Senate Energy Hearing on Options for Puerto Rico
Senate Energy and Natural Resources Committee
“Puerto Rico: Economy, Debt, and Options for Congress”
Thursday, October 22, 2015
Key Topics & Takeaways
- Chapter 9: Ranking Member Maria Cantwell (D-Wash.) asked the witnesses whether they support providing Puerto Rico access to Chapter 9. Padilla, Pierluisi, Weiss and Marxuach answered that they did, and Weiss added that the Administration also is advocating for a broader bankruptcy process that would provide a mechanism for ensuring an agreement with all classes of bondholders.
- Criticism of Funds: Sen. Bernie Sanders (I-Vt.) commented that Puerto Rico is going through a “human tragedy” and argued that Wall Street “vulture funds” are trying to “take blood from stone.” He said funds made risky investments and should not expect to get their investments back while children go hungry.
- Treasury Assistance: Sen. Elizabeth Warren (D-Mass.), while agreeing that bankruptcy legislation is needed, said the Treasury Department needs to “show more leadership.” She argued that during the financial crisis, Treasury did all it could to keep banks afloat. She noted that the people of Puerto Rico are not asking for a bailout because, “after all, they aren’t a giant bank,” and urged Treasury to be “just as creative” in helping the people as it was in rescuing banks.
Witnesses
- Antonio Weiss, Counselor to the Secretary, Department of the Treasury
- Pedro Pierluisi, Resident Commissioner for Puerto Rico, House of Representatives
- Alejandro Javier Garcia Padilla, Governor, Puerto Rico
- Sergio Marxuach, Policy Director, Center for a New Economy
- Steven Fetter, Founder and President, Regulation Unfettered
Opening Statements
In her opening statement, Chair Lisa Murkowski (R-Alaska) said that Congress wants to be helpful to Puerto Rico, but that the lack of verifiable fiscal data makes this difficult. She noted that several reports suggest the government will run out of cash in November, acknowledging that the “short-term liquidity crunch is real” and action is needed.
Ranking Member Maria Cantwell (D-Wash.) noted that this hearing would be the first time that Congress hears directly from the Administration on its plans to address the situation in Puerto Rico. She stressed that the 3.5 million Puerto Ricans are U.S. citizens who are facing falling incomes and failing services. Cantwell stated that much of Puerto Rico’s debt was “bought up by Wall Street for pennies on the dollar” and urged action to give Puerto Rico a “key tool for restructuring” by granting access to Chapter 9 of the Bankruptcy Code.
Testimony
Antonio Weiss, Counselor to the Secretary, Department of the Treasury
In his testimony, Antonio Weiss stated that there is “no substitute for legislative action” and stressed that without federal action, the crisis in Puerto Rico would escalate. He then outlined the four components of the plan released by the Treasury Department and the Administration to solve the situation: 1) passage of legislation that provides Chapter 9 protection to Puerto Rican corporations and municipalities, as well as authorization of a broader legal framework that allows for a comprehensive restructuring of all outstanding debt; 2) strong fiscal governance and oversight that would ensure reforms are implemented; 3) removal of Medicaid caps; and 4) boosting economic growth by extending the earned income tax credit to citizens of Puerto Rico.
Alejandro Javier Garcia Padilla, Governor, Puerto Rico
Governor Alejandro Javier Garcia Padilla, in his testimony, said that without federal action, Puerto Rico would soon have to choose between paying creditors and providing services to its people. He added that without the option of bankruptcy, a default would lead to creditors suing the government and driving Puerto Rico into complex and expensive legal battles that would only make the situation worse. “Inaction is not an option,” he said, and Congress will only allow the situation to grow more difficult if it waits to act on the crisis. He expressed support for the Treasury Department’s recommendations, and asked Congress to “give us the tools, and we’ll finish the job.”
Pedro Pierluisi, Resident Commissioner for Puerto Rico, House of Representatives
In his testimony, Pedro Pierluisi said leaders in San Juan and Washington must take “quick steps” to overcome the challenges facing Puerto Rico. While conceding that Puerto Rico must adjust its spending habits and change its “outdated economic model,” he urged that the federal government must act to correct its “immoral policy” toward Puerto Rico and enact a legislative package that would give the island more equitable treatment and provide it access to a fair and orderly legal process to restructure its debt.
Pierluisi then added that the “fundamental problem” which all of Puerto Rico’s issues emanate from is its “undemocratic and unequal political status.” He called for Puerto Rican statehood and insisted that until this is achieved the people would never be treated equally.
Sergio Marxuach, Policy Director, Center for a New Economy
Sergio Marxuach testified that given the magnitude of the challenges facing Puerto Rico, Congress must implement a “comprehensive program.” He warned that without action, the probability of default is very high, and argued that Congress should either provide emergency financing to prevent a default or enact legislation that would expand Chapter 9 to the island’s corporations and municipalities.
Steven Fetter, Founder and President, Regulation Unfettered
In his testimony, Steven Fetter accepted that the fiscal issues facing the island are very serious, but suggested some changes on the energy side that could help the Puerto Rico Electric Power Authority (PREPA) to a more positive outlook. He cautioned against expanding Chapter 9, arguing that investors who had not anticipated the potential for bankruptcy filing would bring legal challenges that could go on for years and that the changing circumstances of the debt would break the faith of the investment community going forward.
Question and Answer
Financial Reporting
Murkowski reiterated her concern on the lack of verifiable financial reports from Puerto Rico and asked whether there are plans to publish independent audits for 2014 and 2015. Padilla answered that the 2014 report should be released in the coming weeks, and noted that this delay used to be significantly longer before his government was in place.
Murkowski asked Weiss if the Treasury Department is comfortable with the financial data available on Puerto Rico and whether it will do anything to help the island produce timely reports. Weiss replied that an essential part of the Administration’s plan is to make an investment in financial reporting systems and provide technical assistance.
Cantwell asked the witnesses whether they support providing Puerto Rico access to Chapter 9. Padilla, Pierluisi, Weiss and Marxuach answered that they did, and Weiss added that the Administration also is advocating for a broader bankruptcy that would provide a mechanism for ensuring an agreement with all classes on bondholders.
Sen. John Barrasso (R-Wyo.) said Congress explicitly prohibited use of Chapter 9 for Puerto Rico and that the Puerto Rican government took advantage of the lower financing costs that resulted from this. He then expressed concern about what would happen when retirees in his district discover that their investments have been negatively impacted by Chapter 9 having been permitted by Congress. Pierluisi answered that Congress retains authority to change bankruptcy law at any time, and argued that investors will be in even worse shape if there is no legal structure for Puerto Rico to handle its debt obligations.
Barrasso asked if the granting of Chapter 9 access would cost Puerto Rico the confidence of investors in the future. Weiss answered that investors already lost confidence in Puerto Rico two years ago when it lost its investment grade rating.
Sen. Elizabeth Warren (D-Mass.) asked if Treasury’s position is that it has no power to help the people of Puerto Rico, absent congressional action. Weis replied that the Administration has organized an inter-agency effort and has worked closely with Puerto Rico’s government, but that the best way forward is to provide broad bankruptcy protection.
Puerto Rico’s Political Status
Sen. Martin Heinrich (D-N.M.) asked if there is any relationship between Puerto Rico’s economic problems and its political status as a U.S. territory. Pierluisi replied that the two are very closely tied, and offered the example of Medicaid benefits that would be extended to Puerto Ricans and cut the government’s deficits if it were a state.
Sen. Ron Wyden (D-Ore.) said the only way to keep such issues from arising again is to resolve the issue of Puerto Rico’s status. He noted a November 2012 referendum in which the majority of Puerto Rican’s voiced support for statehood, and stressed that only full sovereignty or statehood could allow the island to resolve its situation.
Fund Criticism
Sen. Bernie Sanders (I-Vt.) commented that Puerto Rico is going through a “human tragedy” and argued that Wall Street “vulture funds” are trying to “take blood from stone.” He said funds made risky investments and should not expect to get their investments back while children go hungry.
Warren offered similar sentiments about “vulture funds” buying debt at discounts and trying to “squeeze more profits” while Puerto Rico’s government is forced to raise taxes and cut services. She asked what would happen to the island’s economy if funds get what they are demanding. Marxuach answered that this would be “essentially another round of austerity” that would make the recession and economic contraction “even more acute.”
Treasury Assistance
Warren, while agreeing that bankruptcy legislation is needed, said the Treasury Department needs to “show more leadership.” She argued that during the financial crisis, Treasury did all it could to keep banks afloat. She noted that the people of Puerto Rico are not asking for a bailout because, “after all, they aren’t a giant bank,” and urged Treasury to be “just as creative” in helping the people as it was in rescuing banks.
Sen. Mazie Hirono (D-Hawaii) commented that because it “may take a while” for legislation to pass, the Treasury Department should do everything in its power to help Puerto Rico. She asked Padilla if he feels Treasury is doing everything it can. Padilla answered by noting the plan released by the Administration and noting that no one has addressed the Puerto Rican issue as comprehensively as the Administration.
For more information on this hearing, please click here.
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Senate Energy and Natural Resources Committee
“Puerto Rico: Economy, Debt, and Options for Congress”
Thursday, October 22, 2015
Key Topics & Takeaways
- Chapter 9: Ranking Member Maria Cantwell (D-Wash.) asked the witnesses whether they support providing Puerto Rico access to Chapter 9. Padilla, Pierluisi, Weiss and Marxuach answered that they did, and Weiss added that the Administration also is advocating for a broader bankruptcy process that would provide a mechanism for ensuring an agreement with all classes of bondholders.
- Criticism of Funds: Sen. Bernie Sanders (I-Vt.) commented that Puerto Rico is going through a “human tragedy” and argued that Wall Street “vulture funds” are trying to “take blood from stone.” He said funds made risky investments and should not expect to get their investments back while children go hungry.
- Treasury Assistance: Sen. Elizabeth Warren (D-Mass.), while agreeing that bankruptcy legislation is needed, said the Treasury Department needs to “show more leadership.” She argued that during the financial crisis, Treasury did all it could to keep banks afloat. She noted that the people of Puerto Rico are not asking for a bailout because, “after all, they aren’t a giant bank,” and urged Treasury to be “just as creative” in helping the people as it was in rescuing banks.
Witnesses
- Antonio Weiss, Counselor to the Secretary, Department of the Treasury
- Pedro Pierluisi, Resident Commissioner for Puerto Rico, House of Representatives
- Alejandro Javier Garcia Padilla, Governor, Puerto Rico
- Sergio Marxuach, Policy Director, Center for a New Economy
- Steven Fetter, Founder and President, Regulation Unfettered
Opening Statements
In her opening statement, Chair Lisa Murkowski (R-Alaska) said that Congress wants to be helpful to Puerto Rico, but that the lack of verifiable fiscal data makes this difficult. She noted that several reports suggest the government will run out of cash in November, acknowledging that the “short-term liquidity crunch is real” and action is needed.
Ranking Member Maria Cantwell (D-Wash.) noted that this hearing would be the first time that Congress hears directly from the Administration on its plans to address the situation in Puerto Rico. She stressed that the 3.5 million Puerto Ricans are U.S. citizens who are facing falling incomes and failing services. Cantwell stated that much of Puerto Rico’s debt was “bought up by Wall Street for pennies on the dollar” and urged action to give Puerto Rico a “key tool for restructuring” by granting access to Chapter 9 of the Bankruptcy Code.
Testimony
Antonio Weiss, Counselor to the Secretary, Department of the Treasury
In his testimony, Antonio Weiss stated that there is “no substitute for legislative action” and stressed that without federal action, the crisis in Puerto Rico would escalate. He then outlined the four components of the plan released by the Treasury Department and the Administration to solve the situation: 1) passage of legislation that provides Chapter 9 protection to Puerto Rican corporations and municipalities, as well as authorization of a broader legal framework that allows for a comprehensive restructuring of all outstanding debt; 2) strong fiscal governance and oversight that would ensure reforms are implemented; 3) removal of Medicaid caps; and 4) boosting economic growth by extending the earned income tax credit to citizens of Puerto Rico.
Alejandro Javier Garcia Padilla, Governor, Puerto Rico
Governor Alejandro Javier Garcia Padilla, in his testimony, said that without federal action, Puerto Rico would soon have to choose between paying creditors and providing services to its people. He added that without the option of bankruptcy, a default would lead to creditors suing the government and driving Puerto Rico into complex and expensive legal battles that would only make the situation worse. “Inaction is not an option,” he said, and Congress will only allow the situation to grow more difficult if it waits to act on the crisis. He expressed support for the Treasury Department’s recommendations, and asked Congress to “give us the tools, and we’ll finish the job.”
Pedro Pierluisi, Resident Commissioner for Puerto Rico, House of Representatives
In his testimony, Pedro Pierluisi said leaders in San Juan and Washington must take “quick steps” to overcome the challenges facing Puerto Rico. While conceding that Puerto Rico must adjust its spending habits and change its “outdated economic model,” he urged that the federal government must act to correct its “immoral policy” toward Puerto Rico and enact a legislative package that would give the island more equitable treatment and provide it access to a fair and orderly legal process to restructure its debt.
Pierluisi then added that the “fundamental problem” which all of Puerto Rico’s issues emanate from is its “undemocratic and unequal political status.” He called for Puerto Rican statehood and insisted that until this is achieved the people would never be treated equally.
Sergio Marxuach, Policy Director, Center for a New Economy
Sergio Marxuach testified that given the magnitude of the challenges facing Puerto Rico, Congress must implement a “comprehensive program.” He warned that without action, the probability of default is very high, and argued that Congress should either provide emergency financing to prevent a default or enact legislation that would expand Chapter 9 to the island’s corporations and municipalities.
Steven Fetter, Founder and President, Regulation Unfettered
In his testimony, Steven Fetter accepted that the fiscal issues facing the island are very serious, but suggested some changes on the energy side that could help the Puerto Rico Electric Power Authority (PREPA) to a more positive outlook. He cautioned against expanding Chapter 9, arguing that investors who had not anticipated the potential for bankruptcy filing would bring legal challenges that could go on for years and that the changing circumstances of the debt would break the faith of the investment community going forward.
Question and Answer
Financial Reporting
Murkowski reiterated her concern on the lack of verifiable financial reports from Puerto Rico and asked whether there are plans to publish independent audits for 2014 and 2015. Padilla answered that the 2014 report should be released in the coming weeks, and noted that this delay used to be significantly longer before his government was in place.
Murkowski asked Weiss if the Treasury Department is comfortable with the financial data available on Puerto Rico and whether it will do anything to help the island produce timely reports. Weiss replied that an essential part of the Administration’s plan is to make an investment in financial reporting systems and provide technical assistance.
Cantwell asked the witnesses whether they support providing Puerto Rico access to Chapter 9. Padilla, Pierluisi, Weiss and Marxuach answered that they did, and Weiss added that the Administration also is advocating for a broader bankruptcy that would provide a mechanism for ensuring an agreement with all classes on bondholders.
Sen. John Barrasso (R-Wyo.) said Congress explicitly prohibited use of Chapter 9 for Puerto Rico and that the Puerto Rican government took advantage of the lower financing costs that resulted from this. He then expressed concern about what would happen when retirees in his district discover that their investments have been negatively impacted by Chapter 9 having been permitted by Congress. Pierluisi answered that Congress retains authority to change bankruptcy law at any time, and argued that investors will be in even worse shape if there is no legal structure for Puerto Rico to handle its debt obligations.
Barrasso asked if the granting of Chapter 9 access would cost Puerto Rico the confidence of investors in the future. Weiss answered that investors already lost confidence in Puerto Rico two years ago when it lost its investment grade rating.
Sen. Elizabeth Warren (D-Mass.) asked if Treasury’s position is that it has no power to help the people of Puerto Rico, absent congressional action. Weis replied that the Administration has organized an inter-agency effort and has worked closely with Puerto Rico’s government, but that the best way forward is to provide broad bankruptcy protection.
Puerto Rico’s Political Status
Sen. Martin Heinrich (D-N.M.) asked if there is any relationship between Puerto Rico’s economic problems and its political status as a U.S. territory. Pierluisi replied that the two are very closely tied, and offered the example of Medicaid benefits that would be extended to Puerto Ricans and cut the government’s deficits if it were a state.
Sen. Ron Wyden (D-Ore.) said the only way to keep such issues from arising again is to resolve the issue of Puerto Rico’s status. He noted a November 2012 referendum in which the majority of Puerto Rican’s voiced support for statehood, and stressed that only full sovereignty or statehood could allow the island to resolve its situation.
Fund Criticism
Sen. Bernie Sanders (I-Vt.) commented that Puerto Rico is going through a “human tragedy” and argued that Wall Street “vulture funds” are trying to “take blood from stone.” He said funds made risky investments and should not expect to get their investments back while children go hungry.
Warren offered similar sentiments about “vulture funds” buying debt at discounts and trying to “squeeze more profits” while Puerto Rico’s government is forced to raise taxes and cut services. She asked what would happen to the island’s economy if funds get what they are demanding. Marxuach answered that this would be “essentially another round of austerity” that would make the recession and economic contraction “even more acute.”
Treasury Assistance
Warren, while agreeing that bankruptcy legislation is needed, said the Treasury Department needs to “show more leadership.” She argued that during the financial crisis, Treasury did all it could to keep banks afloat. She noted that the people of Puerto Rico are not asking for a bailout because, “after all, they aren’t a giant bank,” and urged Treasury to be “just as creative” in helping the people as it was in rescuing banks.
Sen. Mazie Hirono (D-Hawaii) commented that because it “may take a while” for legislation to pass, the Treasury Department should do everything in its power to help Puerto Rico. She asked Padilla if he feels Treasury is doing everything it can. Padilla answered by noting the plan released by the Administration and noting that no one has addressed the Puerto Rican issue as comprehensively as the Administration.
For more information on this hearing, please click here.