On November 30, Senator Orrin Hatch, the powerful chairman of the United States Senate Committee on Finance, made some remarks outlining his “concerns regarding several proposals aimed at addressing the growing debt crisis in Puerto Rico.” While we agree with Senator Hatch’s calls for openness on all sides, good faith, and setting aside opportunistic political rhetoric, we do find some of his remarks to be rather disappointing and, in some instances, frankly quite puzzling.
However, before we address the substantive arguments raised by Senator Hatch, it is important to get out of the way two misleading “factoids” that tend to cloud the policy analysis.
First, we should address this myth that Puerto Rico has a “bloated public sector.” While it is true that public employment accounts for a larger share of overall employment in Puerto Rico when compared to the U.S. states, it is also true that the United States Government Accountability Office concluded in a 2014 report that “government employment as a share of the population over the age of 15 was 8.7 percent in Puerto Rico and 8.9 percent in the states, respectively, based on Census Bureau population estimates for July 2012.” (GAO, Puerto Rico: Information on How Statehood Would Potentially Affect Selected Federal Programs and Revenue Sources, GAO-14-31, March 2014, pp. 12-13 and footnote 27).
This apparent paradox can be explained by Puerto Rico’s low employment rate and underdeveloped private sector. If government employment in Puerto Rico appears larger as a share of overall employment it is because the private sector in Puerto Rico is small relative the public sector. Now, there are multiple reasons that explain the underdeveloped state of the private sector in Puerto Rico, among these we can point to a complicated permitting system, high costs of doing business, and a large informal economy, but regardless of the reason, it is clear to us that the problem is not that government is too big but that the private sector is too small.
The second threshold issue we must address is this argument that Congress is justified in discriminating against the American citizens of Puerto Rico because they do not pay federal personal income taxes. And this is true as far as it goes for residents of Puerto Rico (Puerto Rico residents do pay payroll taxes in full), but it is also true of a large percentage of Americans, as former presidential candidate Mitt Romney rather bluntly reminded us during the 2012 presidential campaign. Certainly Chairman Hatch is not suggesting that federal benefits should be capped for allAmericans with no personal income tax liability, so why apply that standard to Puerto Rico?
Having disposed of those threshold issues, lets move on to the substantive arguments made by Senator Hatch.
Chapter 9
The first issue the Senator takes up is the question of allowing Puerto Rico’s agencies and municipalities to petition for relief under Chapter 9 of the Bankruptcy Code or some “even broader debt-resolution” mechanism. The Senator is correct when he states that “Puerto Rico is NOT currently eligible for Chapter 9 bankruptcy, meaning that granting them access to this type of relief will require a legislative change to the Bankruptcy Code, which may come with its own set problems.”
In this context, the Senator’s main concern appears to be the effect of “changing the rules” or, in other words, applying retroactively the provisions of Chapter 9 to alter the terms of existing contracts. Here the Senator makes an important omission as well as some puzzling arguments against the application of Chapter 9 to Puerto Rico.
First, the Senator does not acknowledge that it was Congress that inexplicably changed the rules back in 1984 when it drafted language carving out Puerto Rico from the provisions of Chapter 9. Up until 1984, that part of the Bankruptcy Code applied to Puerto Rico in the same manner as it applied to the fifty states. Furthermore, there is absolutely no evidence, as some analysts have claimed, that this exemption from Chapter 9 was enacted in exchange for the triple tax exemption of Puerto Rico debt, which was legislated as part of the Jones Act of 1917.
Second, Chairman Hatch states that there “are potential rule-of-law issues at stake when we talk about legislative action to retroactively alter the terms of debt contracts”. And, of course, the Senator is right when he makes this argument in the context of the retroactive application of amendments, for example, to the federal securities laws or the federal tax code. But we are frankly puzzled when he makes this argument in the context of amendments to the Bankruptcy Code, which exists precisely to provide an orderly process for restructuring already existing debts and obligations.
Third, the Senator seems to imply that buyers of Puerto Rico’s debt would have required a higher interest rate if they had known, ex ante, that Puerto Rico could avail itself of the protections of Chapter 9. We, however, respectfully disagree for several reasons.
We simply have not seen any evidence that the application of Chapter 9 to thousands of other issuers of municipal securities has adversely affected the pricing of those securities. Indeed, ex ante, Chapter 9 could be construed as a form of insurance that would trigger an orderly process for debt restructuring in the event of the insolvency of the debtor. So, ex ante, the availability of Chapter 9 may be seen as a desirable feature.
Furthermore, we have not seen any evidence either that bankruptcy concerns were a material fact affecting the investment decision of any buyers of Puerto Rico debt. In fact, it was probably the triple tax exemption enjoyed by Puerto Rico bonds since 1917 that drove so many investors to buy Puerto Rico’s municipal securities. In other words, it was basically greed and the desire to avoid taxes, not protection from bankruptcy or some form of financial patriotism, which led people to gorge on Puerto Rico debt.
Moreover, ex post, it is highly probable that many holders of Puerto Rico debt currently wish that Puerto Rico could avail itself of Chapter 9 right now, as that would at least remove some of the uncertainty surrounding the restructuring of their investments.
Finally, we agree with those who argue that the power to petition for relief under Chapter 9, by itself, would not solve Puerto Rico’s structural problems. In fact, we strongly support that in exchange for obtaining some form of debt relief, Puerto Rico should be required, just like any other debtor obtaining relief under the Bankruptcy Code, to implement substantial reforms to address the fundamental problems that caused the island’s government to become insolvent in the first place.
EITC
Second, Chairman Hatch opposes the application of the federal tax EITC to residents of Puerto Rico because “offering these refundable tax credits wouldn’t reduce their tax burden because you can’t reduce a tax burden that is already zero. In other words, these tax credits would ultimately be cash payments offered directly to lower-income residents of Puerto Rico.” But that is precisely the point of applying this program to Puerto Rico.
The federal EITC is the most effective anti-poverty program in the United States. Recent research also shows that it encourages work, promotes savings, helps poor families smooth out the effect of unexpected financial shocks, and builds a strong sense of future orientation among recipients. Extending this program to Puerto Rico, which would provide a significant wage supplement to low-income Puerto Rican working families, could be expected to stimulate aggregate demand in the short-run.
Second, it is true that in 2011, the GAO reported that about $17 billion EITC claims were paid in error in tax year 2010. The reasons for the high level of improper payment included high turnover of eligibility, confusion among eligible claimants, and the complexity of the law. Some conservative critics of the EITC have latched on to the relatively high rate of improper payments to claim that the program is being “gamed” by some recipients. However, most of the evidence points to plain old lack of understanding about how the program works. In our view, this problem could be addressed by simplifying the tax schedule to claim the credit, better outreach efforts by the IRS and the training of more non-profit tax preparers.
Finally, the Chairman suggests that “there are, quite likely, tax incentives we could offer to better incentivize growth and labor force participation, and perhaps investment, in the Puerto Rican economy. I think it would be safe to say that Republicans would be open to such a discussion.” This suggestion is quite puzzling to us, as the Senator seems to be making an appeal for openness and frank dialogue on the one hand but, on the other hand, in this instance he stops short of stating just what those “tax incentives” would be. In this regard, we warn of the mistakes made in the past when Puerto Rico designed an entire economic growth strategy based on a federal tax exemption, which was eventually eliminated by Congress.
Regulatory Relief
We agree with Chairman Hatch when he argues that providing regulatory relief to Puerto Rico could be helpful, if Congress enacted legislation, for example, exempting Puerto Rico from coastwise shipping laws (Jones Act of 1920), which require the use of relatively expensive U.S. vessels for trade between Puerto Rico and the U.S., or approving legislation to relax the overly binding income and asset limits that apply to recipients of certain social assistance programs.
However, we disagree with respect to the minimum wage. Some economists have posited that Puerto Rico’s labor market is dysfunctional due to the application of the federal minimum wage to the island and have suggested reducing the minimum wage applicable to Puerto Rico or allowing Puerto Rico to set its own, presumably lower, minimum wage.
We disagree.
A recent analysis of this issue by Arindrajit Dube and Ben Zipperer reaches the following conclusions:
“First, the current inflation-adjusted value of the federal minimum wage is not higher than it was when Puerto Rico first adopted it. Puerto Rico’s minimum wage is worth slightly less today than in 1983, even though its economy, in terms of GDP per capita, has grown by 72 percent.
Second, real wages in Puerto Rico were lower three decades ago. As a result, if we measure the bite of the minimum wage as the ratio of the minimum wage to the average manufacturing wage, the bite was closer to 70 percent when Puerto Rico first adopted the federal minimum wage, much higher than it is today, at 53 percent. (We use the manufacturing wage for this comparison because the median wage series is not available over as long a historical period, to the best of our knowledge.)
Finally, we should add that in an economy with a labor force participation rate of only 40% it is highly unlikely that lowering the minimum wage would provide a strong incentive for people to join the formal labor force. Lowering the minimum wage may lead to more job openings, but is highly unlikely that workers will be lining up to take them.
Cost and Scoring
Chairman Hatch estimates the cost of the proposed policy package at around $30 to $40 billion. It is not clear to us how the Chairman reaches this estimate, but he seems to be including in that figure programs, such as the application of the Child Tax Credit and changes to Medicare, that are not part of the Obama administration’s proposal.
As of the date of this post we do not have all the details regarding the Treasury’s proposal, but the only publicly available cost estimate we have seen, published by Moody’s Analytics, scores the Treasury proposal at around $2 billion per year in today’s dollars. Perhaps it would be advisable to wait for an official scoring by the Congressional Budget Office before throwing around vague figures that may or may not be correct.
To be fair to the Chairman, it is true that there are a lot of people, both in and outside Washington DC, “throw[ing] around demands and vague proposals” as well as endorsing what in our view are, quite frankly, loony ideas about what the federal government should do with respect to Puerto Rico’s financial crisis. All these batty proposals and the noise and heated rhetoric they generate, while perhaps normal in a healthy democracy, are creating a lot of confusion both in Puerto Rico and in Congress. Advocacy efforts by civil society groups would be far more effective if they all stayed on message and endorsed the same agenda for Puerto Rico: (1) enhanced Chapter 9; (2) Medicaid parity; (3) application of the federal EITC; and (4) some mechanism for federal oversight.
Finally, we agree with Chairman Hatch that helping Puerto Rico is a significant long-term undertaking. Achieving progress requires the goodwill of all parties involved, as well as the willingness, both in the island and in Washington, to set aside the incendiary rhetoric and cheap politicking in order to help Puerto Rico move forward.
martes, 1 de diciembre de 2015 – 12:26 PM Por José A. Delgado
Pierluisi atribuyó la gravedad de la crisis fiscal al gobierno de Alejandro García Padilla por «falta de transparencia» y «falta de disciplina». (GFR Media)
Washington – El comisionado residente en Washington, Pedro Pierluisi, afirmó hoy que «es tiempo de que el Congreso legisle» y ofrezca ayuda de emergencia al gobierno de Puerto Rico para lidiar con su crisis fiscal.
«Con cinco vistas congresionales (en 2015) ya está bueno. ¡Basta ya! Es tiempo de que el Congreso legisle y que, al hacerlo, sea parte de la solución de un problema que ha ayudado a crear», indicó Pierluisi, al declarar en la audiencia del Comité de lo Jurídico del Senado estadounidense.
Pierluisi atribuyó la gravedad de la crisis fiscal al gobierno de Alejandro García Padilla por «falta de transparencia» y «falta de disciplina».
«Cualquier persona que aspire a una posición de liderato en Puerto Rico tiene que aceptar que funcionarios de múltiples administraciones del gobierno de Puerto Rico, salvo algunas notables excepciones, se han caracterizado por un récord de prometer de más y dar de menos, por lo que tiene que haber un plan creíble para romper este círculo vicioso», indicó Pierluisi.
Aplauden el pago de la deuda
Aunque las voces expertas consultadas, no coinciden con la estrategia de la administración García Padilla para cumplir con las obligaciones del BGF
El economista Elías Gutiérrez está en desacuerdo con redirigir ingresos (clawback) de otras agencias o corporaciones para cumplir con las obligaciones, por entender representa desvestir un santo para vestir otro.Agustín Santiago/EL VOCERO
El consenso entre los economistas del país, a pesar de tener opiniones encontradas entorno al método utilizado, es que el gobierno hizo lo que tenía que hacer, pagar los vencimientos pendientes de deuda e intereses del Banco Gubernamental de Fomento (BGF) por $354 millones.
Los economistas coincidieron en que el no haber pagado hubiese tenido una fuerte repercusión en el futuro económico del país y el cierre permanente a los mercados financieros.
En lo que no parecen ponerse de acuerdo es en el método utilizado para efectuar el pago. Para unos el gobierno tiene el dinero para pagar, por lo que no tenían que tomar prestado a corporaciones públicas. Para otros, eso es lo correcto; buscar donde fuese necesario para poder cumplir con su responsabilidad.
El economista Elías Gutiérrez sostuvo que el pagar era la determinación correcta. No obstante, está en desacuerdo con redirigir ingresos (clawback) de otras agencias o corporaciones para cumplir con sus obligaciones, por entender representa desvestir un santo para vestir otro y finalmente siempre hay que buscar con que pagar al final del día. Agregó que este pago emitido tiene que ir acompañado con otras estrategias como la reestructuración del gobierno, reevaluar el sistema contributivo y reducir el gasto, entre otros. “Lograron pagar ahora, pero ya tienen que volver a buscar para el pago pendiente en enero y así sucesivamente. Lo importante aquí es buscar una alternativa real y permanente que les permita continuar emitiendo sus pagos y a su vez mantener la operación, lo que no se resuelve con un Capitulo 9, que solo generará más problemas”.
Para el economista Santos Negrón, la determinación del gobierno de emitir el pago es una alentadora. A su juicio, el no haberlo hecho tendría unas serias repercusiones para el país. Aunque entiende se debió haber buscado una alternativa de repago más permanente, ya que transfiere la incertidumbre para enero, cuando corresponde el próximo pago, el haber pagado devuelve cierta credibilidad en la Isla. Sin embargo, sostuvo que es necesario que el país siga luchando por ayuda del Congreso para poder trabajar con los pagos en el futuro y poder mantener la operación gubernamental.
Negrón dijo que el Capítulo 9 de la Ley de Quiebras sigue siendo una opción viable para la Isla. “Cumplir con ese pago era medular para proteger la Constitución y devolver en algo la credibilidad de Puerto Rico en los mercados financieros que hoy están vetados. Necesitamos esa ayuda federal para no seguir cargando con la agonía y poder ir recuperándonos poco a poco, lo que tomara entre tres a cinco años en lograrse”.
El establecer prioridades ha sido el llamado por mucho tiempo de la economista Heidi Calero, quien entiende que finalmente el gobierno entendió lo que tenía que hacer y lo hizo. “El servicio de la deuda había que pagarlo y se hizo. El medio fue el correcto, sacar de donde había y postergar otros pagos frente al pago inmediato. Ahora hay que acompañar esa acción con reducción de gastos que puede venir de reducción de nómina hasta cierre de agencias. Hay que desarrollar un plan conceptual para activar la inversión en Puerto Rico en segmentos medulares de la economía como las telecomunicaciones, manufactura y sinergias con empresas como Lufthansa, Roosevelt Roads y el Puerto De Las Américas. Me alegra que se haya emitido el pago, de lo contrario se hubiese cerrado permanentemente los mercados financieros para la Isla”.
En tanto, economistas como Carlos Colón de Armas-uno de los ponentes de la vista del Comité de lo Jurídico del Senado federal celebrada ayer- aseguran que el pagar los bonos era lo correcto y lo hicieron, dado que el país tiene el dinero para hacerlo y cumplir con su responsabilidad. “Ahora el gobierno tiene que reducir sus gastos, máxime cuando el problema de liquidez que confronta es uno auto infligido, al no poder acceder a los mercados financieros para manejar sus flujo de efectivo por las acciones tomadas como estrategias para manejar la deuda”.
Graduada de Maestría en Administración de Empresas de la Universidad de Puerto Rico, recinto de Mayagüez y egresada de la Escuela de Comunicación Pública de la Universidad de Puerto Rico, Recinto de Río Piedras, con más de 20 años de experiencia como periodista en prensa escrita, radial y televisiva.
Pocas expectativas sobre acción congresional
Queda poco tiempo para que el Congreso pueda aprobar medidas para asistir a Puerto Rico
El gobernador Alejandro García Padilla y el comisionado residente Pedro Pierluisi saludan al presidente de la Comisión de lo Jurídico del Senado federal, Charles Grassley.AP
El liderato del Partido Popular Democrático (PPD) parece tener pocas o ninguna expectativa de que el Congreso de Estados Unidos actúe para ayudar a Puerto Rico a salir de la crisis fiscal. Al concluir la vista ayer del Comité de lo Jurídico del Senado, la impresión de los políticos del patio es que no pueden contar con el Congreso para solucionar el problema.
“Yo no espero ninguna acción legislativa. Me parece más un planteamiento político”, dijo Rafael Hernández Montañez, presidente de la Comisión de Hacienda de la Cámara. “Yo no espero ningún tipo de acción legislativa más allá de quizás algún tipo de asignación de recursos dentro de la medida presupuestaria. Una medida de desarrollo económico en acuerdo con el gobierno para crear un mecanismo que active la economía para Puerto Rico, eso no”.
El Congreso recesa luego del 11 de diciembre, así que la expectativa del gobierno es que para esa fecha se apruebe legislación federal que asista a la Isla, ya sea un paquete de ayudas económicas o una autorización para que Puerto Rico se acoja a una quiebra. Pero, en la vista de ayer del Congreso, los senadores parecieron más inclinados a una junta federal que a permitir que Puerto Rico se vaya a la quiebra.
Luis Vega Ramos es un Gran Anti-USA, Separatista furibundo, pordiosero que no entiende a la Democracia Americana
El representante Luis Vega Ramos, quien estuvo en la vista de ayer, dijo por su parte que la propuesta de una junta federal, la cual parece tener más respaldo entre los congresistas, “tiene un fundamento antidemocrático”.
“De impulsarse y adoptarse pondría de manifiesto que el gobierno de Estado Unidos tenga que por fin resolver el estatus y abren la puerta para que, si se nombra una junta de control federal, puedan reclamar que la deuda es federal”, dijo Vega Ramos.
Recordó que queda poco tiempo en el Congreso para aprobar cualquier medida.
“El reloj está corriendo y eso va a requerir una cooperación del lado republicano”, dijo Vega Ramos. “Me preocupa que el asunto de Puerto Rico está siendo atrapado en una iniciativa de los republicanos del Senado de pasarle la papa caliente a la administración”.
La opción, dijo, es exigirle acción al presidente estadounidense Barack Obama.
“El dinero en caja para poder cumplir está prácticamente agotado”, dijo. “Hemos recurrido a medidas no recurrentes para tratar de sostener el funcionamiento de las finanzas públicas. Ese sentido de urgencia de que ya no hay tiempo para jugar a la política y que hace falta algún tipo de ayuda para darnos herramientas para reestructurar la deuda, ha llegado”.
Sila/AAV Multiplicaron la Deuda de Puerto Rico Sin Obras – de $27 Billones a $69 Billones Sin Obras – Los Mayores Por Mucho Culpables del Desastre
Rosselló propone comisión conjunta
Por su parte, el precandidato a la gobernación por el Partido Nuevo Progresista (PNP), Ricardo Rosselló, envió una ponencia escrita ante el Comité de lo Jurídico del Senado. Propuso crear una comisión conjunta entre el gobierno de aquí y el gobierno federal para lograr reestablecer la credibilidad de la Isla ante los mercados. Una junta federal, dijo, no es necesaria.
“Con la creación de esta junta, podremos aumentar la credibilidad del gobierno, abriendo los libros a un ente independiente para que así se pueda eliminar la incertidumbre y garantizar el flujo de la información de forma transparente, garantizando así mayor credibilidad y acceso a los mercados fuera de líneas partidistas y lineamientos políticos”, dijo en comunicado de prensa.
En la vista del Comité de lo Jurídico del Senado celebrada ayer participaron el gobernador Alejandro García Padilla, el comisionado residente Pedro Pierluisi; el presidente de Popular Inc., Richard Carrión; el economista Carlos Colón de Armas, el asesor de reestructuración de la firma Houlihan Lokey, Steven Spencer; el exvicegobernador del estado de Nueva York, Richard Ravitch; y Alex Pollock del grupo American Enterprise Institute (AEI).
Más de 15 años de experiencia. Asignada a cubrir temas legislativos.
______________________
Más de 15 años de experiencia. Asignada a cubrir temas legislativos.
For Immediate Release
July 17, 2015
Contact:
Aaron Fobes, Julia Lawless (202) 224-4515
Hatch Presses Administration for Answers on Puerto Rico Debt Crisis
In Letter to Treasury Secretary, Finance Committee Chairman Outlines Concerns & Calls for Orderly Resolution to Address Debt Default in Fiscally Responsible Way
WASHINGTON – Today, Senate Finance Committee Chairman Orrin Hatch (R-Utah) called on the Obama Administration to outline the actions, if any, they are taking toward Puerto Rico to help alleviate the current debt stresses. In a letter to Treasury Secretary Jack Lew, Hatch reiterated his opposition to a federal bailout and asked for the administration’s positions on various issues surrounding Puerto Rico’s indebtedness, governance, and economy.
The text of the letter is below and a signed copy can be found here.
The Honorable Jacob J. Lew
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Lew:
Puerto Rico’s outstanding debt of more than $70 billion—greater than 100 percent of its gross national product (GNP)—is “not payable,” according to Puerto Rico Governor Alejandro Garcia Padilla, raising prospects of default. By some measures, deficits are around five percent of GNP in Puerto Rico which, when coupled with nominal growth of just around one percent, help explain lack of debt sustainability and suggest that Puerto Rico’s debts may indeed not be payable.
Much of the debt issued by the Commonwealth of Puerto Rico, its political subdivisions, and public corporations is “triple-tax-free,” exempt from federal, state, and local taxes in the United States. Few other municipal bonds in the U.S. are similarly triple-tax-exempt in all states. Many municipal bond mutual funds, retirement funds, hedge funds, and distressed debt investors hold debt issued by Puerto Rico and its public corporations, such as the water and sewerage utility (PRASA), state electricity company (PREPA), and highway authority (HTA). Given Puerto Rico’s dire fiscal situation, including limited liquidity and sluggish economy, rating agencies have downgraded debt issued by Puerto Rico, including debt issued by its public corporations. The central government of Puerto Rico effectively includes PRASA, PREAP, HTA, all aspects of the public sector except the municipalities, and retirement funds.
The recent so-called “Krueger Report,” a study commissioned by the Governor of Puerto Rico and authored by former officials of the International Monetary Fund and the World Bank, identifies the dire need for pro-growth reforms in Puerto Rico.[1] According to the report, reforms are needed in Puerto Rico’s: fiscal policies, including debt reduction and expenditure control; labor-market policies (the unemployment rate has persistently been in double digits); “the welfare system [that] makes employment unattractive for workers whose productivity is not much above the minimum wage;” policies that impact energy and transport costs; and “local laws and regulations [which] restrict domestic competition and raise the costs of doing business and uncertainty.”
Unfortunately for residents of Puerto Rico, the Commonwealth has made unsustainable government benefit promises that have been papered over for far too long with debt-fueled expenditures which fail to align benefits with underlying economic fundamentals such as productivity, leading to the ultimate prospect of debt default. Tragically, unsound financial decisions of government officials have led to a sharp rise in outmigration.
I believe that the Obama administration may be in agreement with two reasonable principles to apply to the debt difficulties facing Puerto Rico: 1) there shall not be a federal bailout; and 2) orderly resolution of debt defaults are preferred to chaotic resolutions. As Chairman of the Senate Committee on Finance, I take great interest in this situation and seek additional information regarding the Administration’s views and plans moving forward. To that end, I ask that you provide the following information:
What is the administration’s position on stand-alone proposals to allow Puerto Rico’s government to be treated as a state under chapter 9, including retroactive application to already outstanding indebtedness?
Has the administration given consideration to appointing a special mediator or arbitrator to work with Puerto Rico and its creditors to establish an orderly resolution of a Puerto Rican default?
What is the administration’s position on exempting Puerto Rico from the Jones Act, as recommended in the so-called “Krueger report?”
What is the administration’s position on exempting Puerto Rico from federal minimum wage law, or reducing the level of the federally-imposed minimum wage as President Obama has done in other instances (e.g., delays of scheduled minimum wage increases for American Samoa and for the Northern Mariana Islands), where the President acknowledges that a one-size-fits-all federal minimum wage can be costly to residents in areas where productivity and living costs are well below the national averages?
According to press reports, in June, Puerto Rico hired a retired federal judge who oversaw Detroit’s bankruptcy case, as an advisor. The government reportedly is “consulting with a group of bankers from Citigroup who advised Detroit on a $1.5 billion debt exchange with certain creditors” and “United States Treasury officials…have been advising the island’s government in recent months amid the worsening fiscal situation.”[2] What advice have Treasury officials been offering to Puerto Rico? Have Treasury officials pledged any federal resources to Puerto Rico in conjunction with the advice, including expediting fund flows from the General Fund of the U.S. Treasury to Puerto Rico?
What actions are officials from Treasury’s recently formed Office of State and Local Finance taking with respect to Puerto Rico’s assertion that its debts are not payable? The Office of State and Local Finance at Treasury was formed, according to a Treasury spokesperson, to “serve as Treasury’s liaison to state and municipal officials and associations, monitor developments in municipal bond markets, support policies to improve the management of public pensions and other liabilities, and develop potential federal policy responses to issues that emerge in municipal financing markets.” Statements by officials of Puerto Rico that Puerto Rico’s debts are not payable certainly qualifies as an emerging issue in the municipal financing markets. What “potential federal policy responses” have the Office of State and Local Finance at Treasury developed?
Does the administration intend to appoint an official to manage any federal aid packages to Puerto Rico, as was the case when former administration official Don Graves was appointed to manage aid given to Detroit following its filing for bankruptcy?
Do you, as Chair of the Financial Stability Oversight Council (FSOC), still agree with the assessment in FSOC’s latest annual report that “Despite problems exhibited by Puerto Rico, there has been little spillover thus far to the broader municipal bond market.”?[3] Do you also still agree with the FSOC annual report that notable municipal defaults in recent years, though “severe events,” “appear to be idiosyncratic and not representative of a broader trend in municipal credit?”
Are there any anticipated executive actions under discussion among administration officials with respect to any changes in Treasury rules or regulations that may affect how the federal tax system impacts residents and businesses in Puerto Rico or the flow of transfers from the General Fund of the Treasury to Puerto Rico?
Does the administration intend for its proposed 19 percent minimum tax on foreign income to be applied to Controlled Foreign Corporation (CFC) operating in Puerto Rico in the same way it would apply to CFCs operating elsewhere?
For over four years, pursuant to Treasury Notice 2011-2, a Puerto Rican excise tax has received treatment from the Internal Revenue Service (IRS) as though it was eligible for the Foreign Tax Credit. The Notice stated that the excise tax presents new concerns and that “determination of the creditability of the Excise Tax requires the resolution of a number of legal and factual issues.” Until such a resolution, the IRS has not and is not challenging claims as to the creditability of the excise tax. Furthermore, the Notice states that if the IRS eventually decides that the excise tax is not creditable, such a lack of creditability will only apply on a forward-going basis.
a. When will Treasury finish its review to determine the creditability of the excise tax?
b. Are there other examples of Treasury, currently or in the past, allowing a tax to be eligible for Foreign Tax Credit treatment while the tax is under examination?
c. Has Treasury ever announced that, if a tax was determined to not be eligible for the Foreign Tax credit, such a lack of eligibility would apply on a prospective basis?
Please respond to the questions raised above by July 31, 2015.
###
RPT-UPDATE 1-U.S. Sen. Hatch says no help for Puerto Rico unless better disclosure
(Repeats to fix format in first paragraph, no changes to text)
Powerful Senate Finance Committee Chairman Orrin Hatch on Tuesday warned there could be no help for Puerto Rico without better financial disclosure, while expressing doubts about extending bankruptcy protection for the indebted island and questioning the idea of imposing a financial control board.
Puerto Rico, in recession for nearly a decade, has grown its debt to $72 billion, while the number of taxpayers shouldering the burden has dwindled, with thousands moving to the U.S. mainland each year.
The U.S. territory defaulted on debt on Aug. 1 by paying only a fraction of what was due on some Public Finance Corp bonds. The Caribbean island is not a U.S. state but as a U.S. territory its financial stability is a concern for U.S. lawmakers.
A turnaround plan unveiled in September by a working group appointed by Governor Alejandro Garcia Padilla asked for help from the U.S. government, including access to court-sanctioned restructuring laws, an exemption from the Jones Act which protects U.S. shipping, and what it would call equitable treatment under Medicaid and Medicare funding schemes.
«If we don’t get really well-audited figures, it’s going to be pretty hard to help you,» Hatch, a Republican, told the head of its Government Development Bank (GDB) Melba Acosta, at a hearing on the island’s problems. «I don’t think Puerto Rico is treated fairly, for the most part. But we need really good information from you in order to help you.»
Puerto Rico’s last annual financial statement on the GDB’s website is for the year ending June 2013. Acosta said while she agreed that the information was «not the best,» the territory was making improvements.
«Unless you get that to us, I don’t see how we can solve anything,» said Hatch. «We … better have the right tools and information or nothing is going to be done.»
A bailout from Washington is not expected, and while some on Capitol Hill are pushing laws or reforms that could help Puerto Rico, their prospects are uncertain.
Hatch questioned one witness, a budget expert from the American Action Forum (AAF) think tank, about his views on extending Chapter 9 bankruptcy protection, which allows a state’s municipalities and public agencies to seek bankruptcy protection, but does not apply to Puerto Rico, which is a territory.
Douglas Holtz-Eakin, president of the AAF, said he had «deep reservations» about the focus on allowing Chapter 9 and Hatch said he shared some of Holtz-Eakin’s skepticism.
Holtz-Eakin also expressed doubts about using a control board to manage Puerto Rico through its financial crisis, one idea which has been raised by members of U.S. Congress as well as officials on the island.
«A control board independent enough would have to be basically imposed on Puerto Rico and infringe on its sovereignty and I think that’s a problematic thing for the federal government to do,» said Holtz-Eakin. Hatch said that if there is a board, «it probably should have to be independent».
Iowa Senator Chuck Grassley, a Republican member of the Senate Finance Committee and chairman of the Senate Judiciary Committee, said a local control board «if ever created will be ineffective due to local politics and pressure.»
«Perhaps then a federal financial control board should be part of a comprehensive approach to remove obstacles to certain fiscal reform,» Grassley said.
Grassley also was skeptical about allowing Chapter 9 bankruptcy for Puerto Rico, saying such a move alone would not solve the U.S. territory’s financial problems.
However, he said Congress should consider exempting Puerto Rico from the Jones Act and the federal minimum wage.
Senator Ron Wyden, the top Democrat on the Senate Finance Committee, urged witnesses to propose bipartisan solutions which could succeed. He said a better funding system for Medicaid and improvements to Medicare ought to be on the table.
Democrats in the U.S. Senate in August introduced a bill proposing eliminating a cap on the amount of funding that the federal government provides to support Medicaid in U.S. territories including Puerto Rico. That bill was referred to the Committee on Finance.
Hatch, however, said that solving healthcare was not «as simple as deciding to give more health funds to Puerto Rico, because doing so would necessarily mean reduced funding for other priorities, increased taxes, or even more federal debt.» (Reporting by Megan Davies and Jessica DiNapoli; Editing by Christian Plumb and Bill Rigby)
Read more at Reutershttp://www.reuters.com/article/2015/09/29/usa-puertorico-senate-idUSL1N11Z26W20150929#kXCD8Q5R1URU05ge.99
Puerto Rico the issue in U.S. Senate public hearing Tuesday
The U.S. Senate Committee on Finance will hold a hearing Tuesday regarding the economic and fiscal crisis in Puerto Rico.
The Senate Finance Committee hearing, “Financial and Economic Challenges in Puerto Rico,” will begin at 10 a.m. The committee chairman is Sen. Orrin Hatch of Utah and the Ranking Democratic Member is Sen. Ron Wyden of Oregon.
Invited to testify at the hearing are Resident Commissioner and New Progressive Party President Pedro Pierluisi, Government Development Bank President Melba Acosta, former Congressional Budget Office Director Douglas Holtz-Eakin, and Center for a New Economy Public Policy Director Sergio M. Marxuach.
On July 17, Hatch asked U.S. Treasury Secretary Jacob Lew for the Obama administration’s take on various Puerto Rico-related issues, such as the island’s fiscal and economic woes.
Treasury’s response made evident that Lew’s position is Congress should enact legislation allowing the island to reorganize its debt under Chapter 9 of the federal bankruptcy code or Puerto Rico’s financial debacle could affect the retirement portfolios “across the country,” and prompt «numerous creditor lawsuits and years of litigation.»
Hatch’s letter brought up a long list of inquiries, including the administration’s position on such matters as Chapter 9 of the U.S. Bankruptcy Code, the Jones Act, and if appointing an official to manage any federal aid package to Puerto Rico or a mediator to work in the discussions between the commonwealth and its creditors was being considered.
Hatch had written: “I believe that the Obama administration may be in agreement with two reasonable principles to apply to the debt difficulties facing Puerto Rico: 1) there shall not be a federal bailout; and 2) orderly resolution of debt defaults are preferred to chaotic resolutions.”
La Fortaleza Chief of Staff Víctor Suárez had said Lew’s statements “validate that the plan implemented by this administration is correct, including the proposal to establish a five-year fiscal and economic adjustment plan.”
Pierluisi said his “written and oral testimony will outline the nature of the crisis—which has economic, fiscal and demographic components—and then recommend concrete steps that can be taken at the local and federal level to resolve the crisis. The 3.5 million American citizens I represent in Congress are weary of studies, reports, plans and working groups. They are tired of empty promises and ill-informed proposals. They want, and they deserve, action on the part of their political leaders in San Juan and Washington, D.C. Smart policies, swiftly implemented, that will have a tangible impact on their lives. Accordingly, my testimony will focus less on explaining how bad things are and more on how we as policymakers can make them better.”
Gov. Alejandro García Padilla held several meetings last week with Obama administration officials and members of Congress. The discussions focused on fiscal issues and economic development, including infrastructure projects.
El presidente del Comité de lo Jurídico del Senado federal, Charles Grassley, cuestionó la viabilidad de que la Isla tenga acceso a este estatuto luego que los bonos- que ahora el Gobierno dice que no puede pagar- se vendieron bajo la premisa de que Puerto Rico no podría acogerse precisamente a la quiebra
El senador Charles Grassley, cuestionó los esfuerzos que ha hecho la actual administración por atender la crisis fiscal. AP.
Por Maricarmen Rivera Sánchez, EL VOCERO – 4:03 am
El presidente del Comité de lo Jurídico del Senado de Estados Unidos, Charles Grassley, dejó claro ayer que no favorecerá permitir a Puerto Rico acogerse a una quiebra y cuestionó los esfuerzos que ha hecho el gobierno por atender la crisis. Como se había anticipado, el senador se expresó más inclinado a favorecer una Junta de Control federal que vigile la forma en que la Isla gasta el dinero público.
Las expresiones fueron hechas ayer en una audiencia del Comité de lo Jurídico del Senado federal sobre la situación fiscal de la Isla.
Esta vez, además de los dos principales funcionarios del gobierno – el gobernador Alejandro García Padilla y el comisionado residente Pedro Pierluisi – comparecieron expertos en el tema económico como el profesor y economista Carlos Colón de Armas y el presidente de Popular, Inc., Richard Carrión.
Tanto García Padilla como Pierluisi reclamaron un proceso que permita a Puerto Rico reestructurar su deuda y reclamaron actuación por parte del Senado federal, controlado por el Partido Republicano.
Al comenzar la vista, Grassley cuestionó la viabilidad de que Puerto Rico tenga acceso al Capítulo 9 de la Ley de Quiebra federal luego que los bonos- que ahora el Gobierno dice que no puede pagar- se vendieron bajo la premisa de que la Isla no podría acogerse precisamente a este tipo de estatuto.
“Puerto Rico vendió estos bonos consciente de que el Capítulo 9 no era una opción en caso de un impago. ¿Sería justo cambiar las reglas de forma retroactiva si existen otras opciones para atender los problemas de la deuda? Al menos debe ser una idea que debe estar al final de la lista y no al principio de la lista”, dijo. “El problema de deuda de Puerto Rico requiere más que unas soluciones a corto plazo. La deuda es un síntoma de un problema más grande. Meramente extender una reestructuración de la deuda, ausente de otras herramientas para atender el problema de raíz no es una solución a largo plazo que ayudaría a Puerto Rico. Si el Congreso actúa, debemos garantizar que Puerto Rico tenga las herramientas para ayudarse a sí mismo a salir de la situación”.
Recordó que el Congreso, en un momento dado, no le vio beneficio a aplicar el Capítulo 9 a la capital federal por considerar que no había beneficios prácticos de garantizarle una quiebra a Washington, D.C.
“Una de las razones por las cuales la quiebra fue rechazada fue porque está diseñada para reestructurar deuda municipal. Pero, el Capítulo 9, no puede traer una rehabilitación financiera o aumentar el crecimiento financiero, no puede atender la raíz del problema fiscal, sino que lo empuja hacia las próximas generaciones”.
Rechazó también la opción de una quiebra más amplia que incluya toda la deuda de Puerto Rico y dijo que ningún estado puede hacer esto.
Mientras, el senador demócrata Richard Blumenthal sí favoreció un plan de reestructuración para Puerto Rico y cuestionó el rol de Estados Unidos. Dijo que “lo que Puerto Rico necesita es la autoridad para manejar sus problemas financieros. Una cosa debe estar clara, esta situación es insostenible. Necesitamos unirnos para buscar una solución para reestructurar la deuda dentro de una corte”.
“El plan tiene que comenzar reconociendo que la deuda no puede ser pagada, Puerto Rico debe reformarse, pero ninguna reforma va a reemplazar el hecho de que Puerto Rico no puede pagar su deuda”, dijo Blumenthal. “La alternativa es una reorganización organizada”.
Al igual que otros senadores, Blumenthal cuestionó la ausencia de estados auditados.
García Padilla comenzó su ponencia defendiendo las gestiones de su administración. Aseguró que ha reducido el gasto gubernamental y advirtió que las medidas que toma su gobierno para cumplir con el pago de la deuda no pueden ser permanentes.
Mientras el primer ejecutivo reclamaba acción al Senado federal, se dio a conocer que su administración había pagado la deuda de más de $300 millones que mantenía el BGF con los bonistas y que vencía ayer mismo.
El gobierno, dijo García Padilla, ha evitado un impago con medidas que llamó “de emergencia” como la retención de los reintegros por contribución sobre ingresos.
“Estas decisiones tienen un efecto devastador en nuestra economía y en los ingresos del Estado, disminuyendo aún más nuestra capacidad para pagar”, advirtió. “Colocar a Puerto Rico en un camino sustentable a largo plazo, va a necesitar un marco legal para reestructurar todas nuestras deudas”.
Sin un marco legal que permita una reestructuración, insistió el gobernador, se provocará “una crisis humanitaria” para los puertorriqueños.
Pierluisi, por su parte, comenzó abogando por una solución al estatus como mecanismo para evitar la desigualdad en fondos y derechos. Pidió un “paquete legislativo que le provea a Puerto Rico un trato más equitativo bajo los programas federales”.
“Este paquete legislativo también debe autorizar a Puerto Rico a reestructurar una porción significativa de su deuda”, dijo al indicar que Puerto Rico debe tener acceso al Capítulo 9 de la Ley de Quiebras federal. “Proveerle esa autoridad no le cuesta nada al gobierno federal mientras que no proveerla tiene un costo humanitario enorme”.
En la vista de ayer, los bonistas tenían representación que abogó por no permitir a Puerto Rico acogerse a una quiebra. El argumento principal utilizado por Steven Spencer, asesor del grupo Ad Hoc, fue que cuando estos bonistas compraron bonos a la Isla, lo hicieron sabiendo que no había una posibilidad de quiebra. Permitir esto, sostuvo, sería cambiar “las reglas del juego” e insistió en que una quiebra no sacaría a Puerto Rico de la crisis fiscal en la que se encuentra.
Carrión, por su parte, recomendó crear un proceso legal para facilitar una reestructuración, así como un paquete de estímulos para desarrollo económico y una Junta federal que controle el gasto. Carrión agregó ante el Senado que hacer esta propuesta le resulta incómodo y vergonzoso pues, como banquero, no tiene una inclinación a favorecer las quiebras.
“Debo confesar que al principio me resistí a la idea de que la deuda pública de Puerto Rico tendría que ser reestructurada. Sin embargo, ahora es claro para mí que el tamaño del déficit fiscal es tan grande, incluso incluyendo el impacto de las medidas de ingresos y gastos propuestos por la actual administración, que es inevitable reestructurar la deuda de alguna manera”, dijo Carrión.
Alex J. Pollock del American Enterprise Institute, abogó por su parte por una junta federal que supervise el gasto en la Isla y garantice estados financieros creíbles.
En tanto, Richard Ravitch, exvicegobernador de Nueva York y quien trabajó con la junta que en un momento dado fue asignada allí, dijo que a su entender una reestructuración a la deuda de Puerto Rico no es inconstitucional “pues la Constitución permite al Congreso tomar decisiones sobre sus territorios”.
Abogó por la creación de una junta federal con capacidad para imponer el presupuesto del país, intervenir en las negociaciones colectivas y supervisar los planes de reestructuración que proponga el gobierno.
Colón de Armas, por su parte, sostuvo que la Isla no necesita supervisión federal, pero sí necesita recortar $1,500 millones en gasto público.
Pidió una mayor inversión en Puerto Rico para garantizar infraestructura necesaria en áreas como la Autoridad de Acueductos y Alcantarillados (AAA) y carreteras. Esto, dijo, mejoraría el clima de inversión en la Isla y garantizaría un desarrollo económico que ayude a palear la crisis.
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