Puerto Rico “Bailout” Bill Revived, Wittman Remains Opposed

Rumors of the demise of the Puerto Rico “bailout bill” have been greatly exaggerated. After one month being reworked, PROMESA has been resurrected with few meaningful changes, and Congressman Rob Wittman remains stridently opposed to its passage and will vote against it in a second committee markup scheduled for today.

Last month, House lawmakers succeeded in halting in committee the advancement of the Puerto Rico Oversight, Management, and Economic Stability Act, also known as PROMESA, which critics denounced as a form of “Super Chapter 9 Bankruptcy” which they said would only fuel the island territory’s economic woes without addressing the underlying, anti-growth policies and budgets which brought about this ongoing debt crisis.

Others expressed concern the provisions of the bill ran contrary to the rule of law, could undermine the ability of US states to borrow by modifying repayment terms after-the-fact, and was ripe for process abuse by certain politically-connected creditors at the expense of others.

In an interview last month, Wittman, who sits on the House Committee on Natural Resources which had jurisdiction over the bill, spoke with Bearing Drift at length and outlined his opposition to the first draft of PROMESA. Today, he announced plans to vote against its second version, as well.

“I have reviewed the new PROMESA 2 bill and I am still adamantly opposed to it,” said Wittman, in an exclusive interview with Bearing Drift. “They have addressed some of the issues but I still think that there are fundamental additional issues that have not been addressed.”

In sustaining his opposition, the Congressman sees three fundamental problems with the revised legislation – all three of which are central to the legislation itself.

Wittman began by reiterating the bill’s proposed restructuring still constituted, in his opinion, a form of “Super Chapter 9 Bankruptcy.”

“The restructuring here that takes place is still the same type of restructuring that would otherwise take place under a Chapter 9 provision – so it still has all the sights and smells of Chapter 9,” remarked Wittman. “It still does set the precedent for cities to come back or states to come back and say, ‘by the way, you did a restructuring for Puerto Rico. Do the same for us.’”

Wittman expressed concern that revised bill still allowed politics to potentially influence the order of creditor repayment. Those who followed the automotive bailouts in the early days of the Obama administration will recall that politics did indeed play a role in determining the priority order of creditor repayment when Chrysler Corporation went through bankruptcy, in which unsecured claims held by politically-connected labor unions were prioritized over claims held by senior secured bondholders, in open defiance of the rule of law.

In opposing the revised legislation, Wittman also expressed deep concern with the concept of an unelected “control board,” which in his view, runs contrary to role of representative democracy in the American political system.

“For me, I have a fundamental disagreement with the idea of a control board because with that, you essentially subserviate and remove the Puerto Rican government who are elected by the citizens of Puerto Rico to do this job,” Wittman said. “It doesn’t push them to say, ‘Let’s make the really tough, responsible decisions upfront.’”

For Wittman, PROMESA’s inherent reliance on the control board structure as the foundation of the bill itself makes this legislation both unappealing in principle and unlikely to find worthwhile revisions in its current form.

Expounding on this loss of Puerto Rican autonomy, Wittman highlighted two concerns with the control board architecture maintained in the revised bill.

First, he said the very nature of an unelected control board whose members were appointed far away in Washington rendered the institution immune to being held accountable by those it professed to serve. Additionally, he said, such a structure ran the risk of being used as a scapegoat by some lawmakers in Puerto Rico as a means for evading accountability for bad policymaking while casting blame upon the control board.

Finally, Wittman lamented the lack of substantial, pro-growth revisions to the bill which might address the underlying problems with the Puerto Rican economy which have allowed government and debt to grow far in excess of the private sector’s ability to foot the bill.

In the run up to PROMESA’s defeat last month, many conservative commentators and lawmakers expressed concern with the lack of reforms aimed at promoting economic growth – concerns which were not lost on the bill’s sponsors.

Writing in National Review before the bill’s second markup, sponsoring Congressmen Rob Bishop and Sean Duffy explained:

“Making debt re-payment even more challenging, the island’s economy is strapped by burdensome labor policies, over-regulation, over-spending, and tax collection based on political patronage. Its market is crippled by subsidies and a state-run energy monopoly that provides “free” electricity to power private businesses, music festivals, and ice rinks with disco balls.”

“As a result, unemployment and energy prices are twice the rate of the national average. Nearly half the island — including nearly six in ten children — live below the poverty line. It’s no wonder that Puerto Ricans are literally fleeing their birthplace by the tens of thousands in search of better opportunity on the mainland. Businesses are leaving in droves as the economy’s tax base is dwindling.”

This concern never translated into policy in the second version of the bill, which still contains few provisions aimed at promoting economic growth.

Washington, however, did find a new idea for addressing the growth issue: the bill’s second version would create another Washington “task force” to issue a report on Puerto Rico’s economic woes, due by the end of the year.

Wittman dismissed the idea of a Washington report as one short on practical action.

“Another task force, another report – and that’s what’s going to result out of this – nothing is going to come of that,” Wittman lamented. “The report probably sits on a shelf and there’s nothing there to say, ‘okay, take these ideas and operationalize them.’ Nothing to address the fundamental problems with the Puerto Rican economy. Nothing there to look at what can we do to attract businesses, what can we do to help businesses grow, what can we do to simplify a regulatory and bureaucratic burden.”

In Wittman’s view, the action items and opportunities for reform highlighted in a well-meaning but ineffective report ought to be passed first, for without structural reform, he sees this crisis as being one capable of repetition.

“It only partially addresses Puerto Rico’s problem. I argue short of that, we will look a year or two down the road and Puerto Rico will still be struggling, even under a situation of restructuring, if the dollars aren’t there to pay back.”

Echoing similar concerns in last month’s interview, Wittman remained committed to the need for pro-growth economic reform, which he said would need to involve four major elements: reforming the tax code, lowering the cost of energy, cutting bureaucracy, and instituting sweeping regulatory reform.

“The best thing that Congress can do is to say, ‘Okay, what we will do is we will assist in the growth of the Puerto Rican economy,” explained Wittman. “Now, obviously, government doesn’t create jobs, but what it can do there is to direct provisions to help simplify the systems there in Puerto Rico in relation to the role the federal government has.”

Wittman also cited the federal tax code as one cause of Puerto Rico’s turmoil.

“Years ago, there were tax provisions that allowed companies to move to Puerto Rico to set up businesses,” explained Wittman. “Those tax exemption provisions expired and many of those companies moved out.”

Despite the exodus of financial and human capital, Wittman remained optimistic that lawmakers could reach a bipartisan agreement to address the underlying problems and forego what he said was an all-too-common modus operandi in Washington: the quick fix.

“I hold out hope that we can,” said Wittman, in expressing his desire to see pro-growth reforms addressed first through new legislation or a series of hearings. “My concern with the passage of this bill, as what normally happens with these issues, is the belief that if this bill passes, that the issue has been taken care of.”

“I’ve talked to a number of folks here like Raul Labrador and others and they are all interested and acknowledge the importance of that.”

Though these economic challenges remain confined to the nation’s island territory, Wittman said they represented a microcosm of larger challenges faced by the nation as a whole: from growth, to budgeting, to taxation, to economic policy.

“I do think it’s a microcosm of what we have to address across the spectrum at every level of government. What are we doing to actually get out of the way? What are we doing to promote business growth? What are we doing to put into place positive, pro-growth policies?”

Wittman said he hopes many of the reforms he’d like to see implemented in Puerto Rico also take root stateside, as part of a longer process focused more on addressing the nation’s long-term needs and less on quick fixes and temporary remedies.

In opposing the second revision of PROMESA, Wittman made clear that he’s rejecting short-termism in favor of the long haul as an overarching approach to his policymaking, even if that means making tough decisions now with the aim of averting future difficulty.

Although the challenges Wittman’s committee is busy addressing lie 1500 miles from his home in Virginia, he sees advice and ideas from his own constituents as helping to shape the vision he hopes can help get Puerto Rico’s economy back on track. To that end, he’s asked his constituents to remain involved by offering ideas from the grassroots on up concerning what Washington should – and in many cases, shouldn’t – be doing to address the nation’s long-term policy questions.

“The biggest help that I get from folks back home is hearing stories and ideas every day from businessmen and women across the commonwealth about what can we be doing to get Washington out of the way, what can we be doing to help them?”

Based upon those ideas, and seeing few meaningful revisions to PROMESA, it comes as no surprise that Congressman Rob Wittman remains opposed.