Sen. Richard Durbin (D-IL) has added his voice to the growing chorus of Members of Congress speaking out about Puerto Rico’s unequal treatment under federal law and urging reforms in 2016. In a Senate floor speech on December 17th, Sen. Durbin expressed hope that 2016 would be a better year for Puerto Rico. He said:
The financial crisis facing Puerto Rico and its 3.5 million residents who are U.S. citizens demands that we not walk away but address this in an honest way. Congress is working to complete its legislative business, and it is deeply troubling that at this point we are preparing to leave town without resolving Puerto Rico’s urgent situation. The challenges facing Puerto Rico are very serious. The island has been mired in an economic recession for more than a decade. Their unemployment rate is nearly 12 percent and the poverty rate is almost 45 percent. Tens of thousands of Puerto Ricans are leaving the island each year and, as Senator Blumenthal said, 2.5 percent of the population left just this last year. That is the reality of this economic challenge.
If we don’t help Puerto Rico get back on its feet, stabilize, and grow its own economy, the alternative, sadly, will be many more people coming to the United States. If they wish to come, that is certainly their right, but we don’t want to force them to come to this country because of dire economic circumstances in Puerto Rico that can be avoided. The island has over $70 billion in outstanding debt. According to Moody’s, this debt load is approximately 100 percent of Puerto Rican’s island’s gross national product. Moody’s also found that in fiscal year 2015, the debt service of the territory and its agencies amounted to almost 40 percent of the revenues available to the government— compared to an average in most States of 5 percent.
I noted an article in the Wall Street Journal not that long ago that quarreled with this 40 percent figure. They said it was less than half of that amount, and, therefore, it wasn’t a dire situation. Yet we had a hearing before the Judiciary Committee with experts present, and it was very clear that 40 percent is a valid figure, not arrived at by political figures but by Moody’s, a firm that is supposed to be expert in reaching that conclusion.
The Puerto Rican government was able to make large debt payments on December 1 only through some very contorted fiscal determinations. But another debt payment of $332 million looms on January 1, and a default is a real possibility. We had this hearing before the Senate Judiciary Committee. It was an eye opener. One of the witnesses that I remember specifically is Richard Carrion, the executive chairman of Puerto Rico’s largest bank, Banco Popular. He testified that, as a banker, it was truly painful for him to ever talk about bankruptcy and not paying their debts. But Mr. Carrion went on to say that there needs to be some kind of bankruptcy or restructuring regime made available for Puerto Rico because the money just isn’t there. If Puerto Rico goes into default, the ramifications are frightening. Not only would a default threaten the island’s fiscal stability, but it would also cause a humanitarian crisis where we have such a high rate of poverty. It would threaten access to essential services, such as education and even basic utilities.
It is true that there are a lot of factors that contributed to this financial situation, and there is no silver bullet to fix all of these problems. But one step that would certainly help is to allow Puerto Rico to use Chapter 9 of the Bankruptcy Code, and that is what Senator Blumenthal’s legislation proposes. About $20 billion of Puerto Rico’s $70 billion debt is debt issued by municipalities and public corporations. Chapter 9 creates a mechanism for a State to allow a municipality or public corporation to restructure its debts in bankruptcy.
This authority has been used over and over again, but Congress passed an unusual law in 1984, which no one has been able to explain. It contained a provision that excluded Puerto Rico specifically from Chapter 9. No other State or territory was excluded except Puerto Rico. There is no legislative history to explain why Puerto Rico was singled out. It appears that the bar on Puerto Rico using Chapter 9 bankruptcy was either an error or it was an intentional discrimination against this territory and its 3.5 million American citizen residents.
Either way, it is time we correct this inequity, if not for the simple fairness of the argument, then for the point being made by Senator Blumenthal earlier: So many of these Puerto Rican residents have literally risked and given their lives in defense of the United States. There is absolutely no excuse for discriminating against these people.
I am a cosponsor of Senator Blumenthal’s bill that would allow Puerto Rico to use Chapter 9. This would create a backstop to address a significant portion of Puerto Rico’s debt. The availability of a bankruptcy process would also create an incentive for creditors, bondholders, and others to negotiate voluntary restructuring. The option of bankruptcy helps bring all the parties to the negotiating table because typically it is a dose of reality. I regret that not a single Republican has been willing to cosponsor this bill, and I don’t get it. I just don’t understand it. I regret that the Republican majority has been unwilling to bring the issue of Puerto Rico bankruptcy reform to the Senate floor. It should have been brought to the floor. It is timely, and it is important.
Nobody wants to encourage bankruptcy, but the Founding Fathers recognized the importance of this legal option in giving individuals and institutions the ability to dig out of debt in an orderly fashion. That is why Congress’s power to enact bankruptcy laws was actually written into the Constitution. Furthermore, the bankruptcy process is well-known and understood. It is not a Federal bailout because it won’t cost the taxpayers a dime if Puerto Rico chooses bankruptcy.
In contrast, if Puerto Rico defaults, we will face a new, uncertain future that may well require Federal corrective action and may cost money. These steps likely would be far more upsetting to creditors and taxpayers in the United States than any bankruptcy process. We know that bankruptcy reform is not the silver bullet solution. There are other steps that should be taken when it comes to tax laws, health care reform, and fiscal oversight that would help Puerto Rico. But it is clear that Congress has to act.
I want to commend my colleagues again for joining me on the floor to raise this important issue. We cannot ignore this crisis. Puerto Ricans are American citizens. Puerto Rico’s challenges are America’s challenges. And the clock is literally ticking. I urge my Republican colleagues to support Senator Blumenthal. This modest bankruptcy reform bill will help us step forward to solve this problem. We need to work with the administration and with both political parties to chart a fair and responsible path forward for Puerto Rico.
