Democracy Now!

Mon May 8, 2017

Puerto Rico’s Financial Future Now in the Hands of a Single Judge Overseeing Massive Bankruptcy

Puerto Rico has announced plans to close 179 public schools just days after filing for a form of bankruptcy protection, seeking to restructure $123 billion in debt and pension obligations, in the largest local government insolvency in U.S. history. The move is likely to slash money for healthcare, pensions and infrastructure. The territory petitioned for relief under Title III of the PROMESA law, which recognizes that Puerto Rico is not part of any state and must in some ways be treated as sovereign. Puerto Rico is legally barred from using Chapter 9, the bankruptcy route normally taken by insolvent local governments.

AMY GOODMAN: I’m Amy Goodman, on the road in Chicago. Juan González is in New York.

JUAN GONZÁLEZ: We go now to Puerto Rico, which filed for a form of bankruptcy protection last week, seeking to restructure $123 billion in debt and pension obligations, in the largest local government insolvency in U.S. history. The move is likely to slash money for healthcare and pensions and infrastructure. Over the weekend, the island moved to close 179 public schools. The territory petitioned for relief under Title III of the PROMESA law, which recognizes that while Puerto Rico is not a state, it must in some ways be treated as a sovereign. Puerto Rico is legally barred from using Chapter 9, the bankruptcy route normally taken by insolvent local governments. Meanwhile, President Trump has signed a government spending bill that included $295 million in Medicaid funding for Puerto Rico’s healthcare system. The island’s governor, Ricardo Rosselló, spoke to NPR about the public spending cuts.

GOV. RICARDO ROSSELLÓ: I made no secret, when I ran for office, that we needed to reduce the size of government, we needed to be more effective. And, frankly, just talking about the schools that are closing, that was part of our proposal a couple of months back. It has nothing to do, really, with Title III. And some of the strategies that will ensue, we’ve already stated that they’re going to happen. You know, we need to reduce our expenditures in healthcare, although we don’t want to reduce the access. We really need to reduce the expenditures in education. And what we’re doing is we’re tackling the bureaucracy as opposed to education itself.

AMY GOODMAN: That’s Puerto Rico Governor Ricardo Rosselló, speaking to NPR over the weekend. Now, Juan, you’ve been following this news very closely. You write extensively about it. You’ve given major university lectures about it. Talk about what’s happened in Puerto Rico.

JUAN GONZÁLEZ: Well, I think the thing to understand is that it’s been nearly two years now since the former governor, Alejandro García Padilla, announced to the world that Puerto Rico could no longer pay its debts. Congress and the Obama administration spent months trying to figure out what to do, without actually giving any direct assistance to Puerto Rico, and finally imposed this colonial control board over the island of Puerto Rico, a board that consistently meets in New York rather than even on the island of Puerto Rico. And now we finally found out last week that the control board has reached the same conclusion that Governor García Padilla announced nearly two years ago, that it is impossible for Puerto Rico to pay all of the obligations it now owes.

And the board made clear that it’s not just $74 billion—that’s the number now that it has stipulated is the bond debt of the island—but there’s another $49 billion in pension obligations that the Puerto Rican government has to its public employees, and it only has about a billion dollars left in cash in its pension funds, which means the pension funds are essentially bankrupt. And so there’s a total of $123 billion that’s owed. Now, you’ve got to understand that number. Detroit, the largest previous bankruptcy in American history, was only $18 billion. This is nine times greater than the Detroit bankruptcy. And it is a sum of money that is almost impossible to grab, to understand. And the control board further stated, in a petition that—when it requested a federal judge to come in, that the island is poised to lose $850 million this coming fiscal year in federal Affordable Care Act funds, which means its Medicaid system will be further in crisis. And that the island will lose $16 billion over the next 10 years as a result of changes in the Affordable Care Act. So, basically, the situation is going—is going to get worse.

So what did the control board do? It said that even if Puerto Rico has more austerity, which—and the austerity, we’ve already reported on the degree of austerity that is occurring—that even with all that austerity, over the next 10 years there will only be, at best, $8 billion left over from annual budgets to pay the bondholders. The bondholders are owed $35 billion over the next 10 years. So that means the—the board is saying, essentially, there’s only 25 cents on the dollar available, even with massive austerity, to pay these bonds off.

So, predictably, the bondholders went crazy. They’ve been going to court. And now the control board has asked for—Chief Justice Roberts did appoint a judge now, Judge Laura Taylor Swain from the U.S. district—Southern District of New York, who is now going to be the judge in charge of deciding exactly how much money the creditors get and exactly what happens in Puerto Rico’s future. So this has now gone from a U.S.-appointed control board now to a federal judge, who essentially is in charge of the economic future of Puerto Rico and how much the bond—the creditors will be paid. And, obviously, the creditors are challenging the PROMESA law, which has created this bankruptcy process, as unconstitutional. So there are constitutional questions, since this law was only passed last June by Congress, that still have to be resolved.

We’re looking at years of, years of litigation, while the economic condition of Puerto Rico continues to deteriorate. And the fundamental issue of that this colonial situation between the United States and Puerto Rico is no longer viable—it is economically impossible to sustain—is the issue that will have to be resolved over the coming months.

AMY GOODMAN: And finally, Juan, the significance of almost 200 schools closing in Puerto Rico?

JUAN GONZÁLEZ: Well, this—there’s no doubt that some schools needed to be closed, because Puerto Rico has lost almost 200,000 students. It’s gone down from a high of about over 500,000 to about 300,000 because of the continuing flight of people from the island, especially young couples with their children. So there’s been a huge drop in the public school population. However, the level of closing of schools is unprecedented. And there’s even talk—some of the control board has been asking for furloughs for teachers, which means—of two days a week—of two days a month, which means two less days of school for public school children. And in addition to that, the control board has been asking for about $450 million in cuts to the public university system of Puerto Rico, which the governor is trying to reduce the level of the cuts and the increased tuitions that would result from that. So there’s a huge crisis in the educational system of the island. That’s only going to continue to push more and more people from Puerto Rico to leave the island.

AMY GOODMAN: Well, Juan, we’re going to link at democracynow.org to all of our coverage of what’s been happening in Puerto Rico and as well as the student protests in San Juan and different places around bankruptcy, around the moves that are going on both in Washington and in Puerto Rico. This is Democracy Now!, democracynow.org, The War and Peace Report. I’m Amy Goodman in Chicago. Juan González is in New York.

Filed under: Puerto Rico

Back to Top ↑