The ongoing saga of legislation to deal with Puerto Rico’s financial crisis continues.
As I noted earlier this month, Congress is considering a bill that would help Puerto Rico deal with the huge amount of debt that the island commonwealth has incurred.
Some in Congress want to give the island what amounts to a bailout, essentially allowing it to escape the consequences of its fiscal irresponsibility. Others share the view of Rep. Bruce Westerman, who wrote in the Washington Post that “bailing Puerto Rico out with U.S. debt would only kick the can down the road, doing nothing to fix the territory’s underlying problems, and making America’s worse.”
Some conservative analysts are skeptical about this new legislation. In the Daily Signal, Rachel Greszler and Salim Furth discuss some of its flaws. For instance, there is the issue of a litigation freeze that could have unintended consequences:
The House Committee on Natural Resources bill still contains a troubling provision that would suspend a civil right of bondholders, vendors, and others who do business with the Commonwealth of Puerto Rico by immediately freezing all financial litigation against the territory. Enacting such a “stay” of litigation without supervision by the Oversight Board created in PROMESA would give Puerto Rico’s unpopular government an opportunity to shuffle money around, potentially without consequences, for months.
Another problem that Greszler and Furth see concerns bondholders (although, as they note, what is in the latest bill is better than what was in the initial bill):
The newest version of the draft has improved language intended to protect the prioritization of bondholders’ rights to payment. This is a positive step, but it relies on the Oversight Board and bankruptcy judge’s interpretations to take force. Most importantly, the prioritization language aims to ensure that government pensioners are not exempted from benefit reductions while bondholders – including many retirees and pension funds in Puerto Rico and the mainland U.S. – suffer significant losses. With upwards of $44 billion in unfunded pension obligations, subjecting pensioners to cuts along with other unsecured creditors is essential.
One part of the bill does contain a provision for an oversight board that will have authority to do things like “selling government assets, implementing changes to reduce the size of government, and preventing policies and laws that hinder economic growth.” That is a very positive addition. However, Grezler and Furth see weaknesses with a related task force that will recommend long-term changes. They say that it would be better to have “an economic task force within the oversight board, made up of economists instead of politicians, and with a guaranteed and expedited vote on its recommendations.”
The fate of this legislation is uncertain. Rep. Westerman is a key player in this saga, as he sits on the relevant House committee. I spoke with his press secretary, who said Rep. Westerman is reviewing the bill to see if it includes the types of reforms he wanted to see. The congressman will be on C-SPAN’s “Washington Journal” on Thursday morning (May 26) at 7:30 a.m. He will be discussing this bill, among other issues.