On Puerto Rico, Congress is moving in the right direction
What is to be done as the Puerto Rican government displays its inability to cope with its debt burden — which, adding together its explicit debt plus its 95 percent unfunded pension liabilities, totals about $115 billion?
As the draft bill provides, the first required step is very clear: Congress must create a strong emergency financial-control board (“oversight board” is the draft’s term) to assume oversight and control of the commonwealth’s financial operations. This is just as Congress did successfully with the insolvent District of Columbia in 1995; what New York State, with federal encouragement, did with the insolvent New York City in 1975; and what the State of Michigan did with the appointment of an emergency manager for the insolvent City of Detroit in 2013. Such actions have also been taken with numerous other troubled municipal debtors. They are hardly an untried idea.
This should be the first step. As the bill provides, other steps will need to follow. To begin, the oversight board will need to establish independent authority over books and records, publish credible financial statements, and determine the extent of the insolvency of the various parts in the complex tangle of Puerto Rican government borrowing entities—especially of the Government Development Bank, which lends to the others. Then it will have to help develop fiscal, accounting, tax-collection and structural reforms that lead to future fiscal balance.
The oversight board will have to consider and report to Congress on the best ways to deal with the current excessive and unpayable debt, including pension liabilities. The draft bill provides a key role for the board in debt restructuring issues.
Puerto Rico has a failing, government-centered, dependency-generating political economy. The draft bill envisions the oversight board assisting with economic revitalization, which will be a key consideration going forward.
Needless to say, the current government of Puerto Rico does not like the idea of having its power and authority reduced. But this always happens to those who fail financially. The people of Puerto Rico understand this: 71 percent in a recent University of Turabo poll favored “a fiscal control board…that has broad powers.” In time, revitalized finances will lead to a more successful local government.
The draft bill is headed for introduction and hearings. Stay tuned.