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.
Direct federal assistance in paying any of Puerto Rico’s debt appears extremely unlikely.
The demand that federal law be amended to permit Puerto Rico to file a bankruptcy petition has a reasonable likelihood of happening and could be beneficial. Like states, Puerto Rico is currently not eligible to be a debtor under the bankruptcy code. Chapter 9 of the bankruptcy code covers municipal bankruptcies, with “municipalities” defined as a “political subdivision [counties, cities or towns] or public agency or instrumentality of a State”, but not states themselves. Filing a petition and operating under the bankruptcy code can provide a useful organizational forum for beleaguered debtors such as Puerto Rico, as creditors are prevented (“stayed” in bankruptcy terms) from taking individual actions to collect their debts and the bankruptcy court oversees a comprehensive addressing of all creditor claims. It does, however, potentially provide for outcomes that today’s speakers may regret as the bankruptcy court has the power to approve austerity-driven spending cuts anathema to many of the people now seeking bankruptcy court access for Puerto Rico.
Amending the bankruptcy code to treat Puerto Rico as a municipality, and unlike a state, touches on a deeper issue. Puerto Rico’s status as a commonwealth, as opposed to a state or an independent country, will likely become a greater focus as the crisis unfolds. Any relief from the federal government will, and should, involve addressing the Puerto Rican government’s past fiscal mismanagement and changing it’s future functioning. Considering how to address those past government failures and plan for an improved future will lead to a basic question: what should that government be? A somewhat modified commonwealth? A state with all the sovereign powers of the 50 states? A separate nation? That ever-present question has received little national attention recently, but will likely be a substantial part of any meaningful federal assistance.
Paradoxically, some of the relief sought by the speakers is at odds with their own political views. The changes sought to the Jones Act, for example, would reduce the use of American workers and move jobs to other countries. The Jones Act requires, in relevant part, that goods shipped between U.S. ports be carried on ships built and flagged in the U.S. and that at least 75% of each such ship’s crew be U.S. citizens. Those requirements increase the cost of shipping virtually everything between Puerto Rican and other U.S. port, but protect American jobs.
Finally, it’s notable that among Puerto Rico’s many economic challenges are labor and wage laws that, in the words of the Krueger Report, “are disincentives for firms to hire workers and for workers to accept jobs.” Among those disincentives is the federal minimum wage of $7.25 an hour, which applies to Puerto Rico. Puerto Rico has far lower wages generally than any other part of the United States and, in the Krueger Report analysis, that $7.25 minimum wage destructively distorts the Puerto Rican labor market. It’s worth looking closely at the effect of such a relatively high minimum wage in the context of New York and national consideration of increasing the minimum wage.
Mark-Viverito, de Blasio, James and Stringer each left after giving their remarks, without any Q&A. Here are their respective remarks:
Mark-Viverito, who grew up in Puerto Rico, termed it “disheartening” that the federal government is turning a “blind eye” to Puerto Rico’s troubles. She castigated hedge fund “vultures” for, in her view, worsening Puerto Rico’s condition and “feeding off of the misery of the island and of the people”. Mark-Viverito also said that during a brief meeting with Vice President Joe Biden at Governor Cuomo’s LaGuardia announcement Monday, she said that “Puerto Rico needs to be saved.” Mark-Viverito aptly noted the importance of “main stream media” at this press conference, as any substantial federal action is more likely with greater public awareness and interest.
Mayor Bill de Blasio:
Mayor de Blasio described this as a “crisis largely created by mistakes of federal policy that now has to be corrected by federal action.”
Public Advocate Tish James:
Saying she was speaking “in solidarity with our Puerto Rican brothers and sisters”, Public Advocate James urged President Obama to “act now.”
Comptroller Scott Stringer:
Comptroller Stringer noted that his stepfather is Puerto Rican and that his mother and stepfather have a home in Puerto Rico. He likened the current Puerto Rico crisis to New York City’s 1970s fiscal crisis and pledged to work with “Puerto Rican leadership” to find a way through the crisis. He did not discuss whether the City’s pension funds have any involvement or investment with the “vulture” hedge funds Mark-Viverito criticized.