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AZ Gov. Ducey Urges Congress to Treat Puerto Rico Like a State Under Chapter 9

Arizona Governor Douglas Ducey (R) has written to members of Congress that the proposal of the administrations of Puerto Rico Governor Alejandro Garcia Padilla and President Obama to enable debt of the Government of Puerto Rico — vs. that of its instrumentalities — to be reduced in Federal bankruptcy court “could actually end up negatively affecting Arizona and other states.”

Ducey advised that it would be “more prudent” to “treat Puerto Rico like other states . . . allowing it to restructure its municipal and public corporation debt.” Federal Bankruptcy Code Chapter 9 provides for States to enable their insolvent instrumentalities to seek debt restructuring in court if out-of-court negotiations with creditors do not succeed. Federal law does not provide for restructuring debts of State governments.

The Arizona Republican noted that the National Governor’s Association had opposed State bankruptcy in 2011.

Several arguments against the so-called ‘Super Chapter 9’ proposal were made by Ducey.

One argument was that “granting Puerto Rico such unprecedented bankruptcy authority would likely raise the borrowing costs of our state.” This is because it would erode “investor confidence in the whole notion of full faith and credit.” Puerto Rico’s territorial constitution requires that payment on bonds issued or guaranteed by the insular government be made before any other expenditure.

“In addition,” the Governor wrote, “millions of Americans who invest in state general obligation bonds could see their retirement accounts suffer.”

Another contention was that the proposal would “create a moral hazard for states and other territories.” It “disincentivizes states from guarding against . . . profligate spending,” Ducey asserted.

The Arizona Governor alternatively suggested, “Most important, Congress should encourage Puerto Rico to engage directly with its creditors to negotiate a consensual solution.” The Garcia Padilla Administration has been unwilling to discuss repayment concessions with any Puerto Rican government entity creditors other than those of the Electric Power Authority (PREPA).   It has also ignored bondholder group suggestions of financial assistance.

2 thoughts on “AZ Gov. Ducey Urges Congress to Treat Puerto Rico Like a State Under Chapter 9”

    1. I am not surprised, PREPA alone has hundreds of patronage jobs.

      It’s amazing how fast Melba Acosta moves when she is threatened with an arrest warrant in her name by a Federal judge …

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