Speaker of the House Paul Ryan struck a deal with the Obama administration Wednesday night on legislation to address the fiscal crisis and humanitarian crisis. The deal has the support of, and was largely negotiated by, Congressman Rob Bishop (R-UT), chairman of the Natural Resources Committee, and Congressman Sean Duffy (R-WI).
The legislation is not perfect, but members on both side of the aisle should support it because the alternative -- doing nothing -- would be catastrophic.
There are two main features to the legislation. It sets up a financial control board to oversee the island's finances and also establishes a process for restructuring the Puerto Rican government's debt, without which there can be no economic growth or stability on the island. The causes of the island's exorbitant debt are many and complex, a combination of bad decisions in Washington, irresponsible decision in San Juan, the unique and somewhat bizarre legal status of the island (it is for all intents and purposes a colony) and a global economy that wants to treat Puerto Rico like a developing country even though it is subject to the laws of the United States, and are those we expect in a developed country.
Whatever the causes, and we could all debate about them until the cows come home, the consequences of the debt are obvious. Without some mechanism for restructuring the debt, the humanitarian crisis on the island will only get worse. This legislation allows the control board to step in and take steps to restructure the debt.
"Once the board determines a type of debt payment is not sustainable, the board votes to send the case to the U.S. Federal District Court where a debt restructuring process can begin," said Eric LeCompte, executive director of JubileeUSA, who has been closely involved in the negotiations. The mere prospect of the restructuring being turned over to the courts should put pressure on all sides to reach a voluntary agreement.
If you have watched CNN or the other cable networks in recent weeks, you know that there has been an expensive ad campaign to frustrate any restructuring of the debt. The ad campaign falsely called the earlier versions of the legislation a "bailout" even though there was no taxpayer money involved and, consequently, no bailout. The ad campaign warned darkly that other jurisdictions like Illinois might follow suit and try to write off some of their debt.
What the ad campaign did not acknowledge is that the majority of creditors, mostly mutual funds that hold a variety of bonds, are perfectly willing to take a haircut rather than see Puerto Rico continue to default on their payments. It is only the vulture funds that hold out in these circumstances for a full repayment of the face value of the bonds. If that means the people of a country or, in this case, a colony, must be driven into utter poverty, so be it. The vulture funds want top dollar and they have paid plenty of congressmen well to make sure they get it. To keep the hedge funds from holding out, as they have done in other sovereign debt crises, the legislation includes a collective action clause for creditors.
"There are provisions to prevent predatory and hold-out behavior in the legislation," LeCompte told me. "When a three quarters majority of creditors agree and vote for a restructuring plan, it becomes binding on all creditors in the group." This is key.
The hedge funds are not without their allies. Alfonso Aguilar heads the Latino Partnership for Conservative Principles, which is related to the American Principles Project although, from their website, it is not exactly clear what that relationship is. The American Principles Project was founded by Princeton Professor Robert P. George and says it is dedicated to conservative principles and values also. The Chairman of the Board is Sean Fieler, who made his money in hedge funds, and who has joined Professor George on the right-wing academic circuit. Mr. Aguilar sent out a press release this week that claimed talk of a humanitarian crisis was political spin.
"It should come as a shock to nobody that the Obama Administration is trying to use the fiscal problems of Puerto Rico for political gain," Aguilar said. "While Puerto Rico is certainly facing tough economic times that make life difficult for the residents of the Island, Puerto Rico is not Syria or Haiti; places that are facing real humanitarian challenges. To suggest that Puerto Rico is in the same situation is offensive and condescending to all Puerto Ricans." I hope he was well paid for throwing his fellow Latinos under the bus. Thirty pieces of silver perhaps?
To be clear, there is a humanitarian crisis on the island. "In the face of our fiscal crisis, Puerto Rico is in the first stages of a humanitarian crisis: over 200 public schools have closed, several hospitals have begun to close wards, last year 500 doctors left the island, this year close to 400 have left (which does not include nurses); in the past 10 years approximately 800,000 have emigrated; many, many family businesses have closed, etc.," Archbishop Roberto Gonzalez, OFM, told me in response to Aguilar’s charge. "Over 60 percent of our children live in poverty. There is a widespread feeling of anxiety among our people." People do not have to endure what Syria is going through to be in a humanitarian crisis. The archbishop and other religious leaders have been at the forefront of the effort to seek a reasonable settlement that respects the rights of bondholders as well as the needs of the poor on the island.
I should also note that the United States Conference of Catholic Bishops has been enormously supportive of the effort to reach a deal and avert a further deterioration of socio-economic conditions on the island. I have been sharply critical of the USCCB on other issues of late and it warms my heart to be able to commend them for their work on this issue. Kudos especially go to former USCCB President Cardinal Timothy Dolan, Archbishop Thomas Wenski who chairs the domestic policy Committee, Bishop Oscar Cantu who chairs the international policy Committee, and their staffs. LeCompte has been an invaluable support to the religious leaders both on the island and stateside in navigating these enormously complicated issues.
The legislation is not perfect. At one point it seems to suggest that pensions must be paid before debt obligations, and other times it is murky on this vital issue. A previous proposal to lower the minimum wage on the island was, instead, made something the island's governor can undertake. There is not explicit effort in the legislation to address child poverty on the island. But, of course, compromise legislation is never perfect, and my conservative Republican friends could look at it and find what they deem faults as well.
Indeed, politics is so divisive right now, I am inclined to support any initiative that has earned the support of both Democrats and Republicans! Still, I think it was harder for Ryan, Bishop and Duffy to reach this deal than it was for the Democrats, so they get special credit. They have done the right thing, not the right-wing thing, and those of us who try and view public policy through the lens of Catholic social teaching can easily distinguish between their laudable efforts and the work of those who are simply carrying water for the hedge funds.
[Michael Sean Winters is a Visiting Fellow at Catholic University's Institute for Policy Research and Catholic Studies.]