Discussion Over Fiscal Laws for Puerto Rico Moves to D.C.
SAN JUAN – A group of panelists discussed Wednesday how fiscal responsibility laws (FRLs) could present an option to effectively solve the island’s fiscal crisis, along its underlying causes, during a forum that took place at the National Press Club in Washington, D.C.
During the event held by the Center for the New Economy (CNE), a Puerto Rico think tank, the panel went over the prospects of enacting FRLs for Puerto Rico, as a way to establish monitorable fiscal targets and policy reforms. Moreover, panelists gave their take on how these laws may fit within potential federal action to address the commonwealth’s fiscal and economic crisis.
Participants comprised Andrés Velasco, professor at Columbia University and former finance minister of Chile; Gordon Gray, fiscal policy director at American Action Forum; Tracy Gordon, senior fellow at Urban-Brookings Tax Policy Center; and CNE Public Policy Director Sergio Marxuach. It was moderated by CNE Research Director Deepak Lamba-Nieves.
Although scheduled to participate, former New York Lieutenant Governor Richard Ravitch couldn’t attend the event due to a medical emergency, Lamba-Nieves said at the beginning of the panel. Resident Commissioner Pedro Pierluisi and Senate President Eduardo Bhatia also addressed the attendees.
CNE President Miguel Soto-Class said the think tank seeks to fill a void of information on “the placement of an oversight authority over Puerto Rico. And we want to fill that vacuum, and inform the debate, particularly as regards the notion of a Fiscal Responsibility Law, as a viable proposition for improving Puerto Rico’s fiscal condition.”
The Puerto Rico government continues to lobby for immediate congressional action, particularly over access to a broad debt-restructuring regime. The Barack Obama administration, through the U.S. Treasury, is also making the case for granting access to a bankruptcy regime they say must be tailored to Puerto Rico and paired with federal fiscal oversight that respects the island’s self-governance.
“The debate so far has been a binary one, with those on one side debating how strong a federal control board for Puerto Rico should be, while on the other side they argue that no oversight authority at all is acceptable. We feel it is critical, to impose strong fiscal controls on the Commonwealth, but we feel they are best provided by a FRL,” said Soto-Class.
A few weeks ago, the CNE presented a proposal to enact a fiscal responsibility act for Puerto Rico, as an alternative to the complications that a federally imposed control board could bring, including its legitimacy, effectiveness and quality of its composition, among other issues.
“What Puerto Rico needs is a solution that accepts and embraces the rebuilding of our fiscal institutions so that progress can be enduring. A Deus ex machina control board will not necessarily tackle this, and so the roots of our problems will remain,” Soto-Class said.
For his part, Pierluisi believes Congress can enact legislation establishing an oversight board that effectively enforces fiscal controls while respecting the island’s self-governance. He reiterated his opposition to anything that fails to complement the commonwealth’s elected officials.
During Wednesday’s panel, Marxuach went over the CNE’s FRL proposal, arguing that it could put Puerto Rico back on the sustainability and healthy fiscal management road. Pierluisi described CNE’s proposal as “constructive, realistic and wise,” adding he would introduce all of the recommendations contained in the report when the also-New Progressive Party gubernatorial hopeful is “in a position to do so.”
For his part, Velasco argues that the Puerto Rico problem requires a comprehensive solution that includes debt restructuring, institutional reform, and a new fiscal policy framework, wherein fiscal rules come in. A “smart fiscal rule” paired with a fiscal oversight board could help Puerto Rico get out of its debt crisis, the Columbia professor posited.
Velasco said it is positive to give serious consideration to the use of this fiscal rules within the commonwealth context, while arguing Congress could be concerned over the possibility of a fiscal control board that fails to live to its expectations further down the road.
Facing more than $2.5 billion in debt payments this summer — for which it has already warned there is no cash to pay it all — the Puerto Rico government continues to wait for congressional action over its debt crisis, mostly banking on House Speaker Paul Ryan’s (R-Wis.) pledge for action before the end of March. Yet, it still remains to be seen if consensus would be reached among the Republican-led Congress over the commonwealth issue.
“The day of reckoning has arrived, and with billions due to creditors in the next few months, the clock is ticking in suspense for a solution from policymakers here in Washington,” said Soto-Class. “In the meantime, and without the tools necessary to adequately confront the crisis, Puerto Rico struggles to stay afloat, and is forced to negotiate under duress into punitive deals with creditors that lock generations to come into one-sided transactions.”