For years, Puerto Rico has faced a mounting fiscal crisis as a result of its overspending and indebtedness. This culminated last year when the Commonwealth defaulted on $75 billion of debt, including debt that is protected under its Constitution. When the then-governor upended the rule of law by defaulting on Puerto Rico’s Constitutional debt, he triggered an economic freefall for the Commonwealth. By subsequently seeking to restructure its Constitutional debt – something no state has the legal authority to do - he further damaged Puerto Rico’s reputation.
As governor of New York, I inherited many of the same problems Puerto Rico faces today. Specifically, New York faced massive deficits resulting from bloated budgets, falling credit ratings that led to decreased market access, and an overall lack of transparency and credibility that stifled investment and stymied growth. We had to enhance the credit rating of the state and provide the private sector with the confidence that New York State was a place to invest. So we got to work balancing budgets, cutting taxes, reducing spending and instilling both a commitment to accountability and respect for the rule of law. The result; our budgets were balanced, our credit rating increased three times, New York’s economy grew, and hundreds of thousands of jobs were created.
I believe Puerto Rico, led by Gov. Ricardo Rossello, can accomplish the same type of fiscal rebirth New York experienced during my governorship. To do this, Gov. Rossello should embrace three things: 1) that the only long-term solution to Puerto Rico’s financial difficulty lies in economic growth; 2) that to achieve this growth Puerto Rico must have an economic and legal environment that encourages private sector investment; and 3) and an acknowledgement that a failure to honor the Constitution of Puerto Rico by not prioritizing its general obligation creditors will destroy potential investor confidence and make growth much more difficult to achieve.
In his campaign last year, Rossello pledged to adhere to these principles. He promised policies guided by the rule of law and a commitment to fiscal discipline and transparency. He also committed to good faith adherence to Congressional oversight, which includes language that expressly compels the Commonwealth to respect the legal obligations made to bondholders in the Puerto Rican Constitution.
Unfortunately, the initial steps of the oversight board and new administration fall dramatically short of their pledges. Instead of prioritizing repayment of the Commonwealth’s general obligation debt, as mandated by the Puerto Rico Constitution and the law underpinning PROMESA, the governor’s plan calls for less than $1 billion per year in debt service payments - even though revenues are forecast to exceed $18 billion. The plan does not even attempt the respect the first priority afforded the Commonwealth’s general obligation debt – it in fact treats it as the last priority receiving whatever is left. Moreover, the plan avoids tackling many of the Commonwealth’s nagging systemic issues such as structural reforms and spending reductions while accepting the premise of economic decline over the next 10 years.
The simple fact is that the savings of the Commonwealth/Oversight Board’s fiscal plan comes primarily by dishonoring the Constitutional commitments of Puerto Rico. Unlike previous draft plans offered by the Rossello administration, the fiscal plan that was certified by the Oversight Board falls far short of restoring the Island’s credibility. This plan seems designed to force the Commonwealth into a court-supervised debt restructuring rather than a consensual negotiation with its bondholders. Good faith negotiations with creditors is the only pathway for future investment and growth for the people of Puerto Rico. For his part, Rossello must not hesitate to stand up to the Oversight Board and prioritize the rule of law for the sake of future economic prosperity.
New York and Puerto Rico have always had a special relationship, and I was honored during my time as governor to work with the Commonwealth’s leaders from both parties on issues of mutual interest to our citizens. Today, I’m equally committed to the future growth and prosperity of the Commonwealth, and as a homeowner there, I am personally invested in its success. Violating the Constitution and ignoring PROMESA’s requirements is not a remedy for future success but rather a guarantee for continued decline.
“...what is the most sacred duty and the greatest source of our security in a Republic? The answer would be: An inviolable respect for the Constitution and Laws”
- Alexander Hamilton
Pataki served as governor of New York from 1995-2006. He is an advisor to the Ad Hoc Group of Puerto Rico's General Obligation (GO) Bondholders.
Alexander Hamilton“[s]tates, like individuals, who observe their engagement (pay off their debts) are respected and trusted, while the reverse is the fate of those who pursue an opposite conduct;”
Restoring Puerto Rico
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