fleeing their birthplace by the tens of thousands in search of better opportunity on the mainland. Businesses are leaving in droves as the economy’s tax base is dwindling.
Unfortunately, the situation on the island has reached a tipping point. Puerto Rico missed its May 1 debt payment of $422 million and is on track to default on the next critical payment worth $2 billion on July 1. A new local law makes it legal for the governor to place a unilateral moratorium on debt re-payments. Given the track record of the island’s political leaders, the situation is sure to worsen and the payment rights of investors will continue to be violated. If Congress fails to act, the effects will ripple far beyond the island to places such as Utah, Wisconsin, and virtually every other state whose residents invested their savings in Puerto Rican bonds.
Congressional action must be carried out in a careful and responsible manner so that Puerto Rico is best equipped to help itself. The PROMESA framework accomplishes this by establishing an independent Oversight Board that will restore order, accountability, economic freedom, and prosperity. This is the island’s last shot at mitigating an economic collapse and our best shot at protecting U.S. taxpayers.
Deceitful attack ads from dark-money special-interest groups have surfaced in recent weeks calling previous drafts of the bill a “bailout.” These claims are false and ignore the basic federalist and constitutional principles that are the foundation of the legislation. To the contrary, PROMESA prevents taxpayers from being on the hook for Puerto Rico’s irresponsible behavior and it does so within a constitutional framework that will provide real, long-lasting reform for Puerto Rico. The bill also respects the priority of legal claims and rejects outright an amendment to Chapter 9 of the Bankruptcy Code from which the territories were expressly excluded.
A bailout would be an absolute disaster for Puerto Rico’s citizens. It would reward the policies that have failed them for so long, continuing the vicious cycle of poverty.
First, a bailout would be an absolute disaster for Puerto Rico’s citizens. It would reward the policies that have failed them for so long, continuing the vicious cycle of poverty. Under PROMESA, not a single dime of U.S. taxpayer money will go toward paying Puerto Rico’s debt. This is one reason why many conservative think tanks, conservative news publications, and leading financial institutions all agree PROMESA is the framework to responsibly address the crisis.
Second, PROMESA is not Chapter 9 bankruptcy. Chapter 9 of the Bankruptcy Code governs adjustments of debt for municipalities and instrumentalities of sovereign states with Tenth-Amendment protections, not territories such as Puerto Rico.
Under Chapter 9, creditors are afforded only limited protections while local governments retain complete control over their finances and have the exclusive authority to propose plans to adjust their own debt. Under PROMESA, the Oversight Board — mandated to achieve fiscal responsibility and access to capital markets for the island — must facilitate consensual negotiations with creditors, require Puerto Rico to balance its budgets, and produce audited financial statements. Only if Puerto Rico and its creditors fail to reach a consensual deal, and after balanced budgets and audited financials, may the Board vote — with a supermajority of five out of seven members — to authorize the courts to oversee an orderly restructuring process. Even then, the Board retains the sole authority to propose plans to adjust Puerto Rico’s debt, which can only be confirmed by a court if they are in the best interest of creditors.
Finally, PROMESA treats all creditors fairly by upholding both the U.S. Constitution and the Puerto Rican constitution. The Oversight Board will honor creditor contracts, protecting the integrity of existing lawful priorities, classes, and liens. PROMESA also includes built-in protections ensuring states can never use this as a precedent, debunking claims this act will cause “market contagion” or legal precedent.
Today, millions of Americans living in Puerto Rico and the territory’s investors are shackled by the uncertainty of the island’s future, but PROMESA gives them hope. It will re-institute government accountability, respect the principle of self-governance, protect taxpayers, and build a foundation for economic opportunity. PROMESA provides the tools — and the hope — Puerto Rico needs to redirect itself from a path of destitution towards a path of prosperity.
— Rob Bishop represents Utah’s first congressional district and is chairman of the House Committee on Natural Resources. Sean Duffy represents Wisconsin’s seventh congressional district and is a member of the House Financial Services Committee and chairman of its Oversight & Investigations subcommittee.
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