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Commentary: Puerto Rico is the canary in the Caribbean coal mine
Published on July 21, 2017 Email To Friend    Print Version

By Rep. Sheryl Williams Stapleton

Overwhelming debt for states and municipalities has become almost commonplace in the United States today. First it was the city of Detroit, which filed for bankruptcy in July 2013, claiming a debt load of $18-20 billion.

Sheryl Williams, the Minority Whip of the New Mexico State House of Representatives, who is also a native of the US Virgin Islands
In the last few weeks, state budget crunches in Illinois and Connecticut have caught national attention, as unfunded pension liabilities and other debt obligations undercut states’ ability to deliver on basic public services.

Here in New Mexico, the new outlook shows $7.4 billion in unfunded pension liabilities, with 46,000 retirees falling into the fiscal gap.

Yet while the challenges these debts present are enormous, these cities and states have a clear legal status under the US Constitution and regular attention paid to them. Territories, such as Puerto Rico and the US Virgin Islands (USVI) , where I was born and raised, aren’t nearly as lucky.

Known for its beautiful beaches and dazzling tourist attractions, the USVI is an organized, unincorporated US territory, home to over 100,000 American citizens governed by a complex set of laws. Unfortunately, it’s also stuck with $6.5 billion owed to pensioners and creditors.

According to the New York Times, “a combination of factors – insufficient tax revenue, a weak pension system, the loss of a major employer and a new reluctance in the markets to lend the Virgin Islands any more money – has made it almost impossible for the government to meet its obligations. In January, the Virgin Islands found itself unable to borrow and nearly out of funds for basic government operations.”

Puerto Rico is already embroiled in similar debt issues of an even greater magnitude. The island commonwealth, also home to American citizens with no right to vote in Congressional elections and a complicated legal relationship between its island government and the mainland, has a staggering $123 billion in bond debt and unfunded pension obligations. The island’s governor declared a form of bankruptcy in May of this year, a gesture that was seen by many as a move to step away from the responsibility to govern.

Simply put, the island is stuck in a precarious situation. Despite a population of 3.5 million people, only 1 million of them are employed – the jobless rate is 12 percent, more than double that of the mainland. An average of 230 people leave the island every day to move to the United States, draining the workforce and threatening to keep the local economy in a permanent state of crisis.

Other social crises on the island are continuing to mount. According to NBC, 14 families lose their homes in Puerto Rico every day. Every day! That’s a housing crisis that’s worse than the Great Recession on the mainland, yet it isn’t receiving nearly as much attention. More than 5,000 homes were foreclosed on in the commonwealth last year alone.

All of this leaves Puerto Rico and, by extension, other US territories like USVI in a dangerous position. And real people are suffering until the mess is figured out.

Last summer, Congress passed PROMESA, which established an oversight board to get Puerto Rico’s finances sorted out. Unfortunately, a May 1st deadline passed without a real plan for addressing debt issues was reached, and the crisis is worsening by the day on the island. Every day that the island’s leaders, Congress and the oversight board stall without coming up with a reasonable plan, the economic situation grows worse.

Multiple classes of bondholders exist in Puerto Rico: general obligation bondholders, which are given priority by the island’s constitution, COFINA bondholders, whose debt holdings are tied to the sales tax, and PREPA bondholders, who own debt issued by the power authority. Bonistas del patio, or local “backyard bondholders”, also own a significant chunk of this debt. Given the political clout of both the bonistas del patio and the PREPA bondholders, each has been entertained with offers of side deals for the debt they own.

At the end of the day, singling these groups out for unique treatment is an ineffective strategy, and it makes a comprehensive deal, which Puerto Rico definitely needs, much harder. All will need to be dealt with in a fair fashion, to ensure that Puerto Rico can borrow cheaply and invest in its future, and be sure that smart policy trumps politics in pursuit of a fair deal for the island.

The Commonwealth of Puerto Rico is the canary in the coal mine for the Caribbean. Borrowing is a fact of life for governing bodies, and American cities, states and territories will need to do it again tomorrow and further down the road, to invest in infrastructure like roads, bridges and schools, as well as in the human capital of our children.

As a native of a US territory and an elected official in a US state, I have a reminder for Puerto Rico: what you do matters for the rest of us.
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