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Would Puerto Rico Rescue Be a 'Bailout' That Encourages Fiscal Irresponsibility?

WASHINGTON – A proposal backed by House Speaker Paul Ryan (R-Wis.) to address the Puerto Rican financial crisis that has attracted some interest from opposition Democrats is nonetheless being held up by conservatives who worry a congressional helping hand could lead to additional fiscal irresponsibility in the future.

The House Natural Resources Committee was expected to vote Thursday on a measure offered by Rep. Sean Duffy (R-Wis.) that would create a seven-member oversight board similar to the one that helped Washington, D.C., resolve its fiscal woes from 1995 to 2001, empowering it to reject fiscal steps taken by Puerto Rico’s legislature and substitute them with measures of its own choosing.

But grumblings from some GOP lawmakers led the vote to be postponed, leaving Republican leaders to search further for a way out of the mess. A conference meeting on Friday failed to satisfactorily resolve the issue. Rep. Rob Bishop (R-Utah), chairman of the House Natural Resources Committee, which is handling the measure, said some minor alterations face the legislation but wholesale changes aren’t being considered. Still, no date has been set for a vote.

Eventually, Bishop said, Congress will produce “a good bill that helps Puerto Rico and protects all taxpayers.”

“The purpose of the bill is to create a board to help fix the financial house in Puerto Rico without harming taxpayers,” Bishop said. “There will be no bailout, no bankruptcy, no super chapter 9. These issues were eliminated before we started working on a draft, therefore any reference to them now is a scare tactic. The House will never vote on a bill that sends taxpayer money to Puerto Rico to cover its debts.”

But opponents claim the bill fails to adequately address the island’s problems.

“Years of poor fiscal decision-making and mismanagement have led Puerto Rico into more than $118 billion in total debt,” said Rep. Rob Wittman (R-Va.). “While I’m sympathetic to the territory’s economic woes, I believe that this is not the proper course of action for Congress to take.”

Rather than encouraging the reforms Puerto Rico needs to assure long-term success, Wittman said, the bill “would serve as a temporary stop-gap that would reward mismanagement and encourage further recklessness. I cannot support this bill.”

Rep. John Fleming (R-La.) called the measure “a bailout” and vowed to do his best to defeat it.

Duffy said his Puerto Rico Oversight, Management, and Economic Stability Act will ensure that the island “meets its debt obligations in a controlled, responsible manner, without saddling the U.S. taxpayers with the bill.”

“This package of reforms will restore the guardrails of freedom and self-governance in Puerto Rico,” Duffy said. “It will hold Puerto Rico accountable to its debt, uncover audited financial statements, enforce fiscal responsibility and cut red tape holding down the Island’s economy. It provides tools to redirect Puerto Rico from a path of destitution towards a path of prosperity, preserving freedom and opportunity for the next generation.”

Ryan agreed, maintaining that Congress has “a constitutional and financial responsibility to bring order to the chaos that is unfolding in the U.S. territory — chaos that could soon wreak havoc on the American bond market.”

The Duffy bill, Ryan said, “holds the right people accountable for the crisis, shrinks the size of government, and authorizes an independent board to help get Puerto Rico on a path to fiscal health.”

Proponents got some help from House Democratic Floor Leader Nancy Pelosi (D-Calif.), who asserted that Congress has “a responsibility to address this crisis facing Puerto Rican families in a way that is sustainable over time.”

While “work needs to be done on the heart of the Republican proposal,” Pelosi added the problems “are fixable and we hope they will be remedied very soon.”

“We have entered these discussions in good faith, and we look forward to continuing them in a way that meets the needs of our fellow Americans in Puerto Rico,” she said.

Regardless, conservative groups that oppose the bill also are chiming in. The Center for Individual Freedom, which describes itself as an organization to protect and defend individual freedoms and individual rights guaranteed by the Constitution, has been running radio ads in opposition to the Duffy bill.

“Members of Congress should not be fooled by leadership’s attempts to persuade them that this bill is not still a bailout,” said Timothy Lee, the group’s senior vice president of legal and public affairs. “As has been clear since the beginning, this bill is a bailout of Puerto Rico’s government pension system on the backs of the life savings of Puerto Rico bondholders across America. Members should also not be fooled — certain hedge funds, who stand to benefit greatly from an undermining of Puerto Rico’s Constitution, have thrown their support behind this measure, which will do absolutely nothing to diminish the glaring defects of this overall bill.”

Another group, the 60 Plus Association, which presents itself as a conservative alternative to AARP, also is critical, maintaining that Congress is moving toward allowing “the island to walk away from $164 billion in debt.”

“But this would shortchange millions of seniors, pensioners and other investors who placed their faith – and life savings – in Puerto Rican bonds, only to now see the island’s government try to shirk its obligations,” the group said in a statement.

Puerto Rico is struggling to avoid defaulting on $73 billion in debt payments that are due within the next several weeks. The San Juan government already has adopted legislation imposing a payment moratorium, thus all but ensuring a default on $400 million due May 1 if Congress doesn’t act quickly. The government has offered its creditors a restructuring plan calling for a small increase in the amount it would pay per year on most of its outstanding bills.

As an American territory, Puerto Rico is not eligible to declare bankruptcy.

A number of issues led to the island’s ongoing problems. It receives less in social services like Medicaid and Medicare than the states even though 60 percent of the territory’s residents are on those rolls. Importation of many goods has proved expensive because of a provision in the Merchant Marine Act of 1920 that prohibits foreign-flagged ships from carrying cargo between two United States ports, meaning many ships bypass Puerto Rico and goods for the island have to be unloaded at another American port and reloaded on an American ship, all adding to the costs.

Fossil fuels are lacking on the island as well, requiring importation in great abundance. And Duffy said Puerto Rico’s 3.5 million residents have suffered from decades of governmental mismanagement.