WASHINGTON – Puerto Rico Gov. Alejandro García Padilla said on Tuesday that Puerto Rico's fiscal crisis may be an example for larger states and municipalities that have financial struggles they must deal with in the future.
"In many ways, Puerto Rico's crisis simply suggests that because of its smaller and simpler economy … it is only ahead of the curve, a curve that looms for many larger states and municipalities," García Padilla said. "[We have had] to knock on doors that other jurisdictions may need to approach in the not too distant future."
He said the comments stem from discussions he has had during frequent visits to Capitol Hill about other fiscally troubled states like Illinois and New Jersey.
The governor made his comments during a municipal finance conference hosted by the Brookings Institution here on Tuesday. The conference is a partnership among the Rosenberg Institute of Global Finance at Brandeis International Business School, Olin Business School at Washington University in St. Louis, and Brookings' Hutchins Center on Fiscal and Monetary Policy.
García Padilla also painted an optimistic picture for Puerto Rico, saying it is now entering "a moment of opportunities" with the recently passed PROMESA legislation, even in the aftermath of the commonwealth's recent July 1 default on nearly $1 billion of a $2 billion debt payment.
The July 1 default included a default on $779 million of constitutionally backed general obligations debt, the first GO bond default by a state-equivalent government since Arkansas defaulted in 1933. García Padilla responded to a question about whether, in hindsight, he would have issued more GO debt in 2014 if he knew the commonwealth would eventually end up where it is now.
"With a crystal ball, maybe no," he said.
"[The] challenges are not over and prosperity won't return overnight, but our plans promise a bright future," García Padilla said. The governor added that the recently enacted law, PROMESA, provides the tools to restructure the debt and put the commonwealth on a path to economic growth.
The governor pointed out that 2015 and 2016 are the first times since at least 1976 when the commonwealth's debt was decreasing from the year before. Puerto Rico is currently struggling with nearly $70 billion in debt and $46 billion in unfunded pension liabilities. The debt started climbing significantly after 1996 when it had been below $20 billion. He also said that PROMESA will allow Puerto Rico to move forward.
García Padilla vowed to use the remainder of his term as governor to "develop a fiscal plan that is faithful to the best interests of the people of Puerto Rico" and in line with the terms of PROMESA, including adequate funding for public pensions.
The PROMESA legislation passed the Senate on June 29 by a 68-30 vote and the House on June 9 by a vote of 292 to 127. President Obama signed PROMESA on June 30. It mandates a seven-member oversight board that will have the power to require balanced budgets and fiscal plans, as well as to file debt restructuring petitions on behalf of the commonwealth and its entities in a federal district court as a last resort, if voluntary negotiations fail.
It also put a temporary moratorium on debt-related litigation in an attempt to give the territory breathing room to deal with its debt. The moratorium covers litigation filed between December of last year and the later of Feb. 15, 2017, or six months after the board is established. There are provisions that would allow extending the moratorium's expiration date even further if the oversight board or a federal court determines it is necessary.
García Padilla also reflected on his path to accepting PROMESA, which he called a "mixed bag" and acknowledged was somewhat unpopular on the island. However, he added that local officials now running for office seem to recognize that the legislation is a necessary part of the commonwealth moving forward.
"I had to choose misery for my people or unnecessary intervention from the federal government with our democratic institutions," García Padilla said. "When someone points at you with a weapon and asks you for your wallet, you may say no, but the consequences are worse than those of losing it. Now it is time to regain the way to growth."
A separate potion of PROMESA requires Congress to establish the Congressional Task Force on Economic Growth for the commonwealth. The task force will have eight members, divided evenly between House and Senate members as well as Republicans and Democrats. It will be responsible for examining current federal law and programs as they relate to Puerto Rico to find if there are any current impediments they put on economic growth or health care coverage for the territory. It also will explore possible improvements that could be made to do things like bolster job creation, reduce child poverty, and attract investment.
All members must be named by Friday, according to the law, and it is rumored that Sens. Robert Menendez, D-N.J., and Bill Nelson, D-Fla., have already been designated to serve as the Democratic representatives from the Senate.
Menendez was a vocal critic of PROMESA while it was moving through Congress, calling it an example of neo-colonialism. One complaint stemmed from a potential lack of local representation on the board. The law that creates the oversight board only requires that one member have a primary residence or place of business on the island. Menendez and three other senators have written congressional leaders, who are tasked with nominating the board members, urging them to choose qualified Puerto Ricans.
Obama, who has final appointment power of each member as well as the power to nominate one, has indicated in the past he would like to have Puerto Ricans be represented in the oversight board process.
Democrats have also included Puerto Rico in their party platform, which still must be ratified at the party's national convention later this month but advanced last weekend. The platform's paragraph on Puerto Rico calls for the commonwealth's residents to determine the territory's political status and reinforces the belief that Puerto Ricans deserve equal treatment under Medicare and Medicaid. It also explains that Democrats believe Puerto Ricans should be able to vote for president and have their local self-governance respected as PROMESA is implemented.
