Puerto Rico is sending $120 million in Christmas bonuses to government employees in the U.S. Territory. Year-end bonuses, even for government employees, aren’t especially unusual, except that Puerto Rico is more than $70 billion in debt. Moreover, the island territory is at risk of defaulting on $900 million in debt payments due on January 1.
Such unserious budgeting goes a long way to explain how Puerto Rico got so far into debt. In fact, the bonuses are part of the federal law in Puerto Rico. The law, first passed in 1969, apparently requires the government to pay Christmas bonuses.
The nearly billion dollar debt service payment due in January is just the tip of Puerto Rico’s fiscal problems. Two more payments of a couple hundred million each are due in the spring next year. In July, though, the island territory faces a whooping $2 billion in debt payments.
Unsurprisingly, the island territory is rattling its tin-cup in Washington. House Minority Leader Nancy Pelosi has introduced legislation that would temporarily block any legal action by creditors while Congress moved to restructure the island’s debt.
The Obama Administration has floated its own plan to give Puerto Rico access to bankruptcy courts, as a means of slashing its outstanding debts. Obama’s bailout plan would also create an “independent” board to oversee the territory’s fiscal affairs.
While a federal bailout of Puerto Rico carries political risks, according to Pelosi, House GOP Speaker Paul Ryan has committed to taking up possible bailout legislation when Congress returns in early January.
Last Friday, Pelosi wrote to her colleagues informing them that Ryan “agreed to take action on restructuring legislation by March 31, 2016, and last evening, he committed to start that process with a hearing on our first day back in January.”
Pelosi had sought debt relief for Puerto Rico as part of the omnibus spending bill that recently passed Congress. According to Pelosi, the assurance from Ryan that “[o]n March 31, we’ll have something done [on Puerto Rico]” was in exchange for not including the issue in Congress’ final spending bill.
Breitbart News reached out to Speaker Ryan’s office about this agreement and whether there was any understanding or agreement over general outlines of a deal. Ryan’s spokesman, Brendan Buck told Breitbart that the, “[o]nly commitment was to have the committees of jurisdiction work on it, we defer to them on what the substance looks like.”
Back in June, Puerto Rico Governor Alejandro Padilla admitted flatly that “the debt is not payable.” Puerto Rico has more debt per capita than any American state. It currently has to borrow money simply to pay its bills.
As a result, any Congressional deal to restructure or write down part of the island’s debt would probably have a lasting, negative, impact on other cities and states seeking to borrow money from the markets. The sheer scale of write-downs required would likely spook investors from any municipal offerings, unless interest rates offered on the loans were higher.
Although Puerto Rico is a territory, its 3.6 million residents are US citizens and vote in the Presidential election. In light of the terrible economy on the island and the high debt levels, many Puerto Ricans have moved to the US mainland.
In many ways, most of the fiscal challenges the US faces are due to poor policy decisions made years, and even decades, ago. The bill for unchecked borrowing eventually comes due. Democrats scream loudest when the tab finally arrives.
Speaker Ryan’s office says the only commitment to Pelosi is to hold hearings on the issue of Puerto Rico’s debt. They will follow the lead of the authorizing committees, they say. The real test, however, may arise if the committee, in an election year, rejects yet another bailout for someone’s irresponsible debt.