What hap­pens in Puerto Rico won’t stay there

Cecil Whig - - OPINION - Ge­orge Will

Im­mi­grant goes to Amer­ica, Many hel­los in Amer­ica; No­body knows in Amer­ica Puerto Rico’s in Amer­ica! — “West Side Story” — Puerto Rico,

WASHINGTON

an awk­ward legacy of Amer­ica’s 1898 testos­terone spill, the Spanish-Amer­i­can War, is about to teach two things that few Amer­i­cans know: If con­di­tions get bad enough there, its res­i­dents, who are Amer­i­can ci­ti­zens, can come here. And if Congress does not deal care­fully with the mess made by the govern­ment in San Juan, Congress will find it­self res­cu­ing gov­ern­ments in Spring­field, Illi­nois, and other state cap­i­tals.

Puerto Rico’s ap­prox­i­mately 18 debt-is­su­ing en­ti­ties have debts — ap­prox­i­mately $72 bil­lion — they can­not re­pay. The Govern­ment De­vel­op­ment Bank might miss a $422 mil­lion pay­ment due in May, and the cen­tral govern­ment might miss a $2 bil­lion pay­ment in July. Congress will not en­act a “bailout,” mean­ing an in­fu­sion of U.S. tax­pay­ers’ money.

But some Democrats — per­haps an­tic­i­pat­ing a day of reck­on­ing for their one-party state of Illi­nois, and nur­tur­ing their in­dis­sol­u­ble mar­riage to govern­ment em­ploy­ees unions, some of which have helped re­duce Puerto Rico to pros­tra­tion — want to re­ward the San Juan govern­ment’s self-in­dul­gence. They fa­vor pour­ing more Medi­care, Med­i­caid and other ben­e­fits into the is­land. They also fa­vor giv­ing pro­tec­tion of union­ized govern­ment em­ploy­ees’ pen­sions pri­or­ity over pay­ments even to hold­ers of gen­eral obli­ga­tion bonds guar­an­teed by the ter­ri­tory’s con­sti­tu­tion. Although Puerto Rico’s per capita in­come ($11,331) is about half of that of the poor­est state (Mis­sis­sippi, $20,956), Democrats op­pose al­low­ing Puerto Rico to lower the hourly min­i­mum wage. The U.S. min­i­mum, $7.25, which ap­plies to the is­land, is two-thirds of the av­er­age is­lander’s wage, which in­creases un­em­ploy­ment and hence emi­gra­tion to the main­land. Some Democrats even want the earned in­come tax credit and child tax cred­its paid to Puerto Ri­cans even though they do not file per­sonal fed­eral in­come tax re­turns.

Sen. Or­rin Hatch, R-Utah, may also have his eye on Illi­nois and other states sub­ju­gated by the axis of the Demo­cratic Party and govern­ment em­ploy­ees unions. He wants leg­is­la­tion for Puerto Rico to re­quire U.S. state and lo­cal gov­ern­ments, al­most 60 per­cent of which last year failed to make full pen­sion con­tri­bu­tions, to hon­estly state their pen­sion li­a­bil­i­ties. Puerto Rico has a $44 bil­lion un­funded pen­sion li­a­bil­ity.

The most com­plex Puerto Rico is­sue is what treat­ments should be au­tho­rized for var­i­ous cat­e­gories of bond­hold­ers. Shed few tears for those who, by buy­ing Puerto Rico’s (or Illi­nois’) debt, en­able the sort of high-spend­ing, vote-buy­ing gov­er­nance that bankrupted Detroit and soon will have Illi­nois beg­ging for what does not and should not ex­ist — a bank­ruptcy op­tion for states. Puerto Rico’s debts should not be re­struc­tured in a way that sets a prece­dent al­low­ing Illi­nois to dodge both debts and re­forms, par­tic­u­larly re­forms per­tain­ing to govern­ment em­ployee unions that have contributed to the ter­ri­tory’s dys­func­tion. The more Puerto Rico is al­lowed to evade ex­ist­ing legal pro­cesses and the need to ne­go­ti­ate with cred­i­tors, the more lee­way it will have to re­sist re­forms.

Puerto Rico’s po­lit­i­cal class re­coils from a con­trol board ex­er­cis­ing fed­eral over­sight, which Gov. Ale­jan­dro Gar­cia Padilla calls a “shame­ful and de­grad­ing” mea­sure to de­prive the is­land “of its own govern­ment.” But cur­tail­ing this class’ dis­cre­tion might not be seen as a de­pri­va­tion by the 71 per­cent of Puerto Ri­cans who in a re­cent poll fa­vored an over­sight board for a govern­ment that is warn­ing about be­ing un­able to fuel po­lice cars and fund school ser­vices.

The pres­i­dent of the ter­ri­tory’s senate likens fed­eral over­sight to “the worst colo­nial sub­ju­ga­tions” and The Washington Post wor­ries about “the le­git­i­mate pre­rog­a­tives of the is­land’s leg­is­la­ture.” But what are the proper pre­rog­a­tives of a men­di­cant leg­is­la­ture avidly seek­ing max­i­mum lee­way to repu­di­ate debts?

Be­cause the is­land is a U.S. ter­ri­tory, what hap­pens there will not stay there: Amer­ica needs to pre­vent, or min­i­mize, a hu­man­i­tar­ian cri­sis, some of which would be ex­ported to Amer­ica. But ame­lio­ra­tive mea­sures must be made con­di­tional on fis­cal, la­bor and other re­forms on the is­land.

Amer­ica ac­tu­ally needs to have a salu­tary cri­sis in Illi­nois. It will be salu­tary be­cause it will be a cau­tion­ary ex­am­ple for other states if Illi­nois suf­fers, with­out of­fload­ing pain on tax­pay­ers else­where, the se­vere con­se­quences of decades of ru­inous choices. And Puerto Rico’s trou­bles will ben­e­fit Amer­ica if the bond mar­ket, sobered by a demon­stra­tion that govern­ment bonds can be risky, be­comes a re­straint on state leg­is­la­tures by rais­ing the cost of bor­row­ing where the leg­is­la­tures are most ir­re­spon­si­ble.

Ge­orge Will is a syn­di­cated colum­nist. Con­tact him at georgewill@wash­post.com.

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