Jacob Lew, the United States Secretary of the Treasury, recently spoke before a subcommittee of the Senate Appropriations Committee to draw attention to Puerto Rico’s current debt crisis. Lew urged the subcommittee to act in a timely manner, especially as there are concerns about the Senate not being able to reach a decision by the March 31 deadline set by Speaker Paul Ryan.
[graphiq id=”af6r24Ghndb” title=”Gross Public Debt of Puerto Rico” width=”600″ height=”523″ url=”https://w.graphiq.com/w/af6r24Ghndb” link=”http://time-series.findthedata.com/l/9281872/Gross-Public-Debt-of-Puerto-Rico” link_text=”Gross Public Debt of Puerto Rico | FindTheData”]
Lew is just the latest in a group of people who have been urging Congress to take action, as Congressional Democrats, members of the U.S. Treasury Department and Puerto Rican leaders have all been putting pressure on Congress to act. Some of the suggestions Lew offered included the prospects of debt restructuring and/or new financial oversight authorities in Puerto Rico. Lew also spoke in favor of a proposal that would give Puerto Ricans the ability to receive the benefits of an earned income tax credit.
The idea of an oversight board is particularly relevant in the case of Puerto Rico, as one of the largest contributing factors to the $70 billion debt crisis is government overspending due to a combination of political corruption and lack of oversight.
Should Puerto Rico also be given access to debt restructuring, they will have the ability to work within a framework that operates similarly to bankruptcy practices within the United States. The restructuring would be done through the courts who would arbitrate any disputes that weren’t settled by stakeholders and their respective advisory boards.
An earned tax credit could also offer a solution to the crisis, as it would serve to alleviate Puerto Rico’s financial burden on a more personal level. It would do so by benefitting individual workers and their families by offering new, refundable tax credits that could potentially reduce the amount of taxes each individual owes. While the Earned Income Tax Credit proposal would cost about $600 million every year, Lew also explained that creating oversight committees and enabling debt restructuring in Puerto Rico would come at cost the United States government.
Senator Robert Menendez (D-NJ), also came to Congress with a plan, as he put forth a proposal to add about $45 billion in unfunded pension liabilities to the list of creditors.
Republican lawmakers are currently in the process of creating a fix that will alleviate the current debt crisis faced while also protecting the future of a pension system in Puerto Rico. However, while it is up to Republicans to create the first draft of the bill, Democrats will continue to be able to contribute as the bill must be passed to and approved by President Barack Obama.
While Ryan’s deadline is at the end of March, there still does not seem to be an easy fix in sight. Should no agreement be reached by May, however, Puerto Rico Governor Alejandro Garcia Padilla has told Congress that Puerto Ricans will be burdened with cuts to public services in addition to the debt already resting on their shoulders.