mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
Relief for Reform
Dems Float Puerto Rico Relief Bill

Democrats are about to introduce some pro-union, anti-responsibility legislation in the U.S. Senate to address the mess in Puerto Rico. The New York Times:

The draft legislation proposes to designate Puerto Rico’s public pensions as “senior secured debt,” which is quite likely to be contentious. Some American lawmakers have already questioned whether Congress can change the priorities of Puerto Rico’s pensions and bonds without adverse legal consequences. […]

The bills, which were reviewed by The New York Times, would give Puerto Rico the power to restructure all of its bond debt — not just the debts of the big public corporations that operate its drinking water systems, toll roads, ports and other services.

That would mean adjusting even the principal and interest owed on general-obligation bonds, a type of debt now given absolute top priority by Puerto Rico’s Constitution. The bill would give the governor of Puerto Rico the power to “submit a restructuring proposal which specifies the ordering and amount of debts to be paid,” according to a legislative summary.

Stiff Republican opposition to the plan is very much expected. Much tougher fiscal oversight and deep reforms needed than what’s on offer. Republican legislators had demanded that any rescue plan include strict external oversight of Puerto Rico’s finances going forward. The Democrats’ proposal appears to barely pay lip service to the idea:

The bill would also establish a “chief financial officer” for Puerto Rico, appointed by the island’s governor, and would put its financial affairs under a nine-member “fiscal stability and reform board.”

Many Puerto Rican residents and officials have been wary of any such oversight board, arguing that it would carry unacceptable colonial overtones.

But the bill contains a number of provisions intended to allay such concerns. It would allow such a board to be established, for instance, only if the Puerto Rican legislature requested it first. Six of the nine members would have to be residents of the island, four would be named by the Puerto Rican legislature, two by the Puerto Rican governor and one by the island’s Supreme Court.

The board members’ terms would be staggered to promote continuity, and to separate the island’s financial affairs from electoral politics.

During the restructuring period, the governor of Puerto Rico would also have the power to submit annual budgets to the board for approval, as well a five-year fiscal plan, which would attempt to set “levels of debt, spending, and tax policy necessary to restore solvency and fully fund pensions,” according to the summary of the bill. The board would have the power to certify or deny each budget’s compliance with the fiscal plan.

This just won’t fly. General obligation bond holders cannot simply be sacrificed to pensioners. In the end, Congress ought to provide reasonable relief to the pension funds, but only when there is evidence of deep and permanent change in the way the island does business.

Newer Post Older Post
Features Icon
Features
show comments
  • Pete

    No surprise here that the Party of Parasites (Democrat) would want to support parasites at the expense of the thrifty (bond holders).

    • ggm281

      The bond holders aren’t thrifty. They bought what they KNEW was at high risk of default based on PR’s overall debt load. They deserve to lose. They thought the US would bail out PR (just like Detroit bond holders). No reason to protect these investors. Let them take their losses as they should. It is idiotic to bail out ANY government that was mismanaged for decades. PR would have had a smaller problem to overcome if investors hadn’t bought B and BB bonds thinking there was little to lose because PR was “too big to fail”.

      • Pete

        Wrong. Bondholders did NOT buy PR bonds becasue they thought the island was ‘too big to fail,’ as you state. They bought the bonds becasue of the specific contractual insurances that come with them. To stiff them is to rape the 1) rule of law and 2) the law of contracts.

        • ggm281

          If they are so delusional that they believed that Congress wouldn’t intervene to change the onerous rules that govern sovereign debt in PR, they probably shouldn’t be investing at all.
          And I don’t know where you’ve been for the past few years, but “rule of law” is pretty situational in the US now. Too big to fail, too big to jail, too big to deport.

          • Pete

            Where I have been for the ‘past few years’ is being vociferously opposed to the idea of too big to fail for banks, companies (GM), individuals (the Clintons), international organizations (NATO, the United Nations, etc), cities (Detroit, Camden, NJ, Flint, etc. etc.), union pension funds, public school districts, and pathetically mismanaged territories (Puerto Rico).

  • Blackbeard

    It won’t fly right now but as the progressive takeover of the U.S. continues and accelerates I suspect this will be the shape of things to come. As this blog has noted many times the blue social model is collapsing before our eyes. Of course this can never be admitted and the way to avoid or at least postpone admitting this is to “nationalize” these problems. In other words, make more successful (red) cities and states, and businesses, bail out the foundering blue entities. Ultimately of course they’ll run out of victims but kicking the can down the road has always been a favorite strategy of the left.

    Pity our grandchildren.

  • Andrew Allison

    This proposal has about as much chance of success as a SCOTUS appointment during the term of this President. It looks like a thinly disguised effort to establish a precedent for State and Local government in dealing with the enormous public pensions shortfall.

  • ggm281

    Let the bond buyers learn. DO NOT bail out the hedge funds that bought high risk debt on the assumption that the US would bail them out rather than let PR default.

    • Andrew Allison

      Your comment misses the mark. It wasn’t hedge funds which bought the PR debt, but greedy investors and mutual funds who were tempted by the high, double-tax-free interest. Furthermore, what the union whores, er Dems, are proposing is to vitiated the seniority of general obligation bonds in favor of government pensioners. I wonder if it occurred to any of these dimwits what this would do to the State and Local bond market?

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service