In an exclusive interview with Bearing Drift, Congressman Rob Wittman of Virginia’s First District shared his strident opposition to the Puerto Rico bankruptcy bailout bill pending before the House Committee on Natural Resources on which he sits. Wittman stated, in no uncertain terms, his intention to vote against the bill when it comes before the committee tomorrow.
The problems with the bill, known as the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), were previously covered by Bearing Drift, amidst an outpouring of grassroots conservative opposition to provisions backed by the Obama administration which would have bailed out the island territory through a bankruptcy-like process. This would have acted to the detriment of Puerto Rico’s long-term economic prosperity, the rule of law, and bond markets as a whole – while setting a dangerous precedent for other fiscally-mismanaged states such as California, Illinois, and New York, who may one day find themselves seeking similar provisions.
“Years of poor fiscal decision-making and mismanagement have led Puerto Rico into more than $118 billion in total debt,” Wittman said in a written statement released to Bearing Drift, “and while I’m sympathetic to the territory’s economic woes, I believe that this is not the proper course of action for Congress to take. Puerto Rico has already sought a judicial remedy through the legal system, and Congressional intervention at this point would serve to alter the rule of law. Rather than encouraging the organic, substantive reforms Puerto-Rico needs for long-term success, PROMESA would serve as a temporary stop-gap that would reward mismanagement and encourage further recklessness. I cannot support this bill.”
Wittman emphasized that Puerto Rico already had recourse in court to negotiate with bondholders, without impacting the rule of law by changing terms after-the-fact or creating a special judicial process whose implementation would substantially disrupt the broader market for state and municipal debt.
“I do believe that there is a course currently underway for both the bondholders and the government of Puerto Rico through the court system. I do think that Article III clearly provides for them to do the things necessary to negotiate with the bondholders,” said Wittman. “That’s the course that’s available to everyone else.”
The Congressman from the First District is no stranger to opposing bailouts. Despite heavy pressure from party leadership, he voted against the Troubled Asset Relief Program – better known as TARP or the bank bailout bill – both times it came before Congress in 2008.
Wittman thoroughly rejected the precedent set by the bill, expressing concern that a slippery slope created in crafting provisions for handling the situation in Puerto Rico might ultimately result in Chapter 9 bankruptcy – or a process similar to it – being expanded and made available to mainland states with fiscal woes of their own, whether now or in the future.
“There are provisions in this bill that are similar to the provisions provided in a Chapter 9 bankruptcy. So while technically it’s not, I argue that certain provisions in there are in that in the future, states that are not allowed to operate under Chapter 9 bankruptcy could point to this and say, ‘Well look, you did this for Puerto Rico.’ And while it’s not a Chapter 9 bankruptcy, there are elements there you could associate with Chapter 9 provisions, therefore, we want you to provide the same relief for us as states.”
“I think that’s problematic in setting precedent in how states would later come back to Congress and ask to be treated.”
Although Puerto Rican leaders had asked Congress to pass this bill before worrying about addressing the territory’s underlying economic problems, Wittman rejected this “piecemeal” approach. When asked whether this bill would have solved Puerto Rico’s underlying problems, Wittman responded, “I’m confident that this does not.”
“I don’t think that that is the comprehensive type of economic reforms that are necessary,” explained Wittman. “I do think that there needs to be fundamental reforms that Puerto Rico needs to have in a plan of fixing the elements that keep their economy from growing.”
Calling the territory a “tremendously attractive environment” for investment and opportunities, if only appropriate Congressional and local reforms were enacted, Wittman emphasized the need to solve the debt crisis by passing pro-growth reforms designed to broaden the tax base by lifting the island’s incomes and business profitability – which he believes is possible, if only leaders could summon the political courage to make the tough decisions necessary to put the Puerto Rican economy back on the right path.
“I think they got tremendous potential there,” continued Wittman. “It’s a bastion of opportunity if the pieces of this [economic reform plan] would just come together.”
Wittman sees a role for Congress in eliminating many of the anti-growth policies which have made job creation in Puerto Rico difficult and left the territory with a stubbornly high unemployment rate of 11.7% – one which hasn’t fallen below 10% in any month of the last decade. Despite being a economy unto itself, Puerto Rico is subject to the federal minimum wage of $7.25 per hour, which places its businesses – particularly those in the hospitality sector – at a competitive disadvantage with other island destinations in the Caribbean.
Wittman also took exception with the territory’s tax structure, which the believes is discouraging investment and job creation, despite residents and businesses enjoying a broad exemption from the tax burdens imposed by the federal government on the mainland. In his view, the island economy’s freedom from Washington’s excessive taxation could prove attractive to job creation, if only Puerto Rico reformed its own tax structure to attract the necessary investment.
“The Puerto Rican government itself ought to look at restructuring its tax system to make sure they’re encouraging investment, that they’re encouraging savings, and that they’re encouraging economic growth,” Wittman said of the need for tax reform.
According to the Congressman, Puerto Rico must, at a local level, re-examine its regulatory structure, with a focus on cutting red tape and enacting necessary reforms to strike an appropriate balance between government interests and economic competitiveness which allows the island to compete in the present time.
He also expressed concern for the island’s high energy costs, which act as a barrier to investment and job creation. In Puerto Rico, electricity costs range between two and three times the mainland average. Although logistical costs do increase the raw price of fuels for generation, he expressed interest in investigating the root causes of the problem and assessing what specific Congressional actions are capable of bringing them down.
“It just doesn’t make sense that Puerto Rico is experiencing higher energy costs when worldwide, energy costs are coming down,” Wittman said. “We have to look at the base causes behind that.”
“I’m certain that there are things we can do to help with that, especially in an economy, in a marketplace where we see historically low energy prices. There’s no reason why Puerto Rico should be facing these high energy costs.”
Ultimately, Wittman expressed hope that a new bill focused squarely on implementing the necessary pro-growth economic reforms required of Congress while empowering the territory to take the steps required of it on a local level would attract the bipartisan support necessary to be enacted into law. He signaled his interest in future hearings to drill down to the root causes of the economic malaise with a focus on identifying legislative remedies capable of promoting the economic growth necessary to restore the Puerto Rican economy to long-term fiscal sustainability.
“I think it would be a logical step to do that,” Wittman said of future hearings. “I have certainly spoken to members of leadership here that we need to look at those opportunities.”
“That discussion has to be fostered. We can take the lead role in pushing that, saying, ‘Hey listen, if you’re truly grateful oing to get to where you need to be, you need to have a plan, we have to look at the things we can do to enable the economy on the island of Puerto Rico to prosper.'”
In rejecting short-term thinking, Wittman expressed an interest in promoting the long-term interests of the island’s economy, with the hope that territory’s capacity for economic growth might ultimately overcome the immediate challenges posed by excessive debt.
“We have to look at the long-term prospects for Puerto Rico,” explained Wittman, while making the case for a long-term and comprehensive approach. “How do we make sure we define a path for success for Puerto Rico in the long term? That’s where we’re going to do Puerto Rico the most good is keeping that in mind.”
“As I’ve always said, I don’t want to do something. I want to do the right thing.”
The people and businesses of Puerto Rico can only hope that their leaders and others in Congress share Congressman Rob Wittman’s long-term approach to dealing with present-day economic policy challenges while laying the foundation for future prosperity, for the short-term thinking driving the push for what has been called a “Super Chapter 9” bankruptcy bailout would only stigmatize the territory’s economy to its long-term detriment.
That short-term thinking should be thoroughly rejected in favor of the fiscally responsible, pro-growth, long-term approach.
