WASHINGTON — The Senate Finance Committee chair is pressing Treasury Secretary Jack Lew for the administration's positions on Puerto Rico, including whether it supports giving the troubled territory's public authorities access to bankruptcy protection under Chapter 9.
The request by Sen. Orrin Hatch, R-Utah was made in a
The letter comes in response to mounting concerns about Puerto Rico's financial health, set off most recently when Gov. Alejandro García Padilla raised the possibility of default, saying the commonwealth's $72 billion public debt is not payable without restructuring.
"Unfortunately for residents of Puerto Rico, the commonwealth has made unsustainable government benefit promises that have been papered over for far too long with debt-fueled expenditures which fail to align benefits with underlying economic fundamentals such as productivity, leading to the ultimate prospect of debt default," Hatch said in the letter. "Tragically, unsound financial decisions of government officials have led to a sharp rise in outmigration."
The senator's letter includes a page and a half of questions and gives Lew two weeks to respond.
Hatch asked whether the administration is considering appointing a special mediator or arbitrator to work with the troubled territory, something previously called for by Sen. Chuck Grassley, R-Iowa, who chairs the Senate Judiciary Committee.
He also asked Lew to detail any steps Treasury's Office of State and Local Finance has taken to address the situation in Puerto Rico. The office is tasked with, among other things, developing potential federal policy to respond to issues that emerge in municipal financing markets. Puerto Rico's problem "certainly qualifies as an emerging issue," the senator told Lew.
The letter noted Lew's position as chair of the Financial Stability Oversight Council, and asked him if he agrees with the assessment in FSOC's latest annual report that "despite problems exhibited by Puerto Rico, there has been little spillover thus far to the broader municipal bond market."
Hatch asked what advice Treasury officials have been offering to Puerto Rico and if they have pledged any federal resources to the territory. He asked if Treasury expedited the flow of general funds from the U.S. to Puerto Rico.
Hatch also wants to know if the administration has appointed anyone to manage federal aid packages to Puerto Rico, as it did with Detroit.
He asked if the administration is considering any executive actions with regard to tax laws or rules regarding the territory.
Specifically, he questioned a Puerto Rican excise tax that the Internal Revenue Service currently treats as eligible for a foreign tax credit. Right now, the tax brings the Puerto Rico Treasury $1.9 billion a year, but tax law experts have raised questions about the legality of allowing the credit. Hatch asked Lew when the Treasury will finish assessing whether the tax is eligible.
The letter also asks whether Puerto Rico should be exempted from the Jones Act, a maritime law, or made eligible for exemption from the federal minimum wage law.
The bankruptcy question relates to bills introduced in both chambers of Congress that would give Puerto Rican municipalities and other public entities access to Chapter 9 protection. There has been no movement on either one. While a number of Democrats support the bills, Republicans do not. That could change, according to experts following the crisis, if the commonwealth's woes start spreading to the broader bond market or mainland economy.
