Ohio Governor John Kasich punted on the topic of whether Puerto Rico should be given the legal authority to file for bankruptcy protection. Puerto Rico, overwhelmed by more than $70 billion of debt owed by the Commonwealth and some of its agencies and municipalities, is seeking the ability to file a bankruptcy petition. Current law precludes Puerto Rico, as well all of the states, from filing a bankruptcy petition. Unlike states however, which may authorize their municipalities and agencies to file petitions under Chapter 9 of the federal bankruptcy code, Puerto Rico is also precluded from allowing its municipalities and agencies from filing bankruptcy petitions. With the first significant default on Puerto Rico’s debt having just occurred, the situation is likely to rapidly deteriorate.
Kasich initially referenced Puerto Rico’s status by saying that bankruptcy would require statehood. That’s not quite right, however, and allowing Puerto Rico to be treated like a state (i.e. permitted to authorize its municipalities and agencies to file, but not itself authorized to file) would only require a very simple (albeit consequential) change in the federal bankruptcy code. Kasich’s brief response then moved to a quick statement that he would put “people in a room” to discuss solutions and concluding that he’s “not prepared to say… yet” that bankruptcy is an appropriate solution.
The day after our conversation Kasich’s campaign announced the selection of a “chair for Governor Kasich’s newly created Puerto Rico team.”* The announcement references “the importance of permanently resolving Puerto Rico’s status issue” (whether continuing as a commonwealth, becoming a state or an independent nation), but makes no mention of Puerto Rico’s fiscal crisis. While status seems likely to be discusses as part of any federal action on bankruptcy or otherwise dealing with Puerto Rico’s debt, it’s a distinct topic without direct bearing on the fiscal crisis.
I spoke with Kasich following a presidential campaign town hall in Keene, New Hampshire.
Note: Puerto Rico does not participate in the presidential general election, but presidential primaries are held in Puerto Rico.
Senator Marco Rubio today reiterated that he’s “open … as a last resort” to granting Puerto Rico legal authority to file a bankruptcy petition, but additionally commented that Puerto Rico must first “undertake some very difficult reforms in the way it operates and funds its government.” With proponents of granting Puerto Rico that authority unsuccessful in including it in the recent omnibus spending bill further efforts will likely involve what Rubio is suggesting; significant fiscal controls and limits on Puerto Rico’s borrowing and spending authority as a condition for bankruptcy.
I spoke with Rubio after a presidential campaign appearance in Rochester, New Hampshire.
New York City’s three citywide elected officials – Mayor Bill de Blasio, Public Advocate Tish James and Comptroller Scott Stringer – and City Council Speaker Melissa Mark-Viverito joined a press conference today demanding federal action to address Puerto Rico’s deep fiscal and financial crisis. Puerto Rico’s government and related public authorities owe more than $70 billion to creditors, an amount which Puerto Rico’s governor recently termed “unpayable”, with looming large payments pushing the Commonwealth toward a critical moment.
The City Hall Plaza press conference, hosted by the Hispanic Federation, called for a laundry list of federal actions, including implementing “a federal investment plan”, eliminating Jones Act requirements that goods shipped between Puerto Rico and other places in America be transported on U.S. ships with U.S. crews, changing the U.S. bankruptcy code to allow Puerto Rico and its government related enterprises to file bankruptcy petitions and urging President Obama to “explore a Federal Reserve loan” and “oppose severe austerity.”
Puerto Rico’s crisis is decades in the making. With a shrinking population and a shrinking economy Puerto Rico has long borrowed to fund operating costs. As described in a recent report commissioned by the Puerto Rican government, Puerto Rico’s fiscal shortcomings have been masked and ultimately worsened by poor fiscal and accounting practices.
The press conference produced an infrequent appearance of all three citywide elected officials and Council Speaker Melissa Mark-Viverito – the “CW3+MMV”, perhaps – at an event. There appeared to be polite interaction among them, but no sign of great warmth.
We asked Congressman Charles B. Rangel and State Senator Adriano Espaillat for their views on Puerto Rico’s status. Puerto Rico is, of course, a commonwealth of the United States, although many Puerto Ricans prefer statehood or independence. A substantial portion of the voters in the 13th Congressional District are of Puerto Rican descent, with particularly heavy concentrations in East Harlem and Jerome Park and Norwood in the Bronx, and many maintain a strong attachment to the island.