James Glassman Gets It Wrong on Puerto Rico

“The Right Medicine for Ailing Puerto Rico,” by James Glassman in The Washington Examiner May 12^th contains many false statements and inaccuracies.

The most serious problem, however, may be Glassman’s credibility. His argument in the op-ed directly contradicts testimony he delivered last July 30^th to the House of Representatives Foreign Affairs Western Hemisphere Subcommittee: “Chapter 9 bankruptcy, which applies to cities and municipal agencies, could be adapted by Congress to Puerto Rico and provide a far better basis for an orderly disposition of assets in the case of default than the island’s home-grown, quickly passed Recovery Act [local law] remedy.” In the May 12^th op-ed, he wrote that “Chapter 9 would be a disaster.”

In addition to directly contradicting himself, Glassman makes misleading claims and blatantly false and uninformed statements in his op-ed. For example:

• Statement: “The president of Puerto Rico, Alejandra Garcia Padilla…”
• The Facts: The President of Puerto Rico is Barack Obama. Puerto Rico is a U.S. territory. Alejandra Garcia Padilla is the territorial governor.

• Statement: Puerto Rico has a population of “just 3.7 million.”
• The Facts: This statistic is several years old. According to U.S. Census data, Puerto Rico’s population fell from 3,726,157 in 2010 to 3,548,397 in 2014, a loss of 4.7% in four years.

• Statement: “Some in Congress … are pushing special status for Puerto Rico in U.S. bankruptcy courts … Chapter 9 is reserved for a municipality…[t]hat description does not, of course fit Puerto Rico … changing the law to allow Puerto Rico to file Chapter 9 would certainly open the floodgates for irresponsible U.S. stats to demand equal treatment.”
• The Facts: The bill, H.R. 870, would treat the territorial government exactly as a State government is treated now in Chapter 9. It would not allow for Puerto Rico to file under Chapter 9. It would only give the territorial government the same authority Chapter 9 gives State governments to enable municipalities to restructure financial obligations.

• Statements: “[I]f Chapter 9 is applied to Puerto Rico, it will be unfair to investors who bought bonds before any change in bankruptcy rules was contemplated.”
• The Facts: Congress has well-established authority under the Constitution to enact bankruptcy legislation that applies to existing debt. States that have relied on Chapter 9 authority have used it with respect to existing debt. Congress and legislatures enact many other laws that affect investments. Investors know that laws can be changed. In addition, Puerto Rican bonds were popular because they are triple tax exempt (from federal, state and local taxes) in the 50 States. This triple tax exemption has always been their selling point – not Puerto Rico’s obscure lack of coverage under Chapter 9. The claim investors made purchases while contemplating Puerto Rico’s treatment under Chapter 9 is false.

• Statement: “the government-run power company … has been negotiating with lenders and making good progress.”
• The Facts: Despite several meetings, there has been no negotiating and no progress.

• Statement: “It’s doubtful Chapter 9 is the answer for any government …Harrisburg, Pa. … tried to file Chapter 9 … But … Gov. Tom Corbett intervened and appointed a receiver, who found a way to restructure crushing debts without … bankruptcy court … [T]he solution is a control board, like the one that Congress imposed on Washington D.C.”
• The Facts: The DC Control Board law gave the Board the Federal subsidy for the District, the seat of the Federal government (vs. a territory that exercises the authority of a State under most Federal law). Is the Congress ready to give Puerto Rico a subsidy similar to that for DC? That is what unions and some bondholders want. Additionally, Puerto Rico is already doing the equivalent. At the request of its administration, one house of the legislature has already passed a bill to enable the Government to name an emergency manager for a financially distressed government corporation. Additionally, it has hired a national recognized expert firm in consultation with bondholders to develop a plan to reorganize PREPA’s operations and finances. Funds owning some of PREPA’s bonds have made a reorganization proposal that the expert reorganization firm and the Government have rejected (underscoring the lack of progress between PREPA and the bondholders) saying that Chapter 9 authority is needed to at least get the bondholders to negotiate fairly.

• Statement: “Chapter 9 would be a disaster, both for Puerto Ricans and for Americans.”
• The Facts: Puerto Ricans are Americans. They were granted U.S. citizenship in 1917.