With every passing day it becomes more apparent that Puerto Rico is mired in a profound and unmanageable debt crisis that it cannot solve by itself. The U.S. Congress must muster the political will to give the territory access to the same rescue tools used by American states and municipalities in the same fix.
Puerto Rico is insolvent. It faces $72 billion in debt that its 3.5 million residents simply cannot pay. It missed most of a $422 million debt payment on May 2 and faces almost certain default on another $2 billion due July 1.
How did it get in this bind? The short answer is deferred costs. Instead of setting aside money on a pay-as-you-go basis for things like pensions, infrastructure maintenance and so on, it used the money for operating expenses, and issued IOUs when revenues weren’t enough.
That’s kind of like taking out a second mortgage to fix your car. But don’t look down on Puerto Rico. Others have done it.
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Remember when Miami-Dade voters approved an increased sales tax to extend Metrorail? The extension never happened because the money was used to perform overdue maintenance on the existing system. That was a deferred cost. We pay for it every day in traffic congestion.
Detroit did it, too, accumulating unmanageable pension costs for public employees. They’re still working their way out of a huge jam, but they had a rescue path: Going to the courts to arrange debt restructuring.
That’s all Puerto Rico is asking for: equal treatment. But as a U.S. territory, it is barred from going to the courts. That’s neither fair nor reasonable. Puerto Ricans are American citizens. U.S. federal courts exercise jurisdiction there. Most of the creditors are on the U.S. mainland. The same court system that decides bankruptcy matters in places like Detroit and Jefferson County, Alabama, which filed for bankruptcy in 2011 — because it had failed to fix its aging sewer system — should be allowed to untangle Puerto Rico’s debt.
Bankruptcy won’t allow Puerto Ricans to escape the pain caused by the bad decisions made by the officials they elected. Already they have a poverty rate of 45 percent and a jobless rate of 12 percent. They’ve raised the sales tax to a highest-in-the-nation 11.5 percent. They’ve mortgaged the main airport to a Mexican investment firm to make sure the airplanes keep landing.
So what’s the hold-up on a solution? Simple: Some bottom-feeders bought Puerto Rican debt at cheap prices and don’t want a restructuring that might allow repayment at less than the full face value of the bonds — allowing them to make a huge killing at the expense of Puerto Rico’s beleaguered population.
They claim helping Puerto Rico amounts to a “bailout.” That’s a loaded word, and a big lie. No government money would be used to help Puerto Rico. There is no cost to taxpayers. The burden falls on creditors.
Speaker of the House Paul Ryan says he wants to help, but conservative members of his Republican caucus have bought into the “bailout” baloney and won’t support him. Mr. Ryan should do the right thing: Bring the bankruptcy solution to a vote on the House floor, even if it means that some members of his party won’t approve. A reasonable bill will have enough Democratic support to ensure passage.
Bankruptcy won’t ease Puerto Rico’s problems overnight, but it offers a path to eventual solvency. Not to offer help under the crippling circumstances the U.S. territory faces today would be inhumane.