U.S. Representative Richard Hanna last night voted in favor of a bill to prevent a taxpayer bailout for Puerto Rico.
The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) is the House’s bipartisan legislation that addresses the fiscal crisis in Puerto Rico and prevents a taxpayer bailout for the island. Because Puerto Rico is a U.S. territory, it is ultimately Congress’s responsibility—as the Constitution says. The goals of PROMESA are to protect American taxpayers, stop Puerto Rico’s debt crisis from becoming a major humanitarian disaster, and put Puerto Rico on a path to recovery.
The Puerto Rican government is $118 billion dollars in debt in the form of bonds and unfunded pension liabilities. It has no way of paying it back nor intention of doing so. Earlier this year, the Puerto Rican government passed a debt payment moratorium. Last month, Puerto Rico defaulted on a $422 million loan, exacerbating the financial crisis in the U.S. territory. A huge debt payment of $2 billion is due on July 1, which the government will likely default on. The implications of this default could be felt across U.S. markets—including threatening the retirement and pension accounts of all U.S. citizens.
“This bipartisan agreement was struck to solve Puerto Rico’s staggering debt crisis and puts the U.S. territory on a path to fiscal sustainability while preventing a future taxpayer bailout,” Rep Hanna said. “Puerto Rico’s slow recovery from the Great Recession combined with poor management of government resources and excessive government regulations have already caused them to default on a major debt payment.
“I supported PROMESA because instead of providing Puerto Rico with a bailout, it compels the territory to get on more sound financial footing without excusing its debt obligations,” Rep. Hanna said. “It has no cost to federal taxpayers, empowers the oversight board to implement significant spending reforms and fairly protects the claims of creditors.”
The legislation has three major components:
Debt-restructuring: PROMESA gives territories the ability to access certain debt-restructuring provisions. This is specifically amended under the territories and insular affairs section of the U.S. code, so no states can have access to these provisions. This means states will not gain access to debt-restructuring provisions, which protects against a dangerous precedent. Giving Puerto Rico the ability to restructure its debt in an orderly way is the best chance for creditors to get paid what they are owed and protect the U.S. bond market.
Oversight board: The legislation institutes an oversight board appointed by Congress and the White House that will have major authority over the debt-restructuring process, beginning with auditing the financial records of the government. This will bring transparency and order to the current chaos on the island. The oversight board will also make sure that Puerto Rico makes real, lasting reforms so that Puerto Rico never gets into this situation again. For example, the oversight board will enforce balanced budgets if the Puerto Rican government fails to do so.
Pro-growth reforms: The bill provides Puerto Rico with flexibility on the youth minimum wage in order to spur job creation and economic growth on the island. It also exempts Puerto Rico from the new harmful overtime pay regulations, which would have had a detrimental impact on jobs. PROMESA institutes a taskforce to provide a report giving recommendations on ways to grow Puerto Rico’s economy and fix the current federal law that is hindering growth.
Read more details on the legislation here.