LET P.R. BREATHE
WASHINGTON — Puerto Rico’s cashstrapped government narrowly avoided defaulting on its massive $72 billion in debt — at least for another month — when it forked up a payment of $355 million Tuesday that was due to bondholders.
Gov. Alejandro Garcia Padilla told a packed hearing of the U.S. Senate Judiciary Committee that he managed to cobble together the last-minute payment by dipping into dwindling government accounts. His aides later revealed he had issued an executive order to “claw back” funds from government revenues already pledged to pay for other debt.
“Let us be clear, we have no cash left,” the governor told the Senate committee.
With the next big payment — this time for $1 billion — due Jan. 1, only rapid action in Washington can prevent Puerto Rico from plummeting into the biggest municipal bond default in U.S. history.
President Obama proposed in October an emergency plan to increase federal Medicaid and Medicare payments to Puerto Rico to the same levels as that for the 50 states; to extend the federal earned income tax credit to island residents, and to allow Puerto Rico to use bankruptcy laws to reorganize its debt, something all of the states can do.
Tuesday’s hearing was the fifth in Congress on Puerto Rico’s debt crisis in the past few months, but with only 10 days left in this year’s session, lawmakers have not moved on any legislation.
Garcia Padilla urged the committee to approve the bankruptcy bill in particular. It would force all creditors to submit to an orderly bankruptcy process supervised by a federal judge — including those Wall Street hedge funds that bought up Puerto Rico bonds at a discount in hopes of making a financial windfall. “We have never asked Congress for a handout,” the governor said. “We’re not asking for one today. Just give us the tools, and we will get the job done.”
Ironically, Puerto Rico had the right to file for bankruptcy before 1984, when Congress amended federal law to specifically deny the island that recourse. “Congress cannot tell Puerto Rico to drop dead,” Sen. Richard Blumenthal (D-Conn.) said at the hearing, alluding to the infamous 1975 Daily News headline characterizing President Gerald Ford’s response to New York’s fiscal crisis.
Blumenthal, along with New York’s Chuck Schumer, is cosponsor of the new bankruptcy bill for Puerto Rico. He described Garcia Padilla’s feat of finding the money for this week's payment “financial gymnastics that is unsustainable.”
More cuts in spending, Blumenthal added, won’t solve the problem. Already, Puerto Rico’s government has raised the sales tax to 11.5% from 7% and hiked electricity and water rates. It has not mailed out income tax refunds to residents that were due last year. The government also reduced the workweek of public employees and delayed for months payments to government contractors.
Congress must act quickly to prevent a “financial and humanitarian catastrophe,” Blumenthal warned.
But “Congress” and “quick” are rarely found in the same sentence. That’s why hundreds of Puerto Rican community leaders from around the U.S. are planning to gather in Washington on Wednesday in a massive lobbying effort targeting those lawmakers who still have their heads stuck in the sand.
The 3.5 million U.S. citizens of Puerto Rico have just one more month of breathing space. Come Jan. 1, the money runs out. Everyone from San Juan to Washington to Wall Street will be staring at the biggest government default this country has ever seen — and no rules on how to handle it.