Two Louisiana Republican congressmen are playing key roles — on opposite sides — in legislation aimed at addressing the looming $70 billion default by the U.S. territory of Puerto Rico.
HR5278, on which the U.S. House of Representatives is expected to vote as early as Wednesday, essentially would establish an oversight board to help Puerto Rico manage its public finances.
In the House Committee on Natural Resources last week U.S. Rep. Garret Graves, of Baton Rouge, was able to attach three amendments to the bill and voted with 29 committee members in favor of recommending the full House approve the measure called the “Puerto Rico Oversight, Management, and Economic Stability Act” or “PROMESA.”
Rep. John Fleming, of Minden, on the other hand, has been critical of the legislation and pushed eight changes to the measure, all of which were either voted down (Graves voted against many) or sidetracked on procedural grounds. Fleming was among the 10 representatives on the panel who voted against the measure.
The legislation advanced with the support of 14 Republicans and 15 Democrats on a fast track to head off a potential default by the territory on July 1. The government owes $2 billion on that date — money the island’s governor says it does not have.
Fleming articulated concerns of many conservative Republicans who say PROMESA could create a precedent that could be used in the future by states, like Illinois, and municipalities whose financial troubles may also lead to default.
“What’s going to happen down range with states?” Fleming said during the committee hearing in arguing against suspending lawsuits that could arise from Puerto Rico’s debt.
One provision that Graves got attached to the legislation is that no taxpayer funds would be used, particularly to cover debt payments.
“Citizens of Puerto Rico, while they are Americans, obviously,” Graves said in an interview, “they don’t pay federal taxes. So to take our taxes and redirect them to Puerto Rico, I think, it’s unfair to citizens of Louisiana and United States and to some degree it rewards financial mismanagement.”
But he also is looking at what would happen if nothing is done. Unlike similar potential insolvency situations in Argentina and Greece — sovereign nations that could turn to the International Monetary Fund for assistance — Puerto Rico is part of the United States and ultimately American taxpayers would be held responsible.
The Commonwealth’s constitution requires that public debt “shall first be paid, and other disbursement shall thereafter be made …”
The island territory is weeks away from creditors being able to seize public buildings and other assets to cover the debt. That would lead to a collapse of public services, such as utilities being shut off, police protection curtailed and medical care being denied for many of the 3.5 million residents.
“What we’re trying to avoid is a bailout. The best thing we can do to avoid a bailout is to prevent this humanitarian crisis by allowing for negotiations to move forward as opposed to all of these lawsuits and seizures of property and assets,” Graves said. Otherwise, the pressures of starving Americans on the streets would compel the federal government to start sending money, he said.
The territory is at least $70 billion in debt and already has missed payments.
Efforts by the island’s government to raise money and make payments on the debt have led to dramatic cuts in spending. About 150 public schools have been shut down, some 30,000 public sector workers have been laid off, sales taxes have been increased from 7 percent to 11 percent, and medical care has been cut back. The poverty rate in the island is at 45 percent and the jobless rate in April, the latest figures available, was 11.7 percent.
Under the congressional legislation, which is supported by House Speaker Paul Ryan, R-Wis., the seven-member oversight board would be tasked with working with the Puerto Rican government. But the board would have final say on the financial plans that would repay the debt while allowing sustainability of critical government services. The board would disband when Puerto Rico’s budget is balanced for four consecutive years.
Another of Graves’ amendments to the bill asks for an investigation into the causes with the goal of preventing another such fiscal collapse.
The U.S. seized Puerto Rico from Spain in 1898 after the Spanish-American War. The island’s inhabitants were given U.S. citizenship in 1917.
In the mid-1980s, the federal tax code was amended to give tax breaks to companies that moved Puerto Rico rather than moving their operations overseas, according to the Tax Foundation, a business-oriented think tank in Washington, D.C. At about the same time, Congress determined that Puerto Rico couldn’t declare Chapter 9 bankruptcy, the way the other 50 states are allowed under the constitution’s 10th Amendment.
The changes led to a manufacturing boom that boosted the island’s economy. But those tax breaks phased out by 2006 and — coupled with the recession — led the companies to leave. At that point, the island government stepped up raising money through loans. Municipal bonds in Puerto Rico were tax-exempt at all levels of government.
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