Piedro Pierluisi, Puerto Rico’s Resident Commissioner in the U.S. House of Representatives, has introduced the Puerto Rico Financial Improvement and Bond Guarantee Act of 2015, which would authorize the U.S. Treasury to guarantee repayment of principal and interest on Puerto Rico bonds if it first determines that there has been “meaningful improvement in managing” public finances by the insular government.
Treasury would also have to notify Congress of its determination.
The bonds would also have to be for funds which would be used for very specific purposes:
- To meet urgent short-term financing needs
- To invest in long-term economic growth
- To refinance existing bond debt at a lower interest rate
Bonds could not raise funds for ongoing operating expenses. The prohibition on the guarantee of principal and interest of bonds for day-to-day operations would not apply to refinancing already-issued bonds or to short-term financing, but this requirement would, it is hoped, prevent Puerto Rico from relying on further borrowing to keep the territory afloat.
Commissioner Pedro Pierluisi, the initial sponsor of legislation to extend to the territory the authority of a State to enable instrumentalities to restructure debts under Federal Bankruptcy Code Chapter 9, said that “the time has come to broaden the conversation in Congress beyond Chapter 9 alone.” This was a reference to discussion by Senate Judiciary Committee Chairman Charles Grassley (R-IA) and others of a Federal board to control the insular government’s financial actions.
Pierluisi’s bill would require the Secretary of the Treasury to make ongoing recommendations to improve territorial government financial practices. Areas to be examined include a broad range of efforts:
- increased efficiency in operations
- reduced deficits and debt
- accurate estimates of revenues and expenditures
- consistent collection of taxes
- improved federal grant management
- more accurate and transparent financial record keeping and reporting
- better use of information technology
- improvement of the system for issuing business permits
Pierluisi said that the bill is modeled on Federal laws, including the 1975 law that authorized the Treasury to establish a $2.3 billion fund for making short-term loans to New York City. He noted that the Federal Reserve can buy bonds of the States and the District of Columbia, but there is doubt about its authority to buy bonds of territories.
Puerto Rico’s representative also pointed out that unequal treatment in Federal programs is a cause of the territory’s fiscal problems along with insular government financial management.
The Obama Administration has said that “no one in Washington” is considering special financial assistance for the territory — as Pierluisi also noted in announcing his legislation.
“But responsibility for the crisis also lies squarely with the federal government,” said Pierluisi, “which treats the territory in profoundly inequitable fashion under spending and tax credit programs. For this reason, the federal government has a particular obligation to provide Puerto Rico with the tools it needs to alleviate the crisis.”
Governor Padilla Garcia’s CFO, Government Development Bank President Melba Acosta Febo, and other PDP leaders, such as Senate President Eduardo Bhatia, have sought Treasury and Federal Reserve assistance for Puerto Rico bonds without Federal legislation.
“There has been enough talk about and analysis of the problem. What Puerto Rico needs from the federal government is action,” said Pierluisi.