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Puerto Rican bankruptcy
 
Photo courtesy: unitedliberty.org
 

By James Mejía
News@lavozcolorado.com
 
05/31/2017

In early May, thousands of protestors hit the streets in the Puerto Rican capital of San Juan, protesting the cut to social services caused by financial distress on the island. With nearly $75 billion of bond debt, and $50 billion in pension obligations, the economically stagnant region hit an impasse and declared bankruptcy-like procedures to allow it to restructure debt. The declaration was historic, the first time a U.S. controlled territory or state had taken to such protection. With an unsympathetic administration in the White House, the Puerto Rican government realized the extreme measure could be the only way to dig themselves out of an ever increasing economic hole.

Like a slow motion car crash, the U.S. Congress saw Puerto Rican financial crisis coming since recession hit in 2006. Unlike most of the rest of the country that rebounded from late 2000s financial and housing depths, Puerto Rico never fully recovered, instead borrowing from long term obligations to try to fund basic services.

To help Puerto Rico recover, Congress passed PROMESA, the Puerto Rico Oversight, Management, and Economic Stability Act which granted some time to renegotiate debt but also appointed a bipartisan 7-member board of US business people to oversee the process. President Obama strongly pushed the law creating economic relief for Puerto Rico, warning of a “humanitarian crisis” if the new law was not put into place. Outgoing Governor, Alejandro García-Padilla, made a public OpEd plea on the CNBC web site calling for a financial restart, “We have suffered a decade of economic contraction. We are facing a government less capable of providing the services which the public needs.”

In contradiction, President Trump was less than excited about changing legislation for Puerto Rico. His April 27 Twitter feed reads, “Democrats are trying to bail out insurance companies from disastrous #ObamaCare, and Puerto Rico with your tax dollars. Sad!”

Implementation of PROMESA allowed the possibility of bankruptcy-like protection but not until island residents witnessed increased expenses for health care and water and a decrease in funding for pensions and schools. The financial squeeze further hurt the country facing a 60 percent childhood poverty rate and millions in Medicaid funding shortages. The legislation provided emergency relief for nearly $300 million of the Medicaid shortfall. Still, with no permanent solution in sight, newly elected Governor, Ricardo Rosselló, announced on May 3rd that he would seek financial protection through PROMESA. In a press release, Rosselló, tried to reassure those keeping an eye on the process, “We remain committed to holding good-faith negotiations to reach agreements with our creditors.”

Like mid-west rust belt capitals, borrowing intensified with no relief in sight. As in Detroit, even public workers who thought their greatest benefit to a life of government service was a guaranteed retirement package are finding their nest egg has already been spent by their former employers. In Puerto Rico, it is estimated that changes to pension plans will result in about a 10 percent decrease in total retirement payments.

The Puerto Rican financial restructuring will be one of the largest in history according to Forbes. The deal surpasses Detroit’s $13 billion adjustment and Jefferson County, Alabama’s $11 billion. According to Governing, the only attempt at a Colorado bankruptcy filing since 2010 was submitted by Ravenna Metropolitan District in Douglas County which was dismissed in 2014.

Further exacerbating the problem is the loss of young and educated workers, unwilling to stay on the struggling island when greater opportunities exist on the mainland. According to the U.S. Bureau of Labor Statistics, the Puerto Rican unemployment rate is 12.4 percent as of December 2016, well over double of the U.S. average at 4.7 percent.

Wilson Cruz left Puerto Rico as a child but in many ways, his heart never left. Though he didn’t leave for financial reasons, he finds that opportunities available in the United States are not available in the struggling Puerto Rican economy. Now more than ever as the government has entered a restructuring, even more highly educated and trained professionals are expected to flee the island, creating a brain drain and exacerbating the problem. Cruz noted, “Family, food and culture take me back to the island from time to time but given relationships and opportunities, Denver is now home.”

Like Cruz and many other Puerto Ricans living in Denver, Marlena Fernandez’ family came to the U.S. long before financial troubles were brewing on the island. Still, Fernandez found opportunities in Colorado in the tech field that she doesn’t see in Puerto Rico. Nevertheless, spending her early years on the island has stayed with her. “I loved living in Puerto Rico. I remember warm and happy people, great kindness, and a focus on family. I remember the people there being fiercely proud of being American citizens while balancing their bi-culturalism with their Puerto Rican nationality. I can only hope that Puerto Rico can find a way to thrive. The world is a better place with a successful and productive Puerto Rico in it.”

Puerto Rico’s relationship with the United States is complex. Many marching against government austerity measures in May also decried U.S. ‘colonialism’. However, when asked their opinion about being part of the United States, desire to be part of the republic is strong. During last November’s election, Puerto Ricans were asked to vote between statehood, free association (where the U.S. provides things such as defense and social services), and independence. Residents overwhelmingly chose statehood – 61 percent. Only 5.5 percent chose independence. On June 11, Puerto Ricans will again vote on the issue; this time only two options are given - statehood or free association. Though the referendum is nonbinding since decisions regarding statehood can only be determined by Congress, even more Puerto Ricans may be driven to vote to become a state whereby financial and political determination is even more under their own control.

Puerto Rico has been an ‘Unincorporated Territory’ of the United States since the Spanish-American War at the end of the 19th century. Puerto Ricans do not have a voting representative in Congress, except for procedural matters. They do not have electoral votes for President but elect a Governor.

 

 

 

 

 
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