[Congressional Record (Bound Edition), Volume 161 (2015), Part 13]
[Senate]
[Pages 18644-18647]
[From the U.S. Government Publishing Office, www.gpo.gov]




                              PUERTO RICO

  Mr. HATCH. Madam President, I rise to speak on Puerto Rico's 
financial and economic challenges.
  The Government of Puerto Rico tells us the territory has more than 
$73 billion in debt that is, to use their words, ``not payable.'' On 
top of that, Puerto Rico has tens of billions of dollars in unfunded 
pension liabilities and very few assets to back up its pension 
promises. The economy in Puerto Rico has persistently registered 
double-digit unemployment rates, staggeringly low labor force 
participation rates and a bloated public sector and there are growing 
strains on Puerto Rico's health care system, some of which reflected 
the way the so-called Affordable Care Act was written to treat Puerto 
Rico and other territories, some of which reflects differing treatment 
between Puerto Rico, where residents do not pay Federal personal income 
taxes, and States where residents are included in the Federal personal 
income tax system. In short, there is very little good economic news 
coming from Puerto Rico these days. As a result, we are seeing an 
ongoing debate about what the Federal Government can or should do in 
order to help the American citizens residing in Puerto Rico.
  To me, this debate boils down to four relatively simple questions: 
Question No. 1, should the Federal Government allow Puerto Rico access 
to chapter 9 of the Bankruptcy Code or to even broader debt resolution 
tools; question No. 2, will providing fresh tax incentives to Puerto 
Rico help boost the island's economy by creating jobs and stimulating 
growth; question No. 3, should Congress increase Federal resources to 
help ease Puerto Rico's strained health care system; and question No. 
4, should we take steps to exempt Puerto Rico from burdensome Federal 
regulations--including labor, transportation, and energy regulations--
that may be contributing to the territory's ongoing economic struggles?
  Today we have seen a number of proposals that attempt to address 
these and other questions, although, in my opinion, many of them do so 
in very awkward ways. I want to take time today to address each of 
these four major questions in turn and hopefully shed some light on 
what we have to consider as we try to address the growing crisis in 
Puerto Rico.
  So far, the majority of these discussions among policymakers with 
regard to Puerto Rico have focused on question No. 1, allowing access 
to chapter 9 bankruptcy relief. As we all know, chapter 9 applies 
specifically to financially distressed municipalities that are seeking 
protection from creditors as they develop and negotiate plans to adjust 
their debts. Puerto Rico is not currently eligible for chapter 9 
bankruptcy, meaning that granting them access to this type of relief 
will require a legislative change to the Bankruptcy Code, which may 
come with its own set of problems. Some proponents of the bankruptcy 
solutions for Puerto Rico have argued that the clear language 
preventing the island from accessing chapter 9 reflects some sort of 
drafting error. They argue further that once Puerto Rico is eligible 
for chapter 9 protections, it should apply to debts already incurred.
  Now, whether the exclusion for Puerto Rico from chapter 9 was 
intentional--and I don't believe it was--we should keep in mind that 
there are potential rule-of-law issues at stake when we talk about 
legislative action to retroactively alter the terms of debt contracts. 
Puerto Rico's creditors entered into their contracts with the various 
existing risks priced into the agreements in the form of interest rates 
and other terms. If the island had been eligible for chapter 9 
bankruptcy prior to entering into those agreements, creditors would 
have formed different expectations, likely leading to different terms, 
including differing interest rates that could have reshaped the demand 
for Puerto Rico bonds. This is not rocket science. This is finance 101.
  We should be cautious about any legislative action that would alter 
the terms of existing contracts. At the very least, we should consider 
what impact extending chapter 9 to existing Puerto Rico obligations 
would have on credit transactions moving forward, given that parties 
set credit agreements based upon the laws they expect to apply. If 
parties believe there is a real possibility that Congress might 
retroactively change those laws in the future, they are likely to seek 
different terms or reevaluate a contract's potential worth. Even so, it 
is not at all clear that our amending chapter 9 to allow access for 
Puerto Rico will solve the debt problems of Puerto Rico.
  Officials from the Obama administration have argued that chapter 9 
would only cover about 30 percent of Puerto Rico's outstanding 
obligations and, as a result, even broader debt restructuring authority 
is necessary. Therefore, those in Congress with proposed solutions that 
center only on chapter 9 bankruptcy are apparently not aware of the 
administration's position. However, the other nonbankruptcy proposals 
we have seen--which would allow Puerto Rico to handle its debt on its 
own--are also lacking. For example,

[[Page 18645]]

we have seen proposals to allow the Federal Reserve to purchase debt 
issued by Puerto Rico and to authorize the Treasury to guarantee bonds 
issued by the Government of Puerto Rico or any of its 
instrumentalities. Of course, this approach would run the risk of 
setting very bad precedents for future insolvent entities and is 
fraught with moral hazard.
  Ultimately, those pushing to restructure Puerto Rico's debt as the 
sole solution tend to want to simply blame the problems on the 
creditors, using loose terms like ``hedge funds'' or ``vulture funds.'' 
For these people, punishing the creditors is their desired focus, not 
because it is a viable solution but because, at the end of the day, an 
opportunity for populist rhetoric is itself a valuable commodity 
heading into a contentious election cycle.
  While that approach may help some around here appeal to their 
political base, it does precious little to help the people of Puerto 
Rico and ignores the fact that a number of the creditors are middle-
class investors and retirees from virtually every U.S. State and 
territory--from Utah to New York, to Puerto Rico itself.
  Ultimately, whatever case can be made for restructuring authority for 
Puerto Rico's debt, there may not be an urgent need for that authority 
to be granted right away. This is evidenced by the fact that despite 
several months of debate surrounding the issues, Puerto Rico has only 
recently begun negotiating with some of its creditors. I would hope 
that if the need for relief is in fact dire, the Government of Puerto 
Rico will waste no time in negotiating and working toward private 
solutions. If there is no urgency on that front, it would be hard to 
argue that there is an urgent need for Congress to consider proposals 
relating to chapter 9 bankruptcy or broader restructuring authority. 
That is question No. 1.
  Let's talk about question No. 2, which deals with tax incentives to 
boost Puerto Rico's economy. On the tax front we have seen proposals in 
Congress to allow residents in Puerto Rico to claim the earned-income 
tax credit and the refundable portion of the child tax credit on the 
same basis as other U.S. taxpayers. Likewise, the Obama administration 
has indicated support for a similar approach, although they have not 
provided any real details as to what their proposal would look like.
  Proposals such as these are problematic for a number of reasons. As I 
mentioned, the residents of Puerto Rico are exempt from the Federal 
personal income tax system, meaning that they do not pay any personal 
Federal income tax. Therefore, offering these refundable tax credits 
would not reduce their tax burden because you can't reduce a tax burden 
that is already zero. In other words, these tax credits would 
ultimately be cash payments offered directly to lower income residents 
of Puerto Rico. On top of that, the earned-income tax credit and the 
child tax credit are already rife with fraud and overpayments when they 
are offered to taxpayers who are required to file a return and can at 
least theoretically incur a tax burden at some future date if their 
income goes up. Extending these same credits to Puerto Rico could very 
well introduce a number of threats to the integrity and administration 
of our tax system.
  Those who issue these types of proposals rarely have a solution to 
these inherent concerns. Moreover, we haven't seen any public 
information from congressional scorekeepers as to how much these 
proposals would cost. I also haven't heard any proponents of this 
approach offer so much as a hint about how they would plan to offset 
the costs or if they intend to offer any offset at all.
  Long story short, most of the tax-related proposals to the Puerto 
Rico situation leave much to be desired. That is not to say we should 
not do anything in this area. There are quite likely tax incentives we 
could offer to better incentivize growth and labor force participation 
and perhaps investment in the Puerto Rican economy. I think it would be 
safe to say Republicans would be open to such a discussion. But to 
date, I haven't seen anything that resembles a serious solution that 
focuses on the Tax Code.
  This brings us to question No. 3, dealing with health care policy, 
which has been the primary focus of a number of our colleagues when it 
comes to these issues. Here in Congress, we have seen some poorly 
constructed proposals that, when boiled down to their essence, would 
allocate more than $30 billion from the general fund directly to Puerto 
Rico. Of course, that is not how the proponents describe their ideas. 
Typically, these proposals are couched as changes to the way Puerto 
Rico's share of Federal health dollars is determined under existing 
programs. However, while the issues are admittedly complex, the result 
is fairly simple: Fiscal irresponsibility would be rewarded to the tune 
of tens of billions of dollars.
  Now, don't get me wrong--we will very likely have to consider these 
ideas to alter the means by which we allocate Federal health funds to 
Puerto Rico. However, if we decide to go that route, it is essential 
that we move forward in a fiscally appropriate and responsible manner. 
To date, I have yet to hear any concrete thoughts from proponents in 
Congress or from our Federal health agencies about how this can be 
done. I have heard, however, that the so-called Affordable Care Act is 
the source of some of the health care-related problems faced by Puerto 
Rico. I will leave it to those who wrote that law and forced it through 
Congress on a partisan basis to explain why that is the case.
  We now come to question No. 4, the possibility of providing Puerto 
Rico with relief from various Federal regulations. We have heard a 
number of ideas in this area, including reforms or exemptions from 
regulations governing labor markets, shipping, energy costs, and 
others. While I am inherently sympathetic to proposals to scale back 
Federal regulations, the issues here are very complex and would become 
very political in a hurry.
  For example, while I haven't taken any straw polls, I think it is 
safe to say that many of my friends on the other side of the aisle 
would reflexively oppose any attempt to mitigate the application of 
Federal minimum wage regulations to Puerto Rico. This would be puzzling 
given that Congress has offered similar relief to other ailing U.S. 
territories in the relatively recent past. On top of that, the Krueger 
Report, which was commissioned by the Government of Puerto Rico along 
with a host of economic analysts across the political spectrum, argued 
that allowing Puerto Rico the flexibility to set minimum wages that 
differ from the Federal levels would have a positive economic impact 
and that the current minimum wage levels do not fit productivity 
conditions on the island. Still, even in the face of all this evidence 
and precedent, my guess is that many of my colleagues would take issue 
with this idea.
  I would expect they would similarly reject out of hand any proposals 
to scale back environmental regulations and rules governing 
transportation even if it could be shown that their regulations were 
having a negative impact and contributing directly to Puerto Rico's 
fiscal and economic predicament. Unfortunately, Madam President, for a 
number of our colleagues here in Congress, commitment to ideology too 
often does not allow room to admit when your policies are not working. 
While the situation in Puerto Rico isn't the first time we have seen 
that come up, I expect we will see that happening a lot if we get a 
chance to consider regulatory relief as a potential solution.
  Those are the four main questions we face with regard to Puerto Rico. 
While they each come with their own sets of difficulties, those are the 
basic categories of solutions we have seen come to light so far. Of 
those four categories, two of them--the tax and the health care 
categories--are interrelated insomuch as Members of Congress and 
administration officials have made them the focus of various ideas to 
help Puerto Rico improve its fiscal situation and perhaps its economy. 
While those putting the tax and health proposals forward have largely 
been silent about what our official scorekeepers--the

[[Page 18646]]

CBO and the Joint Committee on Taxation--will say about the costs of 
their CTC ideas, I have done some of my colleagues' homework for them.
  Adding up the refundable tax credits, including the EITC and the CTC, 
and health-related resource flows, including changes to Medicaid 
allocations, the overall cost looks to be well north of $30 billion and 
likely around $40 billion over the next 10 years. Those are hardly 
insignificant figures.
  Questions of funding and resource allocation are always difficult, 
and they implicate a number of issues. It isn't as simple as just 
deciding to give more health funds to Puerto Rico or access to 
refundable tax credits because doing so would necessarily mean reduced 
funding for other Federal priorities or increased taxes or yet more 
Federal debt.
  True enough, Puerto Rico's problems are multidimensional and complex, 
and I don't know anyone in Congress who is indifferent to the plight of 
these American citizens. Sadly, these facts don't make our unpleasant 
budget arithmetic any easier. If anything, they make it all the more 
complicated. In short, there are no easy answers.
  That said, regardless of how we move forward, we need to have a 
clearer picture of what is going on in Puerto Rico. We need to have the 
fiscal facts regarding the island's indebtedness, funding levels, and 
needs. Yet, to date, we have not seen any recent audited financial 
statements from Puerto Rico, although we have asked for them. Instead, 
we are being asked to rely on statements and cash flow analysis 
commissioned by the Government of Puerto Rico. As of right now, 
finances in Puerto Rico remain extremely opaque and difficult to 
monitor. Congress should demand independent verification of the 
territory's finances before moving forward on any kind of relief 
package.
  Moreover, while we are hearing horror stories of inadequate cash flow 
and a liquidity freeze in Puerto Rico, it is difficult to ascribe much 
urgency to the situation when we are still seeing and reading about 
relatively large outlays for questionable expenses. Indeed, it is hard 
to believe an entity is in danger of running out of cash when it is 
paying for a broad public relations and lobbying campaign and when 
officials are talking about protecting hundreds of millions of dollars 
in year-end bonuses for government employees.
  This brings us to yet another difficult question. I suppose you could 
call this question No. 5. What can we do to ensure that Puerto Rico 
changes its clearly unsustainable fiscal course? No matter what we do 
with regard to debt restructuring, tax policy, health care policy, or 
regulatory relief, the solution will ultimately be meaningless if we 
don't take steps to ensure that Puerto Rico doesn't simply continue on 
the fiscally irresponsible path that brought them to this mess in the 
first place. Even if every creditor gets a massive haircut and all the 
requested resources are channeled directly to the island, steps need to 
be taken to avoid getting into this situation again in the future.
  For some time Puerto Rico has spent more than it takes in from 
revenues and receipts and has covered the difference with debt. The 
debt that has been issued has tapped out virtually every possible 
future receipt of the government, and basic budget arithmetic has 
caught up with this unsustainable fiscal recipe and has effectively 
shut Puerto Rico out of funding markets.
  In short, Puerto Rico must move to policies that are fiscally 
sustainable. Madam President, that is not me trying to impose on Puerto 
Rico's sovereignty. That is not an agenda of ``austerity'' at work. It 
is just the simple budget arithmetic of the situation. Before we 
undertake any efforts to provide relief or assistance to Puerto Rico, 
we need to give this simple math its proper consideration and demand a 
workable plan for the future. I would like to see Puerto Rico submit 
such a plan, and that plan is going to have to include how they resolve 
the overwhelming burden of government down there when they have allowed 
it to grow out of control and become the employer of last resort.
  For its part, the Obama administration has chosen to remain 
relatively vague on this somehow. In October, we saw a joint statement 
from Treasury, the Department of Health and Human Services, and the 
National Economic Council outlining a general plan which they called a 
``Roadmap for Congressional Action.'' This roadmap contained many of 
the same general proposals I have discussed today with regard to 
bankruptcy relief, tax credits, and health spending. Conspicuously 
absent were any proposals for regulatory relief for Puerto Rico. Also 
absent were any real cost estimates or proposed offsets, just some 
lipservice to the need to undertake these changes in a ``fiscally 
responsible'' way.
  I have made inquiries to various agencies, including Treasury and 
HHS, with little in the way of detailed response to many of these 
issues at stake here. It remains puzzling to me that in the midst of 
what some in the administration are calling a ``humanitarian crisis,'' 
we are seeing very little engagement from our health agencies, 
particularly when so many have been arguing that the crisis stems in 
large part from the lack of health care funding in Puerto Rico.
  It also seems that provisions of taxpayer-funded technical 
assistance--which I would think would be considered in any package 
aimed at Puerto Rico--may be rendered moot given that, as I understand 
it, Treasury officials are working to wedge such a system on the 
sidelines into appropriations vehicles. Needless to say, before 
Congress can even begin to consider a significant legislative package 
to address the situation in Puerto Rico, we need more information from 
the administration about what it is now doing and what it plans to do 
in the near future. Put simply, it would not be productive for Congress 
to move forward on a legislative vehicle costing billions of dollars, 
if not tens of billions of dollars, without knowing beforehand if that 
legislation contradicts or conforms to the plans of Federal agencies.
  Long story short, Madam President, this will likely be a significant 
undertaking. There are a lot of ideas floating around. Some may work; 
others clearly will not. As the chairman of the Senate committee with 
jurisdiction over our Tax Code and most of the relevant health 
programs, I am more than willing to work with my colleagues on both 
sides of the aisle to find a bipartisan path forward. To accomplish 
that goal, we need everyone involved to be upfront and willing to work 
together. That goes for Members of Congress, the administration, and 
the Government of Puerto Rico. Everyone needs to come clean about the 
current state of affairs, the specific needs and amounts requested, the 
actual costs of any legislative or administrative proposal, and whether 
they want to offset costs or simply incur more Federal debt. Right now, 
too many people are willing to throw out demands and vague proposals--
with the price tag as high as $30 billion to $40 billion--accompanied 
by a lot of political rhetoric. That is precisely what we do not need.
  It would be very easy to play politics with this issue. My hope is 
that enough of us will be able to set that aside to allow Congress to 
do right by our fellow citizens in Puerto Rico. There are some who 
believe that crass politics may be playing a role here and that some 
would throw Puerto Rico to the dogs so that more and more people will 
immigrate to Florida for political purposes.
  I hope that is not true. I can't believe that is true, but it has 
been stated. I hope we can come together as Democrats and Republicans 
to solve this problem. Puerto Rico is going to have to help us to know 
what to do. I suspect the creditors are going to have to help us, too, 
or we are going to have to help them as well. I stand ready, willing, 
and able as chairman of the Finance Committee to solve these problems. 
But so far we haven't even received the right financial statements from 
Puerto Rico, and we can't move ahead without having clear-cut 
information that shows us what is going on, what the problems are, what 
we have to do, and how to do it.

[[Page 18647]]

  I want to do whatever it takes to help Puerto Rico resolve these 
problems, and I would like to see Puerto Rico itself resolve them. It 
may take some help from us; it may take some help from creditors. I 
would like to see them sit down with creditors before we come up with 
some colossal Federal program that is going to basically hurt 
everybody. But I am open, and I sure as heck want to get this problem 
solved.
  I like the people of Puerto Rico. I think they deserve better 
treatment than this. But they also got themselves into this problem by 
requiring too much of the central government and spending more and more 
all the time, with more and more central government employees that they 
don't need. That is a large part of this problem.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Florida.
  Mr. NELSON. Madam President, this Senator from Florida doesn't think 
it is true that Puerto Rico is having such economic chaos that the net 
result is that Puerto Ricans--who are American citizens--move to 
Florida. The fact is that some are moving to Florida, I would say to 
the distinguished Senator from Utah, because of the economic 
deprivation of the island.
  It would seem to me, as someone who has looked at this issue and has 
been to the island and spoken to the leaders, that there is an 
essential element of fairness here. If the bankruptcy laws are allowed 
to apply to all States and municipalities, why would those bankruptcy 
laws not apply to Puerto Rico and its need to reorganize its finances 
as well?
  Mr. HATCH. Will the Senator yield?
  Mr. NELSON. I will. Let me make this statement.
  There is another part of unfairness, and that is that Puerto Ricans 
are not being treated the same way under the Medicare and Medicaid laws 
as well. To this Senator from Florida, who is close to the Puerto Rican 
people, it does not seem to be the fair thing.
  Regardless of what the issue is with regard to how they got into 
economic trouble, the fact is they are in economic trouble. The 
question is, How are we going to get them out of economic trouble?
  Of course, for purposes of a question, I yield to the distinguished 
Senator, my chairman of the Finance Committee.
  Mr. HATCH. I appreciate my friend and colleague from Florida. I too 
understand that he understands a lot about this.
  Look, bankruptcy laws do not apply. That doesn't mean we can't change 
that. I am not sure that is the way to do it. We are going to have to 
have some real information before we can move in that direction--which 
may be dangerous.
  I do think it is incumbent upon the Puerto Rican leadership to 
provide us with audited financial statements, so we really know what 
the problems are, so we can then approach this in an intelligent, 
reasonable, healthy, loving way. I am for getting this problem solved, 
but I am not for just throwing money at it when we know their central 
government is completely bloated and that is what is causing some, if 
not most, of the problems. At least that is what we have been told.
  I am happy to look at financials. I am happy to look at whatever 
suggestions are made. Not that I am that important, but we can move if 
we know what we are talking about. I am not about to move on the backs 
of the rest of the American taxpayers until they clean up the mess that 
is there, and they sit down with their creditors and see what they can 
work out. We ought to be encouraging them. I think their creditors want 
us to encourage them because they think it can be worked out--at least 
the one that I have spoken with.
  So I commit to the distinguished Senator. He knows I don't make 
commitments unless I mean them. I am going to try to solve this 
problem. When I say ``I,'' I mean our committee and our Congress is 
going to try to solve this problem. But let's do it in an intelligent 
way. Let's get all the facts, let's get some cooperation from Puerto 
Rico, and let's get the right financials so we know exactly what we can 
work with. If we can get all that, hopefully we can find some solutions 
here that will bring these folks into balance and give them a shot for 
the future.
  Last, but not least, I agree with the distinguished Senator that they 
have not been treated fairly, and it is time for us to start treating 
them fairly.
  I disagree with him that there are not people in Congress who would 
love to see more and more coming to Florida as Democrats. I am pretty 
sure that is the case, but that shouldn't be the case. We should be 
working on these problems and solving them.
  I commit to the distinguished Senator from Florida who is a great 
Member of our committee that I will work with him, and we will see what 
we can do to solve these problems. But let's get some financials we can 
rely on before we go off on some deep end and miss the boat here.
  Mr. NELSON. The Senator is certainly entitled to the information in 
order to make a reasonable judgment. This Senator is advocating 
fairness in the system.
  There was a time that Puerto Rico was, in fact, included under the 
bankruptcy laws. For whatever reason, a couple of decades ago the law 
was changed and they were treated differently; the same was true with 
Medicare and Medicaid payments. I think, regardless of what their 
financials show, Congress is going to have to take action. So when the 
Senator gets the information he wants, then I hope we can act forthwith 
because this is a problem that is with us at the moment. They are about 
to the point that they cannot make the payments on their debt 
obligations. So the day of reckoning is basically here.

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