On Sunday, Puerto Rico Gov. Alejandro Garcia Padilla declared that the island cannot repay its public debt, estimated at a whopping $73 billion. That’s about $20,000 for each of the U.S. territory’s 3.6 million residents. He wants federal help.
But the remedy the Congress, the White House and the governor should focus on is the one that saved New York City from bankruptcy in the 1970s and Washington, D.C., from its runaway budget deficit in the 1990s: a fully empowered financial control board.
Gov. Padilla is seeking either a bailout or legal authority to declare bankruptcy for the government and the public corporations that provide electricity, water and sewage services and highways.
However, the White House opposes a bailout, and Congress is unlikely to approve a bailout or bankruptcy. Both approaches would cost the nation dearly, either taxpayers for the bailout or private bond holders for the bankruptcy, which could also result in higher borrowing costs for states and municipalities across the nation.
Those solutions also would send the wrong message by, in effect, rewarding fiscal irresponsibility.
The New York City and Washington, D.C., financial control boards took taxing and spending decisions out of the hands of elected officials for a few years until the two cities got back into the black. While Puerto Ricans may bristle at the thought of losing sovereignty, even briefly, it should be reminded that both financial control boards were successful, and that in the case of New York City, the theoretically disenfranchised population was much larger than the island’s. (And, as it turned out, grateful for the job its financial experts performed).
Besides, a bankruptcy judge would wield far more power than a financial control board, and with less accountability to Puerto Ricans.
An excellent study of the island’s economic problems recently released by the governor’s office provides a thoughtful blueprint to guide any panel of experts empowered to help rescue the island from its mountain of debt. It suggests major structural reforms in Puerto Rico’s government and notes that a number of federal policies — including an overly costly federal minimum wage — have contributed to Puerto Rico’s underperforming economy and over-reliance on debt.
Two weeks ago, 3rd District Rep. Jeffrey Duncan, R-S.C., chair of the Western Hemisphere subcommittee of the House Foreign Affairs Committee, wrote a letter to fellow members of the House warning, “I believe legislation to require the establishment of a financial control board, to enable the politically unpalatable changes necessary to put Puerto Rico back on the road to self-determination, may be needed.”
Such legislation should also address federal policies that have contributed to Puerto Rico’s fiscal problems.
Congress obviously cannot duck this dire situation, any more than can Puerto Rico.
A good way forward is the solution recommended by Rep. Duncan.