Puerto Rico is in dire straits, and its citizens – no, make that “our fellow citizens” – need immediate relief from a crushing debt that is already causing severe hardship to people who can least bare it.
Yet, Republican leaders in the House of Representatives were stymied once again Wednesday in their ability to advance legislation that would address the island commonwealth’s fiscal crisis.
In a way, though, that might be a good thing. What Republicans were considering proposing would have made conditions much worse for Puerto Rican families and retirees.
Economist Jared Bernstein has an excellent column for washingtonpost.com that explains the stakes both for Puerto Rico residents and for the rest of us. As the article notes, the island’s economy is collapsing under the weight of $70 billion in debt, and the island government has already defaulted on several debt payments. Puerto Rico Gov. Alejandro García Padilla earlier this month said the island is facing the “worst financial and humanitarian crisis in its history.”
Many of the lenders involved are hedge funds and other institutional investors who knew the risks of lending to Puerto Rico but gambled anyway. If Puerto Rico were a state, it would be able to declare “chapter 9” bankruptcy, a special section of the bankruptcy code for state and local governments, and these lenders would likely end up settling for a fraction of what they are owed. Without that option, Congress has to come up with legislation that would offer similar relief.
But legislation Republicans were prepared to offer, according to Politico Pro (subscription required), would have made sure hedge fund investors got all that they were owed, while retirement pensions for Puerto Rico residents that would have been paid out of the bond proceeds would be put on the chopping block. The legislation would also have exempted many Puerto Rican businesses from U.S. federal minimum wage laws. The island does not have its own minimum wage, so an exemption from the federal wage would allow wages to fall below $7.25 an hour. The wage proposal appears to be a version of a bill introduced by Rep. Mark “Appalachian Trail” Sanford (R-S.C.) that would “improve” Puerto Rico’s minimum wage by abolishing it entirely.
Bernstein wrote that “I don’t think the nation will let fellow Americans suffer the consequences of living in a failed state as the human costs become increasingly severe.” But apparently leading House Republicans were perfectly prepared to do exactly that, by voting for legislation that said wealthy bondholders should be held harmless, but retirees should get less money to pay rent and buy groceries, and workers should take a pay cut so that they, too, are less able to provide for themselves.
The hypocrisy of this is that the same lobbying forces that are orchestrating to put hedge funds and big-money financiers ahead of pensioners are taking out television ads, via the Center for Individual Freedom, drumming up opposition to a “bailout of Puerto Rico on the backs of savers.” One of the ads features Teresa Garcia, a Puerto Rican retiree, and alleges that “Congress wants to bail out Puerto Rico with Teresa’s retirement savings.”
“The hedge fund campaign makes it sound like they are on the side of the taxpayers,” Nick Johnson, senior vice president for state fiscal policy at the Center for Budget and Policy Priorities, told OurFuture.org, when in reality if institutional bondholders don’t take a haircut to address Puerto Rico’s solvency, taxpayers could end up saddled with significant costs to address the social and economic consequences. Plus, the ads don’t mention that the hedge funds and big investors are the ones demanding that, as a precursor to any deal, “pensions should be on the table.”
“Look at the analogies being made about Illinois” and other states facing a debt crisis, “where so much of the debate is about pensions,” Johnson said.
Indeed, Rep. Raul Labrador (R-Idaho) was quoted by Politico as saying that if retirees were protected in Puerto Rico, “now you have a pattern. Then once you have a pattern they’re going to be able to do that in every other state.”
House Democrats, including Congressional Progressive Caucus co-chair Rep. Raúl Grijalva (D-Ariz.), who is the ranking member on the Natural Resources committee and who recently visited the island, have been pushing back strongly against this Republican effort to make workers and retirees struggling at the bottom of Puerto Rico’s economy suffer the most while those who gambled on Puerto Rico see their losses covered.
“There is clearly a principled argument that these [Puerto Ricans] are our fellow American citizens, and part of the deal of the American experiment is that we are all in this together,” Johnson said. Plus there is a political motivation for Republicans to get this right: “If we don’t tend to this issue in Puerto Rico now, it becomes a bigger issue in Florida, Georgia, Texas, New York and other states where Puerto Ricans relocate,” he said.
We may see as early as Thursday whether House Republicans realize the degree to which their position is morally and politically untenable, or whether their dogged determination to protect the one-percenters who bankroll their campaigns continues to cloud their judgment.