Senator Orrin Hatch, the Chairman of the Senate Finance Committee, has written to Jacob J. Lew, the Secretary of the U.S. Treasury, on the subject of Puerto Rico’s debt.
“Puerto Rico’s outstanding debt of more than $70 billion — greater than 100% of its gross national product (GNP) — is ‘not payable,’ according to Puerto Rico Governor Alejandro Garcia Padilla,” he began, noting that the size of the debt in combination with the slow growth of Puerto Rico’s economy might indeed make the debt unpayable.
The letter goes on to recap some of the major elements of the current fiscal crisis:
- The “triple-tax-free” nature of much of the debt
- The downgrading of the bonds
- The recent report commissioned by the government of Puerto Rico, which recommends policy reforms
“Unfortunately for residents of Puerto Rico,” Hatch continues, “the Commmonwealth has made unsustainable government benefit promises that have been papered over for far too long with debt-fueled expenditures.” The letter also mentions the increasing migration from Puerto Rico to the mainland, and suggests that this is the result of “unsound financial decisions of the government officials.”
Hatch then proposes two basic principles which he believes can be agreed upon:
- “There shall not be a federal bailout.”
- “Orderly resolution[s] of debt defaults are preferred to chaotic resolutions.”
The rest of the letter is composed of questions, including the following:
- What is the administration’s position on allowing chapter 9 bankruptcy protection for Puerto Rico?
- What is the administration’s position on exempting Puerto Rico from the Jones Act?
- What is the administration’s position on exempting Puerto Rico from federal minimum wage law?
- What advice has the Treasury Department offered so far?
- Are there any planned changes to the tax laws affecting Puerto Rico?
There are also specific questions on taxes, including Puerto Rico’s excise tax and corporate taxes. Overall, the letter demands clear statements on a number of questions which have been under consideration and discussion for a long time.
The Senate Finance Committee Chairman requests a response by July 31, 2015.