According to the Pew Research Center, political polarization is at its highest point in the last two decades. Democrats and Republicans have become extremely antipathetic towards each other, with 27% of Democrats and 36% of Republicans regarding the opposing party as a “threat to the nation’s well-being.” Recent events, like the House Democrats’ sit-in over gun control, and the government shutdown in 2013 support this claim. Issues like this in the legislature often get widespread media coverage because drama attracts attention, but also leave citizens feeling helpless and resentful of the government. That being said, there definitely are bills that get passed with bipartisan support. As a reminder of this, we’re introducing a series of blog posts related to bills that were effectively signed into law due to cooperation between Senators and Representatives. First up: the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).An insular area of the United States is “neither a part of one of the several States nor a Federal district,” according to the Department of the Interior. Perhaps the most well-known one is the Commonwealth of Puerto Rico. (Fun fact: four US states also refer to themselves as commonwealths. These states are Virginia, Massachusetts, Pennsylvania, and Kentucky. But the context is totally different). Puerto Rico is an unincorporated territory of the United States and Puerto Ricans are designated as US Citizens, although their rights differ from those of a citizen living on the mainland. They cannot vote for the president or have a representative in the Senate, and they do not pay the personal federal income tax. Another interesting aspect of Puerto Rico’s unique status is that it cannot file for Chapter 9 bankruptcy, which allows municipalities like cities, towns, counties, and districts in dire financial circumstances to reorganize its debts. The largest Chapter 9 bankruptcy filing occurred relatively recently in 2013, when the city of Detroit declared that it would be unable to pay an estimated $18 billion in liabilities. But Puerto Rico does not have the same advantage as Detroit because of its status as an insular area. This is causing a large amount of anxiety among lawmakers because the island is currently $72 billion dollars in debt and broke.
Puerto Rico has been in a recession for the last ten years. In order to finance its operations in the public sector, the government started issuing municipal bonds–a lot of them. In essence, the government was heavily borrowing money from creditors, who could be anyone, from individuals to investment institutions like hedge funds. Now, it’s time to pay back the creditors both the borrowed amount and interest, but Puerto Rico simply does not have the money to do so. In an address to the Senate in December 2015, Governor Alejandro Padilla said, “We have no cash left.” When Puerto Rico missed a payment of $399 million in May, Congress decided to act fast. Puerto Rico had to pay $2 billion in principal and interest payments on July 1st.
Although PROMESA was introduced in April, the House of Representatives approved the legislation on June 9th that would establish a financial oversight board, which will take on the task of debt restructuring. The board’s responsibilities include approving the governor’s fiscal plan, approving annual budgets, enforcing budgets and ordering any necessary spending reductions, and reviewing laws, contracts, rules, and regulations for compliance with the fiscal plan. The bill quickly advanced on to the Senate, where it was signed on June 29th. There was much debate about the provisions during the process. Some congressmen believed that there should be more austerity measures put in place and others argued for more Puerto Rican representation on the seven-member oversight board, comprised of individuals appointed by President Obama. Only one of those members will be someone who lives or works in Puerto Rico. Members of the Puerto Rican government are prohibited from being a part of the committee. Lastly, the most substantial provision at the moment is that the creditors are not allowed to sue Puerto Rico until 2017 for not paying them back. Now, the government of Puerto Rico does not have to forgo necessary social welfare services in fear of litigation from investors.
Because time was of the essence, PROMESA advanced quickly with bipartisan support in both branches. Both President Obama and House Speaker Paul Ryan backed the legislation. After being signed in the Senate, the bill was sent to President Obama, who signed it on June 30th. Even with PROMESA, Puerto Rico announced the next day that it was incapable of paying $911 million of its obligations. This did not come as a surprise to investors or lawmakers because Governor Padilla had warned of the imminent default. For many investors, Puerto Rico is already bankrupt because it has no way offer them the return on their investments that they promised. It just cannot officially declare bankruptcy. In a time when Congress seems more gridlocked and divided than ever, the PROMESA Act advanced surprisingly fast from the House to President Obama. The bill is not the answer to Puerto Rico’s deep-seated economic problems, which along with the debt, includes a high unemployment rate and people with skilled labor leaving the island. However, it provides temporary relief, protection from litigation, and the time to plan for long term economic stability.
– Moni, ActiveGiver Intern
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