The hearing was called to order by Chairman Grassley who expressed in his opening statement hope that the committee would “have a valuable discussion based on facts, and informed by our witnesses’ expertise.” The chairman personalized the fiscal crisis by noting that 16,000 Iowans hold Puerto Rican bonds.
Sen. Grassley concluded his opening remarks by stating that “Puerto Rico has struggled to make the difficult decisions to cut spending and balance its budget. If Congress is to act, then we must ensure that Puerto Rico has the tools to help itself out of this situation. Today’s hearing can help us identify what may, or may not, need to be looked at for Puerto Rico to get its balance sheet back in order.”
The chairman’s remarks were followed by an opening statement from Senator Richard Blumenthal (D-CT), who made it clear that Congress has a moral responsibility to look out for fellow American citizens, regardless of where they live. The senator from Connecticut called for an orderly restructuring of the “commonwealth’s” debts under the oversight of a bankruptcy judge. Senator Blumenthal made it clear that Puerto Rico deserves equal treatment under the bankruptcy law and also deserves equal treatment under programs such as the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), and federal healthcare programs.
While Senator Blumenthal put forward a clear course of action, the remainder of the hearing illustrated the absence of any cohesive strategy with sufficient support to help Puerto Rico get out of this fiscal crisis.
Following the opening statements, Resident Commissioner Pedro Pierluisi and Puerto Rico Governor Alejandro Garcia Padilla each made statements, but did not take questions from the panel.
In his remarks, Pierluisi laid out the two reasons Puerto Rico currently faces this crisis:
- The Puerto Rico government has demonstrated a lack of discipline, transparency and common sense when it comes to managing its finances and creating a business climate that attracts private investment, generates jobs and grows the economy.
- The federal government’s policies towards Puerto Rico are inequitable and incoherent.
Pierluisi concurred with Sen. Blumenthal on the need to “enact a legislative package that gives Puerto Rico more equitable treatment under federal programs” that would authorize Puerto Rico to restructure a meaningful portion of its debt (chapter 9 access). The resident commissioner explained that he would not oppose an independent “control” board, provided Congress enacts the proposed legislative package.
The “breaking news” to come out of the hearing was made by Governor Garcia Padilla during his comments. In order to meet a $355 million payment to stave off a default, the governor announced that he “ordered the ‘clawback’ of revenues assigned to certain instrumentalities of the Commonwealth for the repayment of their debts.”
The governor went on to explain that “in simple terms, we have begun to default on our debt in an effort to attempt to repay bonds issued with the full faith and credit of the Commonwealth and secure sufficient resources to protect the life, health, safety and welfare of the people of Puerto Rico.”
Governor Garcia Padilla concluded by stating that “Without a federally authorized legal framework, this will be the beginning of a very long and chaotic process. The choices ahead will become ever more difficult and potentially harmful to our economy, our stakeholders and our people. Let me be clear, if Congress does not provide Puerto Rico the authority to restructure all its liabilities a humanitarian crisis will envelop the 3.5 [million] American citizens on the island. We are simply requesting rule of law. This costs nothing to the federal government. Give Puerto Rico the tools it needs to manage its crisis.”
A second panel of witnesses presented testimony following the remarks from the governor and resident commissioner:
- Alex Pollock, Resident Fellow at the American Enterprise Institute
- Stephen Spencer, Managing Director at Houlihan Lokey
- Carlos Colón De Armas, Finance professor at the University of Puerto Rico
- Richard Carrión, Executive Chairman of Banco Popular
- Richard Ravitch, Former New York State Lieutenant Governor.
The second panel focused on the possible solutions to Puerto Rico’s economic crisis, and the witnesses varied greatly in the specifics in their call to action. Mr. Pollack said that the highest priority, in his opinion, is for Congress to establish an Emergency Financial Control Board for Puerto Rico.
Mr. Ravitch, who worked directly with the New York City fiscal crisis in 1975 and advised the bankruptcy judge in Detroit, agreed that federal control board is in order, but went further and called for Puerto Rico and its municipalities to restructure all of its debt obligations through chapter 9. In contrast, Mr. Spencer, who represents bondholders, vehemently opposes allowing chapter 9 access to Puerto Rico and even said he does not support chapter 9 in general.
The witnesses continued to answer questions providing their opinions on how to solve the ongoing crisis, with each witness offering a different view with differing solutions.
It was Resident Commissioner Pierluisi who best summed-up the action taken so far to aid Puerto Rico and the American citizens living this crisis daily: “Five congressional hearings are enough. It is time for Congress to legislate and, in so doing, to be part of the solution to a problem it had a significant role in creating.”
For Dr. Carlos Colón De Armas’ testimony, click here.
For Mr. Richard Carrión’s testimony, click here.
To watch the full hearing, click here.