Aaron Fobes, Julia Lawless (202)224-4515
Hatch Says Responsible Solutions Needed for Puerto Rico’s Debt Crisis
Utah Senator Says, "Since last summer, well before almost anyone in Congress really began thinking about the challenges facing Puerto Rico and long before we saw any outlandish legislative proposals from our friends on the other side, I have been calling on my colleagues on both sides of the aisle to work with me to find serious and credible solutions to help the people in Puerto Rico.”
WASHINGTON – In a speech today on the Senate floor, Finance Committee Chairman Orrin Hatch (R-Utah) called on colleagues to put unworkable political proposals aside and work together to put forth fiscally responsible solutions to address Puerto Rico’s financial and economic crisis.
“I have been as clear as I can be on this issue. I have said repeatedly that I want to work with my colleagues to find a solution,” said Hatch. “But, we need to do so in a manner that is fiscally responsible with an eye toward righting the irresponsible course taken by the government of Puerto Rico.”
Hatch went on to highlight the lack of transparency from Senate Democrats and the Administration regarding current Puerto Rico proposals financial and reiterated his hope for a constructive path forward.
“My friends on the Democratic side have been generally unwilling to provide even the most basic information about how much their various proposals for Puerto Rico would cost the federal government,” Hatch continued. “I am more interested in enhancing the lives and opportunities of our fellow citizens in Puerto Rico than I am on the political impact this debate could have between now and November.”
The complete speech as prepared for delivery is below:
Mr. President, I rise to once again discuss the financial and economic challenges facing Puerto Rico, an issue I have been talking about since last summer.
In fact, it was in July of last year when I first wrote to Treasury Secretary Lew expressing my concern about the fiscal situation in Puerto Rico and inquiring about the Obama Administration’s plans to address this predicament. While I did eventually get a response from the Treasury Secretary, numerous questions that I asked in that initial letter, to this day, remain unanswered.
Over the ensuing months, I made other inquiries to Health and Human Services Secretary Burwell, because, for some time now, we have been told that funding – or, to be more specific, a decline in funding – for federal health care programs was a factor contributing to Puerto Rico’s debt crisis. So, as the chairman of the Senate committee of jurisdiction over most of these programs, I wanted to know what HHS thought needed to be done.
Not surprisingly, I’m still waiting for a substantive response to those inquiries.
Instead of detailed proposals, I was initially told simply that health funding issues surrounding Puerto Rico are difficult and that the administration expected Congress to address these issues in a fiscally responsible way – and to do so quickly.
Eventually, last month, with the release of the President’s budget proposal, we learned that the administration wants to provide $30 billion in additional Medicaid funds for Puerto Rico. When asked how the administration thought we should pay for this, Secretary Burwell has suggested that we simply adopt the President’s budget. However, given that there are more surviving members of the Beatles than there are Senators willing to vote in favor of an Obama budget, I don’t know that anyone can take that suggestion seriously.
That is the sum total of the input we’ve gotten from the administration on dealing with Puerto Rico’s health funding issues – a proposal for dramatically increased spending with no credible way to pay for it and a demand that we provide that funding as quickly as possible. That’s all they’re willing to say publicly on the matter, even though administration officials have labeled this a humanitarian crisis.
By the way, buried in all of the details is the fact that this proposal for increased Medicaid funds is meant to shore up an inequity created by the so called Affordable Care Act. Apparently, the Democrats’ partisan health law provided billions in additional Medicaid funding for Puerto Rico, but also included a cliff, or a point in time when that funding will drop off quickly and dramatically. And, that cliff is fast approaching.
Let’s be clear: The Democrats constructed that cliff, presumably knowing what they were they doing at the time.
The Democrats in Congress voted for it.
And, the Democrat in the White House signed it into law.
No Republican in Congress supported that cliff. Yet, now we are told that we must act quickly to eliminate the cliff and add even more funds without a realistic way to pay for it. And, on top of that, Democrats in Congress have labeled any hesitation on the part of Republicans to fix a problem they created – and to fix it in the exact way they prescribe – as callous indifference toward the plight of the American citizens living in Puerto Rico.
Mr. President, I have been as clear as I can be on this issue. I have said repeatedly that I want to work with my colleagues to find a solution. But, we need to do so in a manner that is fiscally responsible with an eye toward righting the irresponsible course taken by the government of Puerto Rico.
Toward that end, I, along with a number of my colleagues, have repeatedly requested audited financial statements from the government of Puerto Rico. These requests date back to last September with the first hearing I held on these issues in the Finance Committee.
That was six months ago, Mr. President. Yet, we still don’t have that information for Fiscal Year 2014, let alone 2015. In addition, last month, I wrote a nine-page letter to the Governor of Puerto Rico asking a number of questions about Puerto Rico’s finances, and I asked that they be answered by the first of this month.
I’ve received no answers to these questions.
In the face of a humanitarian crisis, it seems to be too much to ask of the government of Puerto Rico that they provide some verifiable financial information so that Congress can make an informed decision about how to handle this situation. And, apparently, some of my friends on the other side of the aisle are ready and willing to spend tens of billions in taxpayer funds without all the relevant information, and to publicly attack anyone who questions that strategy.
So far, my friends on the Democratic side – including members of Congress and the administration – have been generally unwilling to provide even the most basic information about how much their various proposals for Puerto Rico would cost the federal government or whether they intend to offset those undisclosed costs. And, none of them have shown interest in even discussing ways to help Puerto Rico return to a more sustainable fiscal and economic course. Yet, they repeatedly accuse Republicans of indifference to the struggles faced by the residents of Puerto Rico.
The absurdity of this debate – if that’s what you want to call it – is compounded by the fact that the only practical and fiscally responsible legislation introduced to address these issues has come from Republicans.
As most of my colleagues should know, even with the severely incomplete information we have, Senators Grassley and Murkowski – who chair the Judiciary and Natural Resources Committees – and I have introduced a bill that would provide some tax relief and fully offset funds to Puerto Rico for transition assistance as well as an oversight authority to help ensure that Puerto Rico establishes credible budgets and future fiscal plans. Our bill provides the platform needed for sustained economic growth and a return of access to credit markets.
However, neither the administration nor any of my friends on the other side of the aisle have shown much interest in discussing the substance of our bill. Instead, we’ve seen the aforementioned proposals to send tens of billions in health funds to Puerto Rico, no questions asked, and a proposed bankruptcy scheme that my colleagues have misleadingly claimed would simply give Puerto Rico access to Chapter 9 debt relief, the same access we give to every municipality in the country.
Of course, as I have made clear on a number of occasions, the so called Chapter 9 access they’re seeking for Puerto Rico doesn’t really resemble the actual Chapter 9 of the current bankruptcy code. In reality, their proposal would create, for lack of a better word, a Super Chapter 9 specifically for Puerto Rico and grant the territory unprecedented authority to restructure its debt.
But, before I say more about the Super Chapter 9 proposal, I just want to make clear that I, and others, have been working for quite some time now to find an agreeable solution to these problems. We have done so even while the government of Puerto Rico refuses to provide anything resembling a complete picture of its finances.
I have been working with colleagues in both the House and the Senate to explore legislative options. And, while I don’t want to speak for anyone else at the moment, I will say that we’ve been willing to consider various debt restricting mechanisms for Puerto Rico, balancing the need to ensure fairness and equal treatment for similarly situated parties.
However, as we consider various approaches, I want to make three things perfectly clear.
First: The government of Puerto Rico must negotiate in good faith with its creditors, and creditors must do the same with Puerto Rico. It would be a mistake for officials in Puerto Rico to hold out or drag their feet on good-faith bargaining efforts in an anticipation of congressional action.
Second: Contrary to claims made by some of my colleagues, none of us have any interest in helping out the “vultures” or “speculators” looking to profit out of the misery created in Puerto Rico.
If anyone uncovers illegal actions taken by investors in Puerto Rico, then, by all means, they should be prosecuted.
If anyone can identify any investors whose actions are clearly predatory and unethical, we should all rain shame upon them.
And, if former federal government officials who travel through the revolving door of the administration are found to be unduly enriching themselves off of Puerto Rico’s plight, their actions should be brought to light.
I have no qualms with any of that, because my goal, and the goal of my Republican colleagues, is to provide sensible and reasonable solutions to help the people living in Puerto Rico.
However, this does bring me to my third point: Innocent and ethical investors from Utah, New York, New Jersey, and every other state in the Union, as well as good-faith investors in Puerto Rico, should NOT be casually labeled as vultures or speculators and should be treated the same as any other similarly situated investor.
A retiree or near retiree in Sandy, Utah who invested part of her retirement savings in Puerto Rico debt instruments, which carry FEDERAL tax preferences, is no less deserving of repayment than any other similarly situated claimant.
Teresa and Julio Garcia, who are residents of Puerto Rico, along with other middle class Puerto Ricans who own a significant share of Puerto Rico’s debt, are certainly not vultures, and don’t deserve unequal treatment.
And, residents of Puerto Rico who are retired or near retirement, and who are numbered among Puerto Rico’s bondholders but don’t happen to receive public pensions, do not deserve to see their savings depleted in order to favor certain public pension benefits in Puerto Rico.
That last example may, to some, seem oddly specific. However, if you look at the Super Chapter 9 proposals put forward by Democrats, the intent to favor public pensions over private bondholders – even those whose retirement savings are invested in those bonds – is explicit.
Regarding those public pensions, it is true that Puerto Rico tried to reform the retirement systems for its government employees, and did end up making some lasting changes to one of its programs. Nonetheless, the territory has not followed through on some aspects of the reforms it did make, and even in the face of dire fiscal conditions, some of Puerto Rico’s major public pension systems remain unchanged.
And, for my friends on the other side, it appears that any effort to encourage Puerto Rico to substantially improve its public pension systems as the island restructures some of its debt would be out of the question.
Mr. President, as we see increasingly large municipal bankruptcies and states with mounting fiscal pressures, severely underfunded public pensions seem to almost always be lurking in the background. Up until now, Detroit was probably the biggest municipal bankruptcy in U.S. history, with a debt of around $18 billion. Now, Puerto Rico is coming to Congress for help to deal with $73 billion of debt and $43 billion of shockingly unfunded public pension obligations, bringing the total to more than $115 billion.
It would be beyond irresponsible to offer aid to Puerto Rico without taking at least some action to improve public pension reporting and transparency. Given the growing crisis of underfunded public pensions around the country – which I have been warning my colleagues about for years now – taking no action will ensure that states and municipalities that have been responsible with their pensions and their fiscal planning will see their costs go up as a result of the bad and imprudent actors. On this point, officials at the Securities and Exchange Commission and municipal market analysts overwhelmingly agree: Increased transparency on public pension liabilities is clearly necessary.
Mr. President, earlier this week, while our bicameral work to produce passable legislation to address the problems in Puerto Rico has progressed, some of my friends on the other side of the aisle decided to chime in once again with another round of implausible policy proposals and fresh political attacks. The latest group of bills introduced by Democrats includes a number of repackaged ideas from last year, including unscored and unsound proposals to allocate funds and direct aid as well as a renewed effort to grant unprecedented debt resolution authority for Puerto Rico.
The only real difference between the ideas we’ve seen already and those included in the bills this week is that Democrats are now apparently willing to be upfront about the fact that the debt resolution authority they’re seeking isn’t just the same Chapter 9 everyone else has, but an entirely new animal altogether.
Last year, my friends on the other side had a bill to provide Puerto Rico with an ability to apply Chapter 9 debt resolution authority on a retroactive basis. The reasoning and rhetoric behind the bill was that municipalities in every state has access, and so should Puerto Rico—never mind the retroactivity.
Now, however, the goalposts are being moved. My friends have now introduced the Super Chapter 9 bankruptcy scheme devised by administration officials.
Of course, this new Super Chapter 9 is not something available to other municipalities or States. It is, in fact, without precedent.
It includes virtually all government debt in Puerto Rico, and blows right through a payout protection afforded to General Obligation debt that is in Puerto Rico’s Constitution. This not only steps directly on Puerto Rico’s autonomy, but it also sends dangerous signals by telling municipal bond markets to no longer regard General Obligation debt issued by states as being as safe as previously expected. That, of course, means higher costs to states for funding things like infrastructure projects, and it is something that many state governors have said they worry about and do not support.
Needless to say, this freshly constructed bankruptcy scheme is extremely risky. And, though my friends are now being transparent about the relief they want, it doesn’t make the proposal any more palatable.
The bills introduced this week include proposals beyond the Super Chapter 9 proposal. While these ideas are not at all new, it’s worth taking just a few minutes to go through them individually.
First, we have provisions, as poorly constructed this year as they were last year, calling for additional Medicare and Medicaid funds for Puerto Rico.
Second, we have proposals to extend parts of the U.S. personal income tax system that provide direct aid to U.S. taxpayers to people in Puerto Rico, excluding any part that requires positive tax payment. Residents of Puerto Rico do not file personal federal income tax returns or pay any personal federal income tax, yet my colleagues want the Earned Income Tax Credit and Child Tax Credits to be paid out to residents of Puerto Rico. Of course, the Joint Committee on Taxation – the non-partisan congressional scorekeeper and advisor when it comes to tax policy – has already indicated that such a scheme would be rife with administrative difficulties and fraud. It is, at the very least, difficult and counterintuitive to expect the IRS to properly operate an income tax program for people that are not subject to the income system to start with. However, that doesn’t seem to faze my friends on the other side.
Third, we have a control board to oversee the restructuring of Puerto Rico’s debt that, under the bill, would be populated by Puerto Rico political appointees. Clearly, the structure of this proposed control board would subject any financial decision making in Puerto Rico to the same political wrangling that got the territory into this mess in the first place. Yet, the obviousness of these problems seems to have escaped my colleagues.
As with last year, we do not know the precise cost of the health funding and refundable tax credit proposals because my friends have not been interested in getting them scored or in disclosing how much they cost. Essentially, my colleagues want to have a debate about their proposals without any real discussion of what they will cost taxpayers.
Now, I’ve only been here about 39 years, Mr. President, but I think that’s long enough to know that anyone who puts forward legislation designed specifically to throw taxpayer funds at a problem without disclosing how much they actually want to spend isn’t all that interested in passing the legislation. Instead, what people tend to want in those situations is to send a political message that they care about a problem while the other side does not.
Perhaps I’m wrong. Perhaps my friends on the other side do want to see their proposals become law.
If that’s the case, they’ll be glad to know that I’ve worked with JCT and the Congressional Budget Office to get a ballpark figure on the cost of their proposals.
All told, the provisions put forward in the bills Senator Menendez and some of his colleagues introduced this week would cost federal taxpayers more than $45 billion, and probably closer to $50 billion, at least from what we can tell from the legislative language, which is not the clearest I’ve ever seen.
I can only assume that the administration doesn’t support these bills, given that, in what little communication we’ve had with them on these issues, they’ve consistently admonished us to address the Puerto Rico problem in a “fiscally responsible way.” I have a hard time imagining any argument that the approaches proffered by my friends this week would satisfy even the loosest definition of fiscal responsibility – at least not until they come up with an at least semi-reasonable way to offset the $50 billion cost.
Once again, Mr. President, given all of these obvious realities, I have to assume that these bills are more about politics than solutions. Like I said, people who are serious about solving a problem typically don’t propose tens of billions of dollars in spending without actually disclosing the cost and talking about offsets. No, people who put out big ideas without a plausible path to get them enacted are usually more interested in talking about a problem than they are in solving it and more interested in political posturing than in actually helping people.
But, Mr. President, I’m not interested in the politics surrounding the crisis in Puerto Rico. Nor am I interested in what the polls say on this issue.
I have been working for some time now to craft a legislative solution that can actually pass because I am more interested in enhancing the lives and opportunities of our fellow citizens in Puerto Rico than I am on the political impact this debate could have between now and November.
Mr. President, since last summer, well before almost anyone in Congress really began thinking about the challenges facing Puerto Rico and long before we saw any outlandish legislative proposals from our friends on the other side, I have been calling on my colleagues on both sides of the aisle to work with me to find serious and credible solutions to help the people, not the politicians, in Puerto Rico.
I repeat that call today. For anyone who wants to put people far in front of politics and to actually address these problems instead of merely talking about them, my door remains wide open.
With that, I yield the floor.
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