Citizens and Business Leaders Launch Puerto Rico Fiscal Stability Coalition in Support of H.R. 870
H.R. 870 would give Puerto Rico a road to recovery through Federal Bankruptcy Code – a power available to every state
WASHINTON, DC – A group of concerned citizens and business leaders in Puerto Rico and the U.S. mainland today launched the Puerto Rico Fiscal Stability Coalition. The Coalition is seeking a fair and balanced approach to Puerto Rico’s debt crisis through the passage of H.R. 870, the Puerto Rico Chapter 9 Equality Act, a bill introduced by Resident Commissioner Pedro Pierluisi. The bill would give Puerto Rico’s insular government the authority of a state to enable instrumentalities to have their debts restructured under the Federal Bankruptcy Code. Former Governor of Puerto Rico Luis Fortuno and President of the Senate of Puerto Rico Eduardo Bhatia will serve as senior advisors to the coalition. Navigators Global LLC, an all Republican issues management firm, will manage the campaign. To learn more about the coalition, visit www.stability4pr.com.
After phenomenal growth in the 1950s and 1960s, growth of the Puerto Rican economy has lagged that of the states for four decades. Puerto Rico has been in recession for eight of the last nine years. National policies and international economic developments have hindered the growth. With a shrinking population and economy, Puerto Rico’s debt is approaching $165 billion or approximately 150 percent of its GDP. Unemployment is almost 12 percent, with only two-fifths of potential workers in the labor force compared to more than three-fifths in the States. Thirty percent of all people born in Puerto Rico alive today have moved to a state for greater opportunities.
“H.R. 870 offers Puerto Rico a road to recovery that will enable the territory to honor its obligations to bondholders and lead to safe investment and economic growth in years to come,” said Phil Anderson, executive director of the Puerto Rico Fiscal Stability Coalition. “With more than $72 billion in debt, an unemployment rate twice the U.S. average, and a shrinking economy, U.S. citizens are in desperate need of a sustainable solution. This is sound policy for Puerto Rico’s fiscal stability and future economic growth, and would save taxpayers in the states billions of dollars.”
Puerto Rico has been a U.S. territory since 1898, and, as such, the Government of the United States is constitutionally responsible for the welfare of its people. The territory is treated like a State under most – but not all – federal laws. Chapter 9 of the Federal Bankruptcy Code authorizes States to choose to enable their municipalities to file for bankruptcy. H.R. 870 does not seek to modify this law beyond including Puerto Rico within the definition of a “state.” If the bill passes, Puerto Rico would be able to authorize its municipalities, which include instrumentalities such as power and transportation authorities, to restructure their finances according to the terms of federal law. Not all states have chosen to exercise the authority, and most states that have chosen to exercise it have done so in a very limited fashion. The same would be true of Puerto Rico.
“Without passage of H.R. 870, Puerto Rico may soon reach a budget crisis so desperate that it could only be addressed through a massive bailout from the Federal government,” said Anderson. “Puerto Rico’s debt today is 150 percent of its gross domestic product and could soon reach a point in which several government entities in the territory become insolvent, including the Puerto Rico Electric Power Authority which is especially impacted. A bailout for Puerto Rico would be on the scale of bailouts for New York City, General Motors, and Lehman Brothers. However, unlike these bailouts, Puerto Rico’s struggling economy would make repayment nearly impossible.”
The coalition today launched a web and print ad in support of H.R. 870. The ads are available here.
About Puerto Rico’s Debt Crisis
Anticipating its inability to meet all obligations, Puerto Rico’s insular government enacted a law in June of last year that would have permitted PREPA and a few other government instrumentalities to go through a bankruptcy-like process. Bankruptcy represents a road out of excessive debt and a way to attract new investment from U.S. individuals and institutions that would benefit from tax-free interest on Puerto Rican bonds. However, in February, a federal judge ruled that only Congress can authorize a bankruptcy process for Puerto Rican government entities.
Puerto Rican bonds are integral to the American bond market. Many in the United States, particularly those invested in municipal bonds, will be negatively affected by the failure of Congress to pass H.R. 870. Interest from these bonds is exempt from federal, state, and local taxes. For this reason, the bonds are very appealing to investors. Half of Puerto Rico’s $70 billion plus debt is held by municipal bond funds. 180 mutual funds have at least five percent of their portfolios in Puerto Rican bonds. 2013 was the worst year in history for municipal bond funds. This was due, in large part, because of the dire economic situations in Detroit and Puerto Rico. Detroit has since filed for bankruptcy; however, key municipalities and government corporations in Puerto Rico are unable to do so because Puerto Rico does not qualify as a state under Federal Bankruptcy Code.
Puerto Rico’s economic and budget problems have resulted in the territory’s bonds being downgraded to ‘junk’ status. In February, Moody’s Investors Service advised that “The outlook for Puerto Rico remains negative …. Efforts to access the capital market, if successful, may bolster liquidity in the short term but will not address fundamental economic and fiscal stress.” If Puerto Rico is unable to meet its financial obligations and defaults, countless American investors are guaranteed to lose money.
Leading investment firms, rating agencies, and economists are convinced that passing H.R. 870 will provide Puerto Rico with the tool it needs to recover from its dire economic situation and honor its obligations to investors throughout the Nation.
To learn more about the Puerto Rico Fiscal Stability Coalition and H.R. 870 visit http://stability4PR.com.