Last night, the Senate passed a bill addressing Puerto Rico’s debt crisis. Today, President Obama signed it—just one day before the territory’s government would face a $1.9 billion dollar default.
The Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA, establishes an independent control board appointed by the President and responsible for managing Puerto Rico’s spending and debt recovery, including plans for funding the territory’s public pensions. It also imposes a retroactive stay on litigation from the territory’s creditors against Puerto Rico’s government and includes a provision that could lower Puerto Rico’s minimum wage for workers 25 and younger below the current federal minimum of $7.25. PROMESA provides no federal funds for direct debt relief.
The bill was passed 68-32 in the Senate by a bipartisan coalition and earned qualified praise from both the liberal Center for American Progress and the conservative American Enterprise Institute. The bill was also opposed by legislators on both sides of the aisle and sharply criticized by progressives including Democratic presidential candidate Bernie Sanders, who presented an alternative plan for Puerto Rico earlier this month.
“In my view it is a very, very, very bad piece of legislation,” Sanders said at the National Association of Latino Elected and Appointed Officials conference in Washington last week. “[W]e are taking away virtually all of the political and democratic rights of the people of Puerto Rico. We are treating them as an absolute colony.”
Much of the criticism from progressive circles is centered around the seven-member control board that will be appointed to supervise fiscal policy and right the territory’s finances. The board will be entirely unelected and only one of its seven seats is specifically saved for a resident of Puerto Rico. A provision from an early version of the bill introduced by Republican Wisconsin Congressman Sean Duffy in April that would have reduced the minimum wage for young workers in the territory specifically to $4.25 was also roundly condemned. (The minimum wage provision of the passed bill seems to open the door to a lowering of the minimum wage after the expiration of the control board.)
A complex mix of pressures have led to Puerto Rico’s current crisis. Ten years ago, a section of the tax code granting breaks to manufacturers in the territory expired, contributing to an economic downturn. Additionally, bonds that the Puerto Rican government issued in order to finance the government, made tax free and therefore attractive to investors by the federal government, led to a debt pileup that became difficult to pay down as the economy worsened. Puerto Rico is still expected to default on portions of its over $70 billion in debt tomorrow, although the bill’s passage is likely to quell some unease within the territory and cool the reactions of creditors.
Upon PROMESA’s passage, Puerto Rico Governor Alejandro García Padilla wrote that the bill would contribute to solving the territory’s immediate debt problems but expressed reservations about the bill’s more controversial provisions, including the control board.
“It creates an oversight board that unnecessarily undercuts the democratic institution of the Commonwealth of Puerto Rico,” he wrote. “But facing the upsides and downsides of the bill, it gives Puerto Rico no true choice at this point in time.”