White House Press Secretary Josh Earnest confirmed at a press briefing today that a Federal bailout or control board are not options available to Puerto Rico in resolving its fiscal crisis.
“Puerto Rico says they are having problems paying their debt,” one reporter asked. “Does the president feel like the U.S. federal government has any responsibility to step in in this instance?”
Earnest answered that “there’s no one in the administration or in D.C. that’s contemplating a federal bailout of Puerto Rico.”
Earnest’s repose was consistent with earlier statements from the White House. Earnest emphasized, however, that the White House remains “committed to working with Puerto Rico and their leaders.”
The Treasury Department and others in the administration are working to make sure that Puerto Rico has access to all the resources available to the U.S. territory, Earnest said, adding that “the Treasury Department, over the last year or two, has shared its expertise with local officials in Puerto Rico who are trying to address the significant challenges that they face.”
Earnest reminded press of the interagency task force on Puerto Rico, explaining that it is “similar to the kind of task force that was formed to support the City of Detroit.”
As a U.S. territory, Puerto Rico’s access to Federal resources is limited relative to the fifty States.
Earnest was careful to note examples of Federal assistance that are available to Puerto Rico. “The Department of Energy has worked with Puerto Rico to help them lower their electricity costs and to reform the island’s power authority to get a better hold on the cost associated with that. That’s one example of how the expertise of the federal government can be brought to bear in a way that’s beneficial to local officials who are dealing with this problem firsthand.”
“The Department of Transportation,” he added, “identified more than $750 million for Puerto Rico in available toll credits for use in funding new infrastructure projects. So, you know, obviously, the new infrastructure projects would be an important job creator inside Puerto Rico but would also lay a foundation for their longer term economic strength.”
In response to a question about the possibility of a financial control board, a strategy which has been used for fiscal problems in New York City and in Washington, D.C., Earnest clearly rejected this proposal for Puerto Rico but left open the possibility of the U.S.’s most populated territory utilizing restructuring options under the U.S. Bankruptcy Code.
“Puerto Rico currently has no access to a tested restructuring regime for any of its public debt,” Earnest continued, referring to the fact that Puerto Rico is excluded from Chapter 9 of the U.S. Bankruptcy Code, which governs municipalities within states. Legislation (HR 870) is pending before Congress to amend Chapter 9 to provide the same restructuring options to Puerto Rican municipalities that would exist if Puerto Rico were a U.S. state. A hearing on the proposal took place in February, 2015, and it was further discussed in a House of Representatives subcommittee hearing on Puerto Rico last week.
“So there are strong merits to having an orderly mechanism for Puerto Rico to manage the financial challenges of its public corporations if needed. And so we’ve urged Congress to take a close look at this particular issue.” Earnest pointed out, “That’s something that only Congress can change.”
Asked whether this means that the administration favors a change in the bankruptcy law, Earnest said, “What we’ve encouraged Congress to do is to take a look at this, mindful of the challenges that Puerto Rico is facing right now.”
“You said no bailout, but I want to ask what does the White House have to say to the many — in many cases hundreds of thousands, millions of Puerto Ricans who live here in the States, from New York to Florida and all over,” another reporter asked, pushing for more detail. “What’s the general message that you would have for this population?”
Earnest repeated that “the administration remains committed to continuing to work with Puerto Rico and its leaders as they address the commonwealth’s serious financial challenges. ” He said once again that the Treasury Department was offering their expertise to officials in Puerto Rico and reminded the listeners of the interagency task force.
“This is something that the federal government has long been in touch with Puerto Rican officials about,” Earnest said, “but ultimately, this is going to be the responsibility of the Puerto Rican government to resolve.”
Responding to a suggestion that the administration had been passive about helping Puerto Rico — “At this point, your only plan is to talk to Congress about giving them authority to do something that they cannot do” — Earnest disagreed.
“I’d quibble a little bit with the premise of your question,” he said, stating that the response to Puerto Rico was similar to the response to Detroit. “This is a template that we hope to follow in Puerto Rico. And again, this is consistent with the responsibility of the administration to not provide a bailout but to provide important advice and expertise that can be used by the leaders of Puerto Rico to try to address these significant financial challenges that they face.”