Rep. Carlos Curbelo: Letting Puerto Rico twist in the wind would be catastrophic

By now it is quite clear that Americans are not supportive of another Washington bailout of entities that have taken irresponsible risks, whether these be banks or municipalities. Particularly in the midst of a weak recovery and a recent market downturn, the prospect of Congress rewarding reckless behavior by putting taxpayers on the hook is not going to appeal to the average voter.

Congress has a vital interest in ensuring that Puerto Rico survives its current debt crisis and builds a better, more sustainable future. It should not squander that opportunity and risk a social and economic  calamity in the process.

— Rep. Carlos Curbelo

Puerto Rico is in the middle of a financial crisis, and longstanding issues with Medicare and Medicaid have only further exacerbated the problem. Though Puerto Rico has the highest participation in the nation for Medicare Advantage, under the Affordable Care Act (ACA), the island has experienced an 11 percent cut in MA reimbursement rates. This is why I recently sent a letter to the Department of Treasury asking them to provide Puerto Rico with temporary relief from the fee under Section 9010 of the ACA during the Territory’s economic crisis. Territory residents are not eligible to access the ACA marketplace to purchase insurance and do not receive any tax credits to purchase coverage. This relief would greatly benefit the the people of Puerto Rico.

As Puerto Rico’s debt crisis deepens and the possibility of default becomes all the more imminent, some are beginning to suggest that extending bankruptcy protections to the island would be both terrible policy and disastrous politics. In fact, the precise opposite is the case: unless Congress gives Puerto Rico access to some combination of bankruptcy protection, measured fiscal management, and a new fiscal rules regime that allows the island to restructure its crushing $72 billion debt in an ordered and rational way, a political and policy disaster looms that all but guarantees the necessity of a massive taxpayer bailout in the very near future.

The dimensions of the island’s plight are stark. The government has already endured several smaller defaults and faces a raft of lawsuits from the creditors left holding the bag. Large payments—of principal as well as interest—loom in May and June; unable to meet those obligations, government officials are frantically negotiating with creditor groups in hopes of restructuring some $49 billion of the total $72 billion debt.

And time is running out. Puerto Rico must spend almost $5 billion per year, or close to 20 percent of the entire budget, just to service its existing debt. Soon it will be a choice between keeping schools and hospitals open or making those payments.

Default is not an option. Despite the rhetoric of some who advocate letting Puerto Rico twist in the wind and pay the consequences without any federal action to allow bankruptcy status, such a course would be both catastrophic and unsustainable, all but guaranteeing more dramatic action and expenditure of taxpayer dollars when the dominoes start to fall.

The consequences of default, for both the island and for the U.S. economy, would be dire. Many economists following the situation believe that a contagion effect in the U.S. municipal bond market would cause borrowing costs to soar. In recent years, in large part as a result of the grim economic situation, 55,000 residents of the island have migrated to the mainland annually. A third of these have settled in Florida.

As Puerto Rico’s 3.5 million residents quickly realize how desperate their situation has become in the wake of a default, with cutoffs of services and social chaos, that influx to the mainland is sure to spike. These transfers in population have increased federal and state government expenses as Medicaid eligibility levels for Puerto Rico tend to be significantly lower and a great deal of Puerto Rican immigration will receive Medicaid and CHIP benefits, costing taxpayers billions of dollars over several years.

Members of Congress and outside groups advocating a hands-off approach to the crisis in the name of fiscal responsibility should seriously consider the political and fiscal consequences of inaction—as well as the inevitability of greater emergency expenditures from Washington when people begin to realize that U.S. citizens have lost access to basic services like power and water and access to capital is cut off completely.

Puerto Rico’s debt crisis presents a unique opportunity to put some pro-growth policies in place and demand fiscal transparency on the island. Over-regulation, a mandated minimum wage that the island’s economy cannot sustain, the abuse of workers’ compensation, and the withdrawal of one of the world’s largest U.S. Naval facilities a decade ago have led to a stagnant economy for residents with 40 percent of the population on food stamps and workforce participation at a miserable 40 percent.

The chance to implement pro-growth tax reform that would attract investment to the island, and to demand transparency by requiring full disclosure of the government’s pension obligations is now.

Congress has a vital interest in ensuring that Puerto Rico survives its current debt crisis and builds a better, more sustainable future. It should not squander that opportunity and risk a social and economic calamity in the process.