Friday, June 10, 2016
It means “promise” in Spanish but it is also an acronym for a House bill passed on June 9th with rare and overwhelming bi-partisan support (297 to 127), now heading to the Senate: Puerto Rico Oversight, Management and Economic Stability Act. In a complex world of territorial governmental insolvency, de facto bankruptcy, American law is woefully silent, deficient if you will, on what happens when a United States territory, like Puerto Rico, is completely unable to pay its debts. Chapter 9 of the U.S. Bankruptcy Code deals with municipal bankruptcy (state governmental units but less than the entire state), such as was the recent case with Detroit, Michigan.
But with $72 billion of unpayable bond debt, and a $2 billion bond payment due on July 1st, to say that Puerto is desperate is an understatement. Nevertheless, bondholders worried about losing their value and locals worried about losing their jobs or vital social services – particularly to an all-powerful, mostly Republican Congress-people (a condition to get the bill through the House), seven-member oversight board with rather total power to fire, restructure, sell-off assets, modify pensions – have been less-than-unified in their support for the legislation.
Puerto Rico was profligate in the extreme. Most governmental bodies use bond issues to pay for longer-term projects, usually relating to infrastructure that can amortized over time. Puerto Rico used bonds to fund current operations that should have been paid for from taxes… but weren’t. But the notion of an unstructured freefall, with no statutory alternatives, brought the House to pass this precedent-shattering bill.
“The territorial government and the Obama administration have both warned of a brewing humanitarian crisis if the island’s mounting public debt is not eased. Already, debt service consumes more than one-third of annual government revenues, which has threatened into the island’s ability to address the education, safety and health of the public — including the serious threat posed by the Zika virus.
“On [June 7th], the island’s only airborne ambulance service said it was suspending its services after territorial officials declined to pay a $4.4 million bill, according to an Associated Press report.” The Washington Post, June 9th. Imagine schools shutting down, uncollected garbage piling up, police and fire services suspended and medical emergency personnel non-existent. Not pretty.
Opponents of the bill, focusing on the draconian power granted to a powerful and conservative few, were hell-bent on tanking the legislation. “The raging debate in Puerto Rico was reflected in the gubernatorial primary elections held there Sunday [June 5th], in which Pedro Pierluisi, the island’s nonvoting House representative who supports PROMESA, lost to Ricardo Rosselló Nevares, an outspoken opponent of the bill, in his bid for the New Progressive Party nomination.
“That sentiment has filtered up to Washington, where groups advocating for the island’s interests have redoubled their objections to the bill in tandem with labor unions wary that $46 billion in unfunded public-employee pension obligations might be restructured alongside the bond debt.
“In a fiery speech on the House floor, opponent Rep. Luis Gutiérrez (D-Ill.) compared the proposed oversight board to the state-appointed fiscal manager in Flint, Mich., who made the disastrous decision to change the city’s water supply.
“‘If you give power to a control board unelected and unsupervised by anyone here, be careful,’ he said. ‘Remember Flint. Remember the poisoning of the people and what the control board did there. That is exactly what we should suspect will happen.’” The Post. Democratic Presidential Candidate Bernie Sanders was equally vociferous against the legislation, but pressure from the Obama administration pushed the bill over the top.
With Senate passage likely, does this legislation provide for a future in which climate-change natural disasters could tank other territories or perhaps even entire states (not covered by Chapter 9 noted above)? On its face, the law deals only with Puerto Rico, but how that bill fares in implementation, assuming we reverse course and finally learn from our successes and our mistakes, could easily shape parallel legislation that may be required in the future. Time will tell.
I’m Peter Dekom, and we are woefully unprepared for demands on federal, state/ territorial and local governments from the inevitable costly changes we are bound to face.