U.S. Democratic presidential candidate Hillary Clinton announced this morning that she supports providing Puerto Rico’s public entities access to U.S. bankruptcy law to restructure the territory’s $72 billion in debt.
“The people of Puerto Rico, our fellow American Citizens, are hurting right now under a weak economy that has been struggling for years. Puerto Ricans are proud American citizens who work hard and contribute to our Nation every day and they deserve a chance to get ahead. Congress and the Obama Administration need to partner with Puerto Rico by providing real support and tools so that Puerto Rico can do the hard work it will take to get on a path toward stability and prosperity,” said Clinton.
“The challenge is multi-faceted,” she explained, “and will ultimately require Puerto Rico to find a way to pay back its debtors in an orderly fashion. As a first step, Congress should provide Puerto Rico the same authority that states already have to enable severely distressed government entities, including municipalities and public corporations, to restructure their debts under Chapter 9 of the Bankruptcy Code.”
“We’re not talking about a bailout, we’re talking about a fair shot at success.”
The announcement came on the heels of a decision by the U.S. Court of Appeals for the First Circuit affirming a lower court decision that Chapter 9 of the the federal bankruptcy code preempts a Puerto Rico bankruptcy law. The federal law does not permit states to file for bankruptcy protection but does allow state public entities, including municipalities, to file. The Puerto Rican law sought to grant the same bankruptcy options to Puerto Rican entities that are currently possessed in states. The federal court’s rejection of the Puerto Rican bankruptcy law combined with Puerto Rico’s exclusion from federal law leaves no statutory framework to guide the bankruptcy process of Puerto Rican public entities.
Puerto Rico Resident Commissioner, Pedro Pierluisi, has introduced legislation to include Puerto Rico within federal bankruptcy law.
The Clinton statement provided a broader context for the current fiscal crisis: “We also have to step back and look hard at how Puerto Rico’s economy arrived at this dire situation. The deficit is a consequence of an economy that has lagged that of the States for decades and shrunk for eight of the last nine years. Puerto Rico needs a longer-term plan to address a declining population, eroding employment base, high utility rates and the impact of unequal federal investments. It will take tough decisions and real economic reforms.
“But we should also recognize that the inconsistent — and incoherent — treatment of Puerto Rico in federal laws and programs has substantially contributed to the economic decline. One troubling example of this treatment is the lack of equity in federal funding for Puerto Rico under Medicaid and Medicare. This problem has been demonstrated in recent months by a scheduled cut in Medicare Advantage premium reimbursement rates. In 2008, I called for an end to the disparate treatment of Puerto Rico in federal health programs. Today, I renew that call, and commit to helping Puerto Ricans get on a path towards equal treatment under Medicaid and Medicare and other federal programs.”
“Underlying all of this is the fundamental question of Puerto Rico’s ultimate future. That question needs to be resolved in accordance with the expressed will of our fellow citizens, the people of Puerto Rico,” concluded Clinton.