Puerto Ricoby Senator Maria Cantwell
Posted on 2015-12-17
CANTWELL. Mr. President, I thank the Senator from Florida for
coming to the floor and speaking so articulately about the need for
help for Puerto Rico. His State is the most impacted State in the
United States when it comes to our policy as it relates to Puerto Rico.
He is right that there are not many Puerto Ricans in the State of
Washington. But as the Ranking Member of the Senate Committee on Energy
and Natural Resources, which has jurisdiction for the territories, I
can tell you territorial oversight is about giving people who are U.S.
citizens fair access to the law. If we are not going to help people who
are U.S. citizens have fair access to the law, I am not sure why we are
continuing to say that they are a territory of the United States of
What we are talking about, and the Senator from Florida understands this, is if you don't give them fair treatment under the law, just as we do with individual citizens who need to reorganize their debt, businesses who need to reorganize their debt, municipalities that need to reorganize their debt, or even the United States of America in the big bank bailout basically allowing a lot of people to reorganize their debt, then we won't let the people in Puerto Rico come to a resolution of their debt in bankruptcy. It is a hypocrisy that is unexplainable at the moment. We should get to the bottom of this because we want to give fair treatment to Puerto Rico so they can solve their own problems.
What my colleague mentioned is that a restructuring authority for Puerto Rico costs the U.S. taxpayers zero. Zero dollars. That is to say, we are not proposing, at least on our side of the aisle, that we give them immediate funds to restructure. We are simply saying: Give them the tools of bankruptcy so they can restructure. My colleagues think this is important because we know that the mass exodus from Puerto Rico, which has been about 300,000 people in the last several years, will continue if we don't give them the tools to reorganize their debt. What that will mean, as the Senator from Florida mentioned, is that people will come in droves to Florida and continue to impact that economy by asking for federal social services that are capped in Puerto Rico. They will come to Florida and ask for those services. So the United States, by denying Puerto Rico the bankruptcy tools, actually will be impacted economically. Some people have estimated the impact will be as much as $10 to $20 billion over a 10-year period of time. I would say we have a lot of skin in the game to get people to reorganize this debt.
Many newspapers across the United States also believe that we should give Puerto Rico these tools to reorganize. In an editorial recently in the New York Times, which talked about the President's proposal, it said: ``Crucially, it asks Congress to change the law so that Puerto Rico's territorial government and municipalities can seek bankruptcy protection.'' They understood this issue, as did the Washington Post when they wrote: ``. . . letting an impartial bankruptcy judge sort out the competing claims on a failed public entity is the fairest, most efficient approach; without that option, Puerto Rico has no leverage in debt negotiations, and litigation could ensue.'' So there are newspapers throughout the United States of America that are looking at this issue and saying: Give them the ability to reorganize their debt.
Why is this so important? Because the Puerto Rican government may default on its debt as early as January 1, when nearly $1 billion in payments are due.
Many of us here want to see a resolution of this issue now, giving them the tools to avoid that. Once they default, the economic impact to the rest of us and the U.S. taxpayers will be far greater. Why do I say that? Because if you look at the inaction that takes place, U.S. taxpayers contribute $6.4 billion to Puerto Rico's annual budget, funding these various programs. If you default, that means we will be spending more than $6.4 billion.
I know some of my colleagues want to protect the hedge funds from being a part of the bankruptcy reorganization. But, when you are protecting the hedge funds from being a part of the bankruptcy reorganization, you are adding costs for the U.S. taxpayers. That is something we cannot afford.
If Puerto Rico is allowed to restructure their debt, they could make these decisions and save us money as U.S. taxpayers. In the long run, as I said, it would prevent the mass exodus from the island to many other States and provide Puerto Rico with the tools they need. Yet some in Congress are more comfortable with inaction, which basically is just bad public policy. Why is this? Because 20 to 50 percent of the island's debt is owned by hedge funds. These hedge funds swoop in to buy cheap Puerto Rican debt and are using their influence here in Washington, DC, to block Puerto Rico from access to bankruptcy protection that is allowed in other places. It is no secret that the solution will require sacrifice by everyone, and that is what we want to see. If [[Page S8770]] Congress continues to protect these hedge funds and fails to act, it will be at both the expense of the Puerto Rican people, who have already suffered immensely, and of the American taxpayer.
Sitting by idly is not a solution. We should remind our colleagues that Puerto Rico had preexisting bankruptcy authority which was taken away in 1984, mysteriously. Nobody knows why, or how, or any justification for it. They just know that it disappeared. Congress should reinstate that authority that was taken away. As the Governor of Puerto Rico said before the energy committee, quoting another leader: ``Give us the tools, and we will finish the job.'' Now is the time to act, before we see a greater mass exodus of people.
This chart shows the migration between Puerto Rico and the United States. You see that it continues to grow. It has grown 500 percent in the last 10 years. The issue is that now government workers are being cut to three days a week, patients are waiting for months without basic medical care, hospitals are going bankrupt, and the health industry is about to collapse.
On the other side of the aisle there is talk about the humanitarian crisis that might occur next year and how they might want to respond to it, but they don't want to stand up and say to the hedge funds that they also have to take some responsibility in this issue. Forty-five percent of the population in Puerto Rico is now living in poverty, including 58 percent who are children. Unemployment is in double digits, and it is, if you compare it to all our States, very high in the ranking of States in the United States. As a result, 80,000 people are leaving the island each year as part of a mass migration.
So what is the solution? As we said: Restructure their debt; give them the tools to restructure their debt. It costs nothing to the U.S. taxpayer, saves us money in the long run, prevents a mass exodus from the island, and prevents more spending on Federal benefits to people who might migrate to the United States.
We think this ought to be a lot of motivation to sit down and solve this issue today. In fact, now we are hearing from different businesses, and I will submit one letter for the Record, in the United States that do business in Puerto Rico and that don't want to lose their investment because they are so concerned about the level of collapse that could happen in Puerto Rico, and the loss of infrastructure and infrastructure investment.
So why do we need to continue to move forward? Well, inaction, basically, is to say that the hedge funds have won in this game. Twenty to fifty percent of the island's debt is owned by the hedge funds, and hedge funds are using their influence in Washington to block a Puerto Rico bill from coming to the floor. Failure to act would be at the expense, as I said, of taxpayers and individuals.
Just yesterday, a leader who has been supportive of reorganization of a task force in New York that was under a budget crisis said: ``The hedge funds got their way in Congress.'' That is referring to the fact that we were not able to get, as my colleague from Florida said, this legislation as part of the budget omnibus bill or other bills moving through the process.
So now is the time to act to give Puerto Rico the tools. Now is the time for all of those who have made investments to say ``we all have to come to the table and resolve this issue.'' The longer we wait, the greater the risk for the United States of America--to say nothing of the issue of a territory that we lay claim to, giving them the ability to solve their problems.
I ask my colleagues to come to a commonsense resolution on this issue. Stop protecting these hedge funds and start working for people who are called U.S. citizens.
Mr. President, I ask unanimous consent to have printed in the Record the articles and the letter I mentioned.
There being no objection, the material was ordered to be printed in the Record, as follows: [From the Washington Post, Oct. 24, 2015] A Rescue Plan for Puerto Rico (By Editorial Board) There was long-overdue drama at a Capitol Hill hearing Thursday. We are referring, of course, to Treasury Department counselor Antonio Weiss's testimony before the Senate Committee on Energy and Natural Resources, in which he warned of a looming ``humanitarian crisis'' in the financially distressed commonwealth of Puerto Rico. Mr. Weiss's words marked a break with the Obama administration's previous low- key approach to the island's debt crisis, and if he resorted to hyperbole to compensate for that, it was only slightly. Having already cut spending, jacked up taxes and postponed various bill payments, Puerto Rico is out of cash and facing a year-end liquidity crunch that could lead to a breakdown in public services, or even public order.
Mr. Weiss backed up his words with the administration's most comprehensive policy proposals yet, the most important of which would require congressional action. Specifically, he advocated not only permitting Puerto Rico's municipalities and public corporations to file for bankruptcy, which would affect about a third of its $73 billion debt, but also extending the bankruptcy option to the commonwealth government itself. He called for a permanent fix to the island's Medicaid program, which faces crippling uncertainty because of limits on federal assistance unlike those of the 50 states. And to address its lagging labor force participation--a huge drag on economic growth--he proposed creating an Earned Income Tax Credit to encourage low-wage workers' return to the job market.
In short, for the first time the executive branch has put its weight behind solutions that would cost money, billions of dollars of it. A good benchmark would be Gov. Alejandro Garcia-Padilla's projection of a $14 billion hole in the island's finances over the next five years. The administration's plans for Medicaid and an EITC would put U.S. taxpayers on the hook. Bankruptcy would be the mechanism through which creditors chip in; an average 40 percent ``haircut'' on their bonds is probably in order, according to a recent study by BlackRock. As the example of Detroit shows, letting an impartial bankruptcy judge sort out the competing claims on a failed public entity is the fairest, most efficient approach; without that option, Puerto Rico has no leverage in debt negotiations, and litigation could ensue.
Which brings us to what can fairly be expected of the commonwealth itself. Its predicament is due to many forces beyond its control, starting with the anomalous semi- sovereign political status that traps it--like Greece in the European Union--in a monetary union with the far larger and more competitive United States. Still, Puerto Rico has squandered vast resources on mismanagement and anti-growth policies. Therefore, it may appropriately be held to a structural adjustment program that ensures it uses fresh cash efficiently. For that program, in turn, to have credibility, it must be subject to oversight by a truly independent body; indeed, if oversight doesn't work, nothing in Mr. Weiss's plan can work, either economically or politically, since buy- in from Republican fiscal hawks is needed. Designing that institution is the task to which Congress, Puerto Rico and the administration must now turn in a spirit of cooperation, but also urgency.
____ [From the New York Times, Oct. 24, 2015] Save Puerto Rico Before It Goes Broke (By the Editorial Board) Puerto Rico's government is on the verge of running out of money. A messy default is in nobody's interest, which is why Congress ought to move swiftly to provide the American territory with a way to restructure its huge debt and revive its economy.
The Obama administration last week offered the outline of a rescue plan to help the island and the 3.5 million American citizens who live there. The plan would impose new oversight on the island's finances and expand access to government programs like Medicaid and the earned-income tax credit. Crucially, it asks Congress to change the law so that Puerto Rico's territorial government and its municipalities can seek bankruptcy protection.
Political leaders in Puerto Rico and many financial and legal experts have been saying for months that the territory cannot repay the approximately $72 billion it owes to hedge funds, mutual funds and other investors. Its economy is not growing, and tens of thousands of residents are leaving every year for the mainland to look for work. More than 300,000 have left in the last 10 years.
Its public pension plans need a cash infusion of about $44 billion. Puerto Rico has cut spending and raised taxes in the hope of saving itself, but that hasn't worked, and it won't work in the foreseeable future given the sorry state of the island's economy.
Bankruptcy seems inevitable. But under federal law, Puerto Rico's government, its municipalities and its government- owned utilities cannot go to bankruptcy court--hence the administration's request for a new bankruptcy process for territorial governments and a change in the law to allow Puerto Rican cities and public utilities to seek Chapter 9 protection, much as local governments like Detroit and Orange County, Calif., have done.
Many investors who have lent money to Puerto Rico and stand to lose under any debt restructuring are bitterly opposed to the Obama plan. They say Puerto Rico can repay all of its debt if it tightens its belt and privatizes utilities and other government-owned businesses. Changing the law now, they argue, is deeply unfair. But the record [[Page S8771]] of what has happened in troubled countries like Greece is clear: Austerity policies have only worsened the crisis. As for the fairness argument, legislators change laws all the time to meet new circumstances.
What investors must realize is that an orderly restructuring is a far better alternative than the long and complex legal battles that would inevitably follow a sudden default. American bankruptcy courts have a good track record of resolving complicated debt cases. And if, in addition to reworking the bankruptcy law, Congress also created an oversight board, as the Obama administration recommends, investors could have some confidence that Puerto Rico's politicians would make needed policy changes.
There is no doubt that Puerto Rican leaders have mismanaged the island's finances and economy. What's at issue now, though, is not Puerto Rico's past but its future and that of its inhabitants. If Congress doesn't like the administration's ideas, it needs to come up with its own.
____ December 9, 2015.
Hon. Paul Ryan, Speaker of the House, Washington, DC.
Hon. Mitch McConnell, Senate Majority Leader, Washington, DC.
Hon. Nancy Pelosi, House Minority Leader, Washington, DC.
Hon. Harry Reid, Senate Minority Leader, Washington, DC.
Dear Mr. Speaker, Leader Pelosi, Leader McConnell, and Leader Reid: As senior executives of companies that are based in the U.S. mainland and that conduct extensive business in the U.S. jurisdiction of Puerto Rico, we write to respectfully urge you to swiftly enact a legislative package that will promote economic growth and fiscal stability in the territory.
We are extremely concerned about the situation in Puerto Rico for both humanitarian and business reasons. The current economic, fiscal and demographic crisis is harming the 3.5 million U.S. citizens that reside on the island, compromising their quality of life and causing thousands to relocate to the U.S. mainland in search of better opportunities. It is also hurting private sector businesses that manufacture products in Puerto Rico, depend upon Puerto Rico's consumer base, or seek to contract with the central government of Puerto Rico or its public corporations to provide public services on a more cost-efficient basis.
This letter is also endorsed by the Jacksonville Port Authority (JAXPORT), which is the U.S. mainland hub for trade with Puerto Rico. Roughly 70% of all cargo shipped from the U.S. mainland to Puerto Rico goes through JAXPORT. This trade is responsible for 32,000 jobs in the State of Florida alone.
We understand that the causes of Puerto Rico's problems are complex and multifaceted. But we also believe that action by the federal government is essential to enable Puerto Rico to address these problems. There are many specific steps that Congress could take, such as (1) fully including Puerto Rico in the earned income tax credit program and the child tax credit program, which incentivize work and spur consumer demand; (2) providing more equitable treatment to Puerto Rico under federal programs like Medicaid and Medicare, which would improve patient care, reduce migration, and relieve the fiscal burden on the Puerto Rico government; and (3) providing Puerto Rico with state-like treatment under Chapter 9 of the federal bankruptcy code, which would help Puerto Rico manage its debt burden and position the island to achieve economic growth in the future.
We thank you for your consideration of this important request.
Sincerely, Daniel Davis, President & CEO, JAX Chamber.
Michael G. Roberts, Senior Vice President & General Counsel, Crowley Maritime Corporation.
Tim Nolan, President, TOTE Maritime Puerto Rico.
Brian Taylor, Chief Executive Officer, Jacksonville Port Authority (JAXPORT).
John P. Hourihan, Jr., Senior Vice President & General Manager, Crowley Puerto Rico Services.
Thomas J. Alcide, President, Saft America.