Congress has a constitutional duty to fix Puerto Rico debt crisis

The continuing conundrum of GOP leadership is perfectly expressed in the debate over proposed legislation to allow Puerto Rico to restructure its crushing $72 billion debt. According to all reports, the bill being hammered out in the House Natural Resources Committee allows for restructuring of the island’s debt under the supervision of a control board, gives some of San Juan’s pension obligations a serious haircut and includes some significant pro-growth measures. The bill was carefully crafted to have zero budgetary impact. Because of the reticence over granting Puerto Rico Chapter 9, or bankruptcy, status (which it actually had before 1984, when Congress inexplicably changed the rules) it strictly circumscribes the debt restructuring process so that states on the mainland with their own serious debt problems — such as Illinois and California — can’t cite Puerto Rico as a precedent for turning to Washington for relief.

{mosads}None of this careful crafting of legislation to address the crisis mattered, however, to the obstructionist caucus, who attacked the bill — even before it had been released from committee — as a taxpayer bailout of Puerto Rico. The accusation is sort of absurd, because it is almost the reverse of the truth. The bill contains no federal bailout and does not leave taxpayers on the hook for anything. Despite accusations that the legislation will require taxpayers and savers to bail out the island, the proposed legislation has no budgetary impact. Indeed, without the enactment of some form of debt restructuring, a taxpayer bailout will become a necessity, as social services on the island shut down, the stream of immigration to the U.S. becomes a torrent and bondholder groups insist that Congress intervene to rescue them.

Of course, this hasn’t stopped the usual suspects from demagoging the issue to score political points and raise money. Conservative talk radio is on the warpath, dark money groups are spending hundreds of thousands on ads saying any federal intervention constitutes a bailout on the backs of taxpayers and retirees, and members of the GOP dead-end caucus in the House are already signaling their firm opposition — all before the bill is even introduced out of committee. House Natural Resources Chairman Rob Bishop (R-Utah) is being subjected to immense pressure, and leadership is struggling to whip the votes so as to prevent another embarrassment on the floor in which they can’t get their own caucus to support a bill they have put on the schedule. The problem is, given the political dynamics that prevail, there’s no incentive for members from solidly red districts to support this (or any other) legislation their own leaders consider vital.

Ironically, the outcome of such obstructionism is inevitably bad for Republicans: Either the Speaker has to pass something with the support of the Democrats, or the initiative goes to the Senate, both of which will produce a bill that is even less acceptable to the diehards. Or Puerto Rico melts down, producing chaos, cementing the impression that Congress is unable to handle even its most basic responsibilities.

The last is a key point, and one that should have some resonance with otherwise unreachable members on the right. Puerto Rico is a part of the United States, albeit a territory, and Congress has a constitutional duty to fix a crisis that it helped create. Far from being a bailout of an irresponsible foreign government — an impression that the well-funded dark money ad barrage intends to convey — the debt crisis in Puerto Rico is in large part a reflection of the island’s sometimes-ambiguous and arbitrary territorial status as well as indifference from Washington. In Puerto Rico since 2006, gross domestic product has declined by 14 percent, employment by 20 percent and fixed investment by more than 25 percent. As long as such a severe economic downturn continues, the Puerto Rico government’s efforts to pay off the debt by raising taxes and cutting spending will have little effect. Congress’s elimination of longstanding tax subsidies for Big Pharma, the withdrawal of one of the world’s largest naval facilities and restrictive trade laws inhibiting growth have all been big factors in Puerto Rico’s seemingly permanent economic slump.

It also doesn’t help the cause of growth when Congress stacks the decks against our own companies doing business in Puerto Rico. Both American and foreign companies pay Puerto Rican business taxes when they make a profit on the island. But only U.S. firms have to pay a second tax to the IRS if they want to bring that money back to the mainland. Foreign companies face no such double tax when bringing profits back to their home nations. That has to end as a matter of fairness and common sense. Why is the United States punishing American companies for doing business in a U.S. territory?

Unless conservative Republicans are interested in making statehood for Puerto Rico a priority (which they really aren’t, given the political demographics), they ought to step up and assume their constitutional, and moral, responsibility for this emergency affecting their fellow Americans. Action now is Congress’s best chance to avoid a much more dramatic, and expensive, taxpayer bailout of Puerto Rico and its debt holders if a disorderly default is allowed to occur.

Robertson is CEO of Crispin Solutions, a public affairs and communications consulting firm.