This is an archived article that was published on sltrib.com in 2016, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
As the debt crisis in Puerto Rico grows with the island's recent default on most of a $422 million debt payment, a variety of stakeholders are pressuring Congress. With a new draft of House Committee on Natural Resources Chairman Rob Bishop's bill to resolve the crisis about to be released, there has been a barrage of ads opposing the bill as a taxpayer bailout of Puerto Rico. The ads assert or imply that Bishop is undermining Social Security and that the federal government will bail out Puerto Rico with taxpayer funds or that debt re-structuring would be done on the backs of small bondholders.
The truth is precisely the opposite: Unless Congressional action is taken now to restructure Puerto Rico's massive $70 billion-plus debt, it is all but guaranteed that much more dramatic and costly federal intervention will be required when a full-blown economic and humanitarian crisis hits the island in the wake of a full default.
A number of outright myths have been put forward in the misleading ad campaign opposed to any congressional intervention to avert a meltdown. First, opponents of the House Republican bill argue that "After years of overspending, Puerto Rico is out of money." The causes of Puerto Rico's debt crisis are considerably more complex: While misguided policies emanating from San Juan have contributed to the plight of the island, the chronic stagnation of the economy is much more to blame.
Since 2006, GDP has declined by 14 percent, employment by 20 percent and fixed investment by more than 25 percent. Tens of thousands of Puerto Ricans have lost their jobs in both the private and the public sectors. As long as such a severe recession persists, the Puerto Rico government's efforts to pay off the debt by raising taxes and cutting spending will have little effect. Washington's elimination of long-standing tax subsidies for Big Pharma, the withdrawal of one of the world's largest U.S. Naval facilities and restrictive trade laws inhibiting growth have all been enormous contributing factors keeping Puerto Rico in permanent recession mode. Population is shrinking dramatically as those who were able have moved to the mainland. Poverty is endemic, and private investment paltry.
Working with various stakeholders, including those who hold billions of dollars of Puerto Rican debt, Bishop has tried to draw a compromise that will honor bonds and other debt, protect the island from immediate economic catastrophe, stanch the bleeding in population and the flight of capital. This proposal is strongly supported by an array of conservative and other groups who understand both the depth of the crisis and the actual effect of Bishop's bill.
Opponents of restructuring contend that Congress wants to change the rules to grant Puerto Rico unprecedented bankruptcy protection called Super Chapter 9. Not true. Chapter 9 bankruptcy can and has been declared by municipalities in the U.S. But by law, U.S. territories like Puerto Rico have no such bankruptcy option.
Perhaps the most egregious myth is the contention that the proposed legislation constitutes a taxpayer bailout of Puerto Rico. This is simply not true. The bill contains no federal bailout and does not leave taxpayers on the hook for anything. Despite accusations that the legislation will require taxpayers and savers to bail out the island, the bill has zero federal budgetary impact. Indeed, without the enactment of some form of debt restructuring, a taxpayer bailout will likely become a necessity, because social services on the island will be severely impinged or shut down, the stream of immigration to the U.S. will increase to a torrent and bondholder groups will insist that Congress intervene to rescue them.
Giving Puerto Rico the ability to restructure its debt is not a "bailout," despite what well-funded ads from dark money groups are insisting. In fact, action now is Congress's best tool to avoid a costly taxpayer bailout of Puerto Rico, and its debt holders, in the near future.
Greg Bell is former lieutenant governor of Utah.