NCLR: Refusal to Provide Bankruptcy Protection to Puerto Rico Is a Profound Failure of Congressional Republican Leadership

NCLR: Refusal to Provide Bankruptcy Protection to Puerto Rico Is a Profound Failure of Congressional Republican Leadership

December 16, 2015

Contact:
Joseph Rendeiro
jrendeiro@nclr.org
(202) 776-1566

WASHINGTON, D.C.— Showing both a failure to take responsibility and a failure to lead, congressional Republicans today refused to include provisions in an omnibus spending bill that would have provided critically needed bankruptcy protection for Puerto Rico and helped to avert a looming humanitarian crisis on the island where 3.5 million American citizens reside.

“For nearly a century, when America asked hundreds of thousands of Puerto Ricans to serve their country, they answered the call. Yet, when the island sent out a distress signal, Republican leaders in Congress chose to ignore it. In a display of staggering irresponsibility, these leaders frittered away a golden opportunity to use the budget agreement to solve this issue,” said Janet Murguía, President and CEO of NCLR (National Council of La Raza).

“Whatever short-term advantage Republican lawmakers believe their misguided decision gives them pales in comparison to the long-term consequences of their failure to act. This issue is not going away. Choosing not to fully address the problems that Puerto Rico is facing will directly harm the millions of Americans who live on the island,” added Murguía. “The responsibility for a permanent solution still lies at Congress’s feet. While some health care provisions in the bill are helpful, the people of Puerto Rico deserve better from the federal government than this piecemeal approach. Congress knows that without bankruptcy provisions there is no real legislative solution to this crisis and we are now looking to the administration and others to provide much-needed relief.”

NCLR—the largest national Hispanic civil rights and advocacy organization in the United States—works to improve opportunities for Hispanic Americans. For more information on NCLR, please visit www.nclr.org or follow along on Facebook andTwitter.

NCLR: Refusal to Provide Bankruptcy Protection to Puerto Rico Is a Profound Failure of Congressional Republican Leadership

U.S. Senate Democratic Leader Harry Reid >> Reid: Puerto Rico Needs Our Help

“Puerto Rico needs our help …  The territory is facing a severe economic and fiscal crisis that’s becoming a humanitarian crisis.

“Leader Pelosi and I fought to include meaningful provisions in the omnibus spending package to assist Puerto Rico, including empowering the island to readjust a significant portion of its debt. Unfortunately, Republicans refused to work with us to address Puerto Rico’s massive debt in a meaningful way.”

“We can do something to help. We must do something to help. We can work together to pass legislation that allows Puerto Rico to restructure a substantial portion of its debt without costing the American taxpayers a penny.”

Washington, D.C. – Nevada Senator Harry Reid spoke on the Senate floor today calling on Republicans to join with Democrats in passing legislation to help Puerto Rico address its severe economic and financial crisis. Below are his remarks:

Eighteen thousand Puerto Ricans served in the Armed Forces in World War I. Sixty-five thousand served in the Second World War. Sixty-one thousand during the Korean War, and 48,000 in the Vietnam War. Since 1917, more than 200,000 American citizens from Puerto Rico have served in the United States Armed Forces, serving every conflict since World War I.

One of the previous leaders of the Senate asked me to go and represent the Senate in a ceremony in Puerto Rico a number of years ago, and they were dedicating a monument to fallen Puerto Ricans who served America in the different wars. I’ve never forgotten that. I have a warm spot in my heart for Puerto Rico. It is a wonderful, wonderful part of our country. I have visited its beautiful rain forests.

But right now, Puerto Rico needs our help. The people of Puerto Rico are drowning in over $72 billion in debt. They have more debt per capita than any U.S. state. The territory is facing a severe economic and fiscal crisis that’s becoming a humanitarian crisis.

Leader Pelosi and I fought to include meaningful provisions in the omnibus spending package to assist Puerto Rico, including empowering the island to readjust a significant portion of its debt. Unfortunately, Republicans refused to work with us to address Puerto Rico’s massive debt in a meaningful way. Instead of seizing the last chance Congress has this year to do the right thing for Puerto Ricans, they turned their back on 3.5 million citizens of the United States who are Puerto Ricans.

To be clear, Puerto Rico doesn’t need a massive check from the taxpayers. This is about giving Puerto Rico and their leaders the same tools that that are currently available in every state. Puerto Rico is part of the United States and the people of Puerto Rico  are looking to members of Congress to step in as partners. That’s our job.

The territory is facing a massive $900 million payment on January 1 to its bondholders. Puerto Rico’s Governor said yesterday that the island will default in January or May. We can’t wait.

Next year, likely the first half of 2016, the same period in which Puerto Rico is expected to default on its debt, Congress will present a Congressional Gold Medal in honor of the 65th Infantry Regiment. This regiment, consisting mostly of Puerto Ricans, distinguished itself for remarkable service during the Korean War. It’s shameful to think that Congress can at once recognize the extraordinary contribution of Puerto Ricans who made the ultimate sacrifice for our country and then do nothing for Puerto Rico when they turn to us for help in a time of crisis.

Inaction is not an option. Puerto Rico needs this to work and so does Congress. As Puerto Rico’s Resident Commissioner said, “This is not just a Puerto Rican problem. This is an American problem requiring an American solution.”

We can do something to help. We must do something to help. We can work together to pass legislation that allows Puerto Rico to restructure a substantial portion of its debt without costing the American taxpayers a penny.

These bonds are not bonds of the United States government. They are people who made investments and like every other investment situation, sometimes they go bad. Theirs went bad because of the economic crash we had a few years ago on Wall Street.

The Obama Administration and Congressional Democrats want to do something to help. We’ve asked Republicans to join us in this effort, but so far they’ve only stood in the way.

Just last week, the senior Senator from New York asked for unanimous consent to adopt the Puerto Rico Chapter 9 Uniform Bankruptcy Act, a bill which would extend chapter 9 to the island and allow it to restructure its municipal debt in the same way the states can. But instead of giving Puerto Rico the same rights as Kentucky, Nevada, and Utah, the Chairman of the Finance Committee from Utah blocked this critical legislation.

I understand there are important issues that must be discussed such as the nature and scope of the authority, but to deny Puerto Rico any restructuring authority as Republicans have done is negligent. I hope recent comments by Republican leaders, including Speaker Ryan, will translate into meaningful action. Senate Democrats are ready to work across the aisle towards a real solution for Puerto Rico with the understanding that any viable plan will include a federal process that allows Puerto Rico to adjust its debt.

To deny Puerto Rico restructuring authority is not just bad for Puerto Rico, but bad for creditors as well. So I say to my Republican colleagues let’s work together to extend a helping hand to our fellow citizens of Puerto Rico. It should be on this bill that we’re going to vote on tomorrow. Giving the people of Puerto Rico the tools necessary to resolve this fiscal crisis is the right thing to do. It’s the moral thing to do.

U.S. Senate Democratic Leader Harry Reid >> Reid: Puerto Rico Needs Our Help

White House calls for 'common sense steps' to help Puerto Rico

WASHINGTON (Reuters) – The White House called on Thursday for “common sense steps” to help Puerto Rico claw out of its fiscal crisis as it welcomed a commitment by the leader of the U.S. House of Representatives to consider legislation to help the debt-strapped commonwealth.

“We certainly are gratified that the speaker has committed to bringing up legislation early in the new year to give Puerto Rico access to an orderly restructuring regime,” White House spokesman Josh Earnest told reporters.

House Speaker Paul Ryan said on Wednesday he had instructed committees to work with Puerto Rico’s government to come up with a solution to the island’s financial woes, calling for a plan to be crafted by the end of March.

U.S. Treasury Secretary Jack Lew on Thursday said Ryan’s instruction reflected “the need for Congress to act quickly” on Puerto Rico, adding that any solution should include a mechanism for the island to restructure its debt.

Puerto Rico, wrestling with some $70 billion of debt and a faltering economy, defaulted on part of its debt in August and is trying to restructure its borrowings. The island’s governor said on Wednesday the island would default on either its upcoming payment due in January or a subsequent one in May.

Democrats and Republicans in Congress have been divided on whether Puerto Rico should be given access to U.S. bankruptcy laws to help it reorganize its debts.

“Providing restructuring authority to the people of Puerto Rico will require Congress to confront difficult interests” but is “essential to protect the 3.5 million Americans” on the island, Lew said in a statement Thursday night.

Earnest said any legislation should give Congress an oversight role. He also repeated the administration’s view that reforms to Puerto Rico’s Medicaid system should be put in place to help relieve budgetary pressures and again called on lawmakers to make the island’s residents eligible for the Earned-Income Tax Credit for low- and moderate-income individuals.

“We believe that would be a common-sense package that would benefit the people of Puerto Rico and allow that government to dig out of the deep hole that they’re facing,” he said.

(Reporting by Julia Edwards; Additional reporting by Nick Brown; Writing by Timothy Ahmann; Editing by Chris Reese and Ken Wills)



U.S. Speaker of the House Paul Ryan (R-WI) holds a news conference on Capitol Hill in Washington December 17, 2015. REUTERS/Gary Cameron

White House calls for 'common sense steps' to help Puerto Rico

Puerto Rico Bankruptcy -- No Bailout

In recent days, both my NR colleague Kevin Williamson and my AEI colleague Ben Zycher have come out against extending bankruptcy protections to Puerto Rico. They raise good points. But I disagree with their conclusion, because I think that in the absence of those protections, we could well see a taxpayer bailout of the island, which would be worse. It’s a possibility neither of their arguments mentions. Williamson says that “some in Washington” want to pretend that Puerto Rico is a municipality and let it go into Chapter 9, and he especially criticizes the Republicans within that “some.” What more in Washington, especially Republicans, are saying is that municipalities and other subdivisions of Puerto Rico should be allowed to go bankrupt, as municipalities and subdivisions of states can. Congress has forbidden this option for Puerto Rico for reasons lost to history. To Williamson, allowing it would be a “bailout.” But it wouldn’t be a normal bailout, in which taxpayers rescue the creditors of insolvent institutions. The creditors would have to write down the value of their loans and taxpayers would be protected. Oddly, Williamson gets the endgame right: “Puerto Rico should be allowed to default on its debt payments, leaving creditors — who knew the risks when they were chasing those high returns — to work out what they can.” Yes: Doing that in a structured way is basically the purpose of bankruptcy.

Zycher, meanwhile, presents three arguments against applying the bankruptcy laws that cover the rest of the U.S. to Puerto Rico. First, he says it would raise the island’s future borrowing costs. That’s true. But the availability of bankruptcy to debtors raises borrowing costs everywhere else in the U.S. already; the change would just put Puerto Rican borrowers and their creditors on a more level playing field with everyone else. Also, raising future borrowing costs seems like a price worth paying given that a) it would reduce the possibility of a federal taxpayer bailout, and b) the borrowers in question have not shown such a sterling track record of responsibility that we should be extremely upset that they will not be able to borrow on such liberal terms in the future. Second, Zycher says that it would be unfair to change the rules retroactively. The debts were incurred on the understanding that bankruptcy was not possible. Here, too, he has a good point. Applying new bankruptcy laws to old debt is not optimal (even if there is ample historical precedent for it). But we are in a pretty suboptimal situation, and it still seems better for the creditors to take a hit for unwise lending than for taxpayers to do so.

Third, Zycher thinks this retroactive change would raise borrowing costs for municipalities across the nation. He writes: If the commonwealth’s commitments can be repudiated after the fact, why not erode other debts incurred by other borrowers in the municipal bond market? If enacted, S. 1774 promises to increase borrowing costs for all municipal debt across the country, an outcome that would serve the interests of no one except borrowers with political incentives to acquire debts that cannot be sustained. Other borrowers in the municipal bond market can already lose money when borrowers file for bankruptcy. And that higher borrowing costs are good for reckless borrowers is counterintuitive. EDITORIAL: What to Do About Puerto Rico Both Williamson and Zycher recommend that Congress and Puerto Rico take other steps to improve the island’s economy and fisc. All of the ideas they suggest strike me as good ideas — ideas that should be packaged with bankruptcy protections, perhaps in the form of a fiscal control board. But those ideas, like a lower minimum wage for the island, won’t do much to take a taxpayer bailout off the table. Addressing the anomaly in the law regarding bankruptcy in Puerto Rico would. — Ramesh Ponnuru is a senior editor of National Review.

by Ramesh Ponnuru

Puerto Rico Bankruptcy -- No Bailout

Puerto Rico emerges as key issue in budget fight

Some House Democrats are strongly pushing back against the bipartisan spending bill unveiled late Tuesday because it doesn't include language that would allow Puerto Rico to file for bankruptcy.

Members of the Hispanic Caucus, the Black Caucus and others loudly complained in listening sessions with Democratic Leader Nancy Pelosi that failing to help Puerto Rico deal with a serious debt crisis may lead them to oppose the deal. And with House Speaker Paul Ryan already facing significant defections from Republicans critical of the deal, the prospects of Democrats peeling off in big numbers complicates the math for getting the needed 218 votes for the deal on a vote slated for Friday.

"There is not an insignificant level of anxiety" among House Democrats, Rep. Steve Israel of New York told CNN about the spending package, saying it is fueled mainly by complaints about the lack of action on Puerto Rico, but also by a move to do away with a 40-year-old ban on exporting crude oil.

The rumblings about the Puerto Rico issue got loud enough that Ryan, seeking to protect the deal, released a statement Wednesday vowing to take action on the issue next year.

"While we could not agree to including precedent-setting changes to bankruptcy law in this omnibus spending bill, I understand that many members on both sides of the aisle remain committed to addressing the challenges facing the territory," Ryan said, pledging committees would draft a remedy in the first quarter of 2016.

House Democrats are slated to huddle behind closed doors on Thursday morning to plot a path forward. The opposition that became apparent Wednesday afternoon marked an escalation from the initial response to the massive 2,009-page spending bill -- plus a separate package of $650 billion in tax breaks -- congressional leaders agreed to late Tuesday night. The package left members of both parties grumbling but generally feeling that it included provisions they support.

The year-end crush on the large and complex bills comes days before the Christmas holidays. With the tight calendar, and arguments that there is something good for everyone in the bill, leaders still hope to cobble together bipartisan votes on both items before the week is out.

By Deirdre Walsh and Ted Barrett,

Puerto Rico emerges as key issue in budget fight

Governor of Puerto Rico Warns of Looming Default Without Bankruptcy Plan

The governor of Puerto Rico redoubled threats on Wednesday of a major bond default, as an effort to help the struggling commonwealth use bankruptcy to shed debt headed for defeat in Congress.

Gov. Alejandro García Padilla warned in a speech at the National Press Club in Washington that Puerto Rico would probably miss debt payments in January or May because its government had run out of cash.

“There is no money,” he said. “I don’t have a printing machine.”

The governor’s comments came as Congress omitted from a federal spending bill any measures to allow Puerto Rico to restructure its roughly $72 billion of debt in Federal Bankruptcy Court.

Mr. García Padilla and his Democratic Party allies in Washington have been pushing for months to allow the island to take shelter from its creditors through bankruptcy. Chapter 9 bankruptcy, which is available to cities, counties and other local governments on the mainland, specifically excludes Puerto Rico as well as states.

Many Republican leaders are opposed to giving Puerto Rico access to Chapter 9, in part because of concerns that the island would blaze a trail that severely troubled states might try to follow. The proposal was also vehemently opposed by bondholders, including hedge funds, that have bought billions of dollars of Puerto Rico’s debt, under the assurance that it could not be cut in bankruptcy.

The omnibus spending bill, hashed out by Republican and Democratic House leaders late Tuesday, offers one of the last chances this year for Congress to assist Puerto Rico. It is expected to be put to a final vote on Friday.

Supporters of bankruptcy authority for Puerto Rico vowed to keep fighting for such a measure, which requires congressional approval.

In a statement, Speaker Paul D. Ryan said that “while we could not agree to including precedent-setting changes to bankruptcy law in this omnibus spending bill,” he had instructed various House committees to work with Puerto Rico to come up with a “responsible solution” by the end of the first quarter of 2016.

The Treasury Department has been among those pushing for Congress to create an orderly legal process for Puerto Rico to restructure its debts, rather than leaving it up to a free-for-all among creditors.

Some analysts fear that a major default could result in just such a scramble, as creditors file a series of lawsuits seeking to protect their claims to the island’s increasingly scarce cash.

The Puerto Rico governor has previously raised the specter of default, saying in June that the island’s debts were “not payable.” On Wednesday, he did not specify whether Puerto Rico might default on all or only a portion of the debt coming due on the first of the year.

Mr. García Padilla said it was becoming increasingly difficult to make debt payments while also providing essential government services.

It will “probably be on Jan. 1 that I will not have money to do both things,” he said. “And if I have to choose between Puerto Ricans and creditors, I will choose Puerto Ricans. There is no question.”

Puerto Rico has already defaulted on a small amount of its debt — skipping a $58 million “moral obligation bond” payment last August — but the Jan. 1 payments are seen as an important test of whether Mr. García Padilla and his advisers are willing to default on general obligation bonds. That type of debt has historically been marketed as virtually default-proof, and Puerto Rico’s general obligation bonds are guaranteed by its Constitution.

On Jan. 1, Puerto Rico owes bond payments of as much as $902 million, according to the Center for a New Economy, a nonpartisan research institute in San Juan.

About $332 million of that bond payment is for general obligation bonds. Other large payments are due on the same day from the public corporations that operate the island’s water, electricity and highway systems, among others.

The omnibus spending bill detailed some additional assistance for Puerto Rico, though critics said those measures would have minimal impact on the island’s severe cash shortage. One provision would increase Medicare payments to Puerto Rico’s doctors and hospitals by about $900 million.

The bill also authorizes the Treasury to provide “technical assistance,” like helping the Puerto Rico government with its budgeting, forecasting, cash management, information technology and tax collection — enhancing the Treasury’s current engagement.

Senator Orrin Hatch, the Utah Republican who is chairman of the Senate Finance Committee, said he welcomed further assistance from the Treasury.

“We can now begin the process of improving basic bookkeeping in the territory and end the opacity and lack of transparency in their finances,” he said in a statement on Wednesday. Republican senators on committees with jurisdiction over Puerto Rico have complained that the island has not provided enough information to warrant anything like a cash bailout.

“Providing blank checks without oversight or fiscal responsibility is not my preferred approach,” Mr. Hatch said.

“Congress missed an opportunity to do the right thing,” Mr. García Padilla said on Wednesday. “Hedge funds proved more persuasive over Congress than the well-being of 3.5 million American citizens living in Puerto Rico.”

A version of this article appears in print on December 17, 2015, on page B6 of the New York edition with the headline: Governor of Puerto Rico Warns of Looming Default Without Bankruptcy Plan . Order Reprints| Today's Paper|Subscribe

By MICHAEL CORKERY and MARY WILLIAMS WALSH

Governor of Puerto Rico Warns of Looming Default Without Bankruptcy Plan

The Fed Raises Key Interest Rate, Potentially Slowing Job Market Growth

The Federal Reserve announced Wednesday that it is raising its benchmark interest rate, putting downward pressure on job creation in order to address long-term concerns about inflation and financial stability.

The central bank’s Federal Open Market Committee decided to raise the target federal funds rate -- or the interest the Fed sets for banks to lend to one another overnight -- one-quarter of a percentage point to a range of 0.25 percent to 0.5 percent.

Fed officials expressed confidence that the job market is finally growing enough that it will soon put upward pressure on prices.

"The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective," the FOMC said in its official statement.

Speaking at a press conference after the announcement, Federal Reserve Chairwoman Janet Yellen said that if the Fed were to wait much longer, “we would likely end up having to tighten policy relatively abruptly at some point to keep the economy from overheating and inflation from significantly overshooting our objective.” Raising the interest rate abruptly, Yellen said, would increase the risk of pushing the economy back into recession.

Yellen also alluded to fears that keeping the key interest rate at or near zero would deprive the Fed of the ability to respond to "adverse shock" in the economy by cutting interest rates further.

“It would be nice to have a buffer, in terms of having raised the federal funds rate, to a certain extent to give us some meaningful scope to respond” to a downward turn, Yellen added. “That is an important consideration for the committee.”

The federal funds rate is used as a benchmark for interest rates on virtually all credit, including home mortgages, automobile loans and student loans, giving it far-reaching influence over the economy.

The Fed lowers the federal funds rate to boost employment by reducing borrowing costs. It raises rates to slow job market growth, when it believes the country is at or near what it calls full employment -- the level of job creation the economy can tolerate without stoking excessive price inflation.

It's a testament to the depth of the Great Recession and fragility of the recovery that until Wednesday, the federal funds rate had remained at zero to 0.25 percent since December 2008. 

The European Central Bank, by contrast, continues to escalate its monetary stimulus efforts, leading some to worry that the dollar could appreciate in value too much relative to the euro, hurting U.S. manufacturing and creating other risks for the global economy.

Nonetheless, the Fed’s initial quarter-point increase is in itself unlikely to have a major impact. And the widely anticipated move will not come as a shock to investors, who have already priced it into their calculations. But if Wednesday's rate hike lays the groundwork for a series of future increases, it would have much more significant implications for the economy.

The Fed’s FOMC indicated that it will continue to exercise caution. It did not commit to raising rates consistently, saying instead that it would “monitor actual and expected progress toward its inflation goal” before deciding to raise rates once again.

“The Fed is really trying hard to move as slowly as possible so the economy has time to absorb those movements without it having a big economic impact,” said Tara Sinclair, chief economist at the job search website Indeed.com. “They are not putting on the brakes, just giving less gas.”

The Fed is really trying hard to move as slowly as possible so the economy has time to absorb those movements without it having a big economic impact... They are not putting on the brakes, just giving less gas.Tara Sinclair, chief economist, Indeed.com

The central bank can point to steady job growth to justify its decision. The economy has, on average, created 237,000 jobs per month in the past 12 months, bringing the official unemployment rate down to 5 percent.

Yellen rejected the notion that the economic expansion is due to expire because it has already lasted as long as many previous boom cycles.

"I think it’s a myth that expansions die of old age,” Yellen said. “The fact that this has been quite a long expansion doesn’t lead me to believe that its days are numbered."

The failure of job market growth to boost inflation more significantly, however, has prompted some economists to counsel the Fed against raising rates. The price of consumer goods and services, excluding the more volatile costs of food and energy, rose 1.3 percent in the 12 months ending in October -- well below the Fed’s 2 percent target.

Josh Bivens, who studies Federal Reserve policy for the progressive Economic Policy Institute, called an interest rate hike a “mistake” in remarks at a Dec. 1 congressional briefing for that very reason.

Bloomberg/Getty Images

Members of the Fed Up campaign, a coalition of progressive groups opposed to an interest rate hike, demonstrate at the Jackson Hole symposium on Aug. 27, 2015.

Bivens and other, mostly liberal, economists who believe it is too soon for an interest rate hike argue that lackluster inflation is actually a sign that the Fed’s other area of concern, the job market, is not growing fast enough.

"I am against the hike, because to me you hike interest rates when you are trying to cool down an economy that is overheating and threatening to generate wage and price inflation," Bivens said in an interview this week. "There is just no evidence of that in the data. In fact, both wages and prices are growing much more slowly than they should be if the economy is healthy."

Counting people working part time because they cannot find full-time work, and those who have given up looking for work, the unemployment rate is actually 9.9 percent, according to the Bureau of Labor Statistics.

The larger number of job seekers for available job openings, Bivens and other liberal economists argue, helps explain why average wages have grown only 2.3 percent in the 12 months ending in November -- significantly less than year-over-year rates in the months before the recession. Prices will only begin rising in earnest once wage growth accelerates, they assert, which the Fed should allow by leaving rates unchanged.

Yellen acknowledged concerns about the pace of job market growth, agreeing that the official unemployment rate masks ways in which it is still not operating at capacity. She noted the "depressed level" of labor force participation, which includes people who have given up looking for work, and "somewhat abnormal" levels of part-time employment. "Wage growth has yet to show a sustained pickup," she said.

But the FOMC, which Yellen leads, said on Wednesday that it is forecasting that inflation will reach 2 percent in the medium term. Fed officials acted now, the committee said, "recognizing the time it takes for policy actions to affect future economic outcomes."

Yellen addressed the issue of below-target inflation at Wednesday's press conference. "With inflation currently still low, why is the committee raising the federal funds target?" she asked.

Fed officials believe that low energy prices and a strong dollar are keeping inflation temporarily low, Yellen said.

Sinclair, who also teaches economics at George Washington University, noted that the rock-bottom interest rates can create uncertainty for businesses concerned about when rates will ultimately rise.

“The Fed is working toward predictability and stability overall,” Sinclair said. “Bringing the interest rate back to more historical norms is helpful for companies to make plans.”

Predictability is one reason Mike Brey, president and CEO of the Maryland-based retail chain Hobby Works, said he believes a rate hike now, though painful, may ultimately be better than delaying it.

I feel the exact same way I feel about the economy as I do about the Redskins: I need to see a lot more before I am a true believer.Mike Brey, CEO & president, Hobby Works

“We are enjoying low interest rates and if things continue this way, we’d be seriously looking at opening another store and low rates would really help us,” Brey said. “It seems like [a rate hike] has to happen eventually, though, so part of me wants it to happen very slowly and eventually. My worry is that we do nothing for a while and then suddenly we do a lot.”

This year has been Hobby Works' best since before the recession, Brey said. The store, which has several locations in the Maryland and Virginia suburbs of Washington, increased its payroll 15 percent to accommodate rising demand for its products -- particularly its popular recreational drones.

But Brey said he remains “torn” about the Fed’s decision, because he worries that congressional dysfunction may thwart his business’ progress once again. He had a similarly good run in 2011, but he said Congress’ last-minute government shutdown negotiations that produced the across-the-board spending cuts known as sequestration depressed consumer confidence anew at the end of the year and well into 2012.

Brey said he feels “the exact same way I feel about the economy as I do about" Washington's NFL team. "I need to see a lot more before I am a true believer.”



This story has been updated with additional comments from Janet Yellen.

Daniel Marans

The Fed Raises Key Interest Rate, Potentially Slowing Job Market Growth





The Fed Raises Key Interest Rate, Potentially Slowing Job Market Growth

Will the US Heed Puerto Rico’s ‘Distress Call’?

Puerto Rico on Dec. 1 made a scheduled $354 million debt payment, avoiding default, but at the same time, the U.S. commonwealth’s governor told members of Congress that the territory has completely run out of cash, and was only able to make the payment because of a trade-off that used money earmarked for a different bond payment next month. “This is a distress call, from a ship of 3.5 million people that is adrift at sea,” Alejandro García Padilla told U.S. lawmakers. He has previously urged Congress to allow Puerto Rico to restructure its debt, but under current U.S. law, cannot. Should the U.S. government help Puerto Rico get out from under its debt? What is the best way to approach the task? What would be the implications of ignoring García Padilla’s plea? What would be the trade-offs to letting Puerto Rico restructure its debt?

José J. Villamil, chairman of the board of Estudios Técnicos in San Juan: “Senator Orrin Hatch (R-Utah) has proposed a $3 billion grant to Puerto Rico, meant to be utilized in conjunction with the creation of a federal Fiscal Control Board and reducing Social Security payments for workers in Puerto Rico. Hedge funds and other bondholders will favor the measure since it essentially protects their investment. This group has opposed granting Puerto Rico access to Chapter 9 of the bankruptcy code, which is not included in the Hatch proposal. Obviously, a $3 billion grant would resolve the immediate liquidity problem and would permit paying the debt service for the following year. However, efforts should focus on achieving justice for Puerto Rico in the Medicare and Medicaid programs. Island residents pay for these programs exactly the same as those of any state, yet the benefi ts received are far fewer. This is clearly a case of social injustice that, were it to be corrected would not only improve the lot of low-income Puerto Ricans, but would also go a long way toward resolving the fi scal situation. What one must ask is what the various proposals in Congress would do to jump start the economy and stop in its tracks the downward spiral that describes its performance over the last decade. Unless this is done, the stopgap measures for dealing with the fi scal problem will achieve very little. The focus of these measures has been fi scal health, not the wellbeing of the Puerto Rican population or the sustainability of the economy in the medium and long term.”

Kenneth McClintock, former secretary of state and lieutenant governor of Puerto Rico: “First of all, our debt doesn’t amount to $72 billion, including $5 billion of water utility debt and $9 billion of electric utility debt, as some have said. The commonwealth is not liable for PREPA’s debt, just as New York Governor Andrew Cuomo has no responsibility for Consolidated Edison’s bonds. Second, debt service for the commonwealth’s actual debt represents less than 16 percent of revenues. If Puerto Rico were to spend 90 percent of its revenues on expenses, the debt plus its expenses are unsustainable. It is more equitable to reduce that 90 percent to 84 percent, a 6.6 percent cut, than to balance overspending by cutting the 16 percent to 10 percent, a nearly 40 percent haircut, which would increase future credit costs. Third, a signifi cant portion of our actual debt, between 33 percent and 40 percent, is due to inequitable treatment by the feds. If we had been a state during the past 25-30 years, our debt today would be $15 billion to $20 billion lower. We need help. First, we need a big brother that will remind us that we can’t afford luxuries that states don’t have-a 1:11 teacher-student ratio, a full-time commonwealth-wide fi refi ghting department, the most expensive workmen’s comp system in the nation, and so forth. These expenses can be brought down without layoffs. Second, some relief from Wall Street to iron out the scheduled debt service payments, which as in PREPA can be achieved through consensual negotiations rather than litigation, in or out of bankruptcy court, where only lawyers win. Third, equitable treatment from the feds— EITC to combat poverty, full CTC to ease family burdens and better treatment under Medicare, Medicaid and Tricare Premium for our vets to combat depopulation and the loss of physicians to the mainland.”

Rafael Cox Alomar, assistant professor of law at the David A. Clarke School of Law at the University of the District of Columbia: “Nothing, as a matter of law or policy, precludes Congress or the White House (and particularly the Treasury) from extending to Puerto Rico appropriate short-term fi nancing facilities within a wider revitalization strategy that must necessarily include an effective legal repertoire under Chapter 9 of the U.S. Bankruptcy Code. Time is of the essence. A humanitarian crisis of grave proportions will soon unfold in Puerto Rico if the political branches in Washington fail to craft an innovative policy for cleaning the island’s monumental fi scal mess. In light of the obvious stalemate in Congress, it is about time the White House and the Treasury step up to the plate and show much more leadership than what they have shown us so far. It is simply not acceptable for the Obama administration to roll out a plan for Puerto Rico (as it did on Oct. 22) only to let it die in Congress. There is much more the Obama administration can do, without congressional action, which it has simply failed to do out of lack of political will and commitment toward the 3.6 million U.S. citizens born and raised on the island. And while it is true that local politicians have recklessly mismanaged the island’s fi nances (as the most recent corruption scandal involving the governor’s brother and some of his closest cronies shows beyond peradventure) it is pretty clear that the fundamentals of Puerto Rico’s colonial relationship with Washington have exacerbated the island’s systemic malaise. There will be no enduring resolution of the Puerto Rican conundrum until the political branches in Washington undo a colonial relationship that stands as an acute source of embarrassment in the eyes of the world.”

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Will the US Heed Puerto Rico’s ‘Distress Call’?

GOP to Puerto Rico: 'Drop dead'

Republican leaders in Congress told Puerto Rico’s nearly bankrupt government to drop dead on Tuesday.

Despite feverish efforts by the White House and congressional Democrats to insert a provision into the federal spending bill that would allow the Caribbean island territory to tackle its massive $72 billion debt through bankruptcy restructuring, top Republicans in the Senate scuttled it at the last minute.

Their refusal now leaves Puerto Rico just two weeks away from the biggest municipal bond default in American history.

“The hedge funds won, they got their way in Congress,” said Richard Ravitch, New York’s former lieutenant governor.

Ravitch, who steered this city through its financial troubles in the 1970s, and assisted Detroit in its bankruptcy exit plan, has been an unpaid adviser to Puerto Rico’s government and a major advocate of a special “territorial” bankruptcy provision for the island.

On Jan. 1, nearly $1 billion in debt service payments come due. The only way Gov. Alejandro Garcia Padilla can make that payment — and hundreds of millions more that are due in subsequent months — is by further decimating basic services to his island’s 3.5 million U.S. citizens.

Well, Garcia Padilla should refuse to do that. He should follow, instead, the example of Alexis Tsipras in Greece.

He should tell Congress, the bondholders and hedge funds: “Puerto Rico can’t pay what it doesn’t have.”

© Ana Martinez / Reuters/REUTERS

Puerto Rico governor Alejandro Garcia Padilla should tell Congress, bondholders and hedge funds: "Puerto Rico can't pay what it doesn't have."

Then, when the tremors sweep Wall Street following a Puerto Rico default, watch the change in attitude.

DE BLASIO BLAMES HEDGE FUNDERS FOR PR'S FINANCIAL CRISIS

Last week, it appeared that confrontation could be avoided. New York Sen. Chuck Schumer expressed optimism that a bipartisan compromise to aid Puerto Rico could be reached.

On Monday, Schumer and Sen. Maria Cantwell (D-Wash.) huddled late into the night with three top GOP leaders — Sens. Chuck Grassley, chairman of the Judiciary Committee; Orrin Hatch, chairman of the Finance Committee; and Lisa Murkowski, chairwoman of the Energy Committee — and their top aides to find common ground.

But Grassley was adamant, according to two participants in the meeting, that he didn’t want to extend municipal bankruptcy laws to Puerto Rico, a right the 50 states already have.

Cantwell then offered a last-minute compromise that did not specifically authorize bankruptcy.

She proposed creating instead a five-member board appointed by the President (with three members from the U.S. and two from Puerto Rico). That board would monitor the island’s finances and recommend any possible restructuring. In the meantime, all lawsuits would be held in abeyance pending voluntary talks with creditors.

Enid Alvarez/New York Daily News

Rep. Nydia Velazquez calls Republican response to Puerto Rico’s woes “disgusting and insulting.”

On Tuesday, Grassley rejected that compromise.

“The last-minute Cantwell proposal was little more than the Obama administration’s plan that has been roundly criticized and has little support on Capitol Hill,” Grassley’s spokesman Taylor Foy said.

“The bottom line is that neither Chapter 9 (normal municipal bankruptcy) nor Super Chapter 9 (the territorial alternative) do anything to help Puerto Rico’s spending problems, which are the crux of the issue,” Foy said.

“This is disgusting and insulting,” said Rep. Nydia Velazquez (D-N.Y.) in response. “The ones who have not been serious on this issue have been the Republicans.”

Velazquez, along with Schumer, has been spearheading the fight in Congress for assistance to Puerto Rico.

“This is our last chance in this budget,” Schumer said. “We can’t abandon the Puerto Rican people.”



Ricardo Arduengo/AP

San Juan, the capital of Puerto Rico, faces an uncertain future once bond payments come due Jan. 1.

GOP to Puerto Rico: 'Drop dead'

Puerto Rico Needs Territorial Bankruptcy Protections « CBS New York

NEW YORK (CBSNewYork) — Democratic officials like City Council speaker Melissa Mark-Viverito are urging Congress to pass a final spending bill that would allow Puerto Rico to restructure its debt.

Mark-Viverito was joined by State Senators Charles Schumer and Gustavo Rivera and other local politicians at City Hall on Sunday for a press conference on Puerto’s current fiscal crisis, WCBS 880’s Stephanie Colombini reported.

“This is not a bailout, it will not cost anything,” Mark-Viverito said. “If we are able to have access to the bankruptcy protection laws that we are demanding.”

Territorial bankruptcy protections laws would help the territory restructure their debt in a way that would also help stimulate economic growth, the politicians said in a statement.

Republicans have opposed allowing Puerto Rico to declare bankruptcy as a way to help mitigate their $72 billion government debt. Congress is still mulling over several other versions of the bill — which could possibly be included in the upcoming 2016 Omnibus Spending Bill.

“Not only 3.5 million Puerto Ricans but five million on the main land are watching,” Velazquez said.

The decision to include the legislation in the upcoming Omnibus bill ultimately falls on Speaker of the House Paul Ryan and Senate Majority Leader Mitch McConnell.

Puerto Rico faces a $1 billion debt payment on January 1.

Puerto Rico Needs Territorial Bankruptcy Protections « CBS New York

Can Technology Help Puerto Rico See Beyond The Next Horizon?

Early this morning, I got a group text on Facebook FB -2.94% from my DC-based Puerto Rican friend Gretchen Sierra Zorita. The message: a link to a pagealerting/reminding people that Puerto Rico is running out of cash and will need to make bond payments of roughly $1 billion unless Congress addresses the debt this week. The message was startling, not just because I care about PR — I’ve written several times before about the challenges the island is facing — but because earlier in the week I met live with the founder of a new economic initiative in PR, dubbed Parallel18 (disclosure: I am an unpaid advisor), that is looking to address the challenges in the long term.  So I arose this Sunday with a picture in my mind’s eye: the famous Horizons graph that was invented by the folks at McKinsey to help organizations address their challenges today and in the future.

Invented by management gurus in the late 1990s, the Horizons framework gives leaders an approach for navigating around the clear and present dangers, while addressing other challenges near and far. Emphasis on while. For the biggest contribution of McKinsey Horizons is that it asks you to think about all three timeframes at once.

The First Horizon

For PR, the first horizon, we should all now see, is January 1, and it would not only be unmanagerly but irresponsible to let PR default. Though PR is an island (more precise, a small archipelago), no island today is an island thanks to the transnational investments that help float national economies. I’ve heard several people say that the Island could be the next Iceland, whose economy melted as fast as PR’s might sink, sending ripples to distant shores. So the bill this week is important to watch. For without an emergency response, we can’t even look at the future.

The Second Horizon

And there are two future horizons, each with its own challenges. The first comes post-default, and that’s where Parrallel18 comes into view. Led by Sebastian Vidal, the former executive director of Startup Chile, the new initiative scored funding from the PR government and others to inject financial and social capital into the island ecosystem. The first cohort of startups will get $40K each, and offices in PR for five months. To qualify, you only need to base part of your operations in PR. And while you are there, you’ll be able to enjoy numerous business incentives unknown to many business people the subject of a future article). Objective: to help create companies, jobs, and other opportunities and restart the old narrative about America’s strategic near-shore partner.

The Last/Lost Horizon

But Vidal also sees the role that startups might have in helping to infuse hopenot just capital in the larger Puerto Rican economy. On several visits to PR over the last five years, I began to see a challenge that other Latin American economies are facing: to a large extent, the economy is stuck in the past. PR feels stuck, of course, economically; the stagnation is not new, but its current form is called crisis. PR also feels stuck technologically, despite the recent emergence of a creative startup culture. As a Silicon Valley entrepreneur that I met recently said of Mexico, there are entire industries in PR just waiting to be digitized, modernized.

Most important, to me, PR feels stuck philosophically. Too many people here, on the mainland, have given up on the island, or forget (or do not even know) that PR is part of our nation. As I said, no island is an island today. But when it comes to PR, the rule applies with special force. PR is part of us/US.

We’re living in tough times for US/Latin American relations. It feels like there’s more hatred than hope, with a runaway narrative that’s making matters even worse for places like PR.  But I believe that the hope that comes with tech culture might actually make a difference, and help connect everyone who can play a part in PR’s recovery, whether they are near-sighted or far-sighted, or need progressive lenses.

In the meantime, the first horizon looms large, and I see it clearly (thanks, Gretchen). It’s time to write my congressman.

Giovanni Rodriguez

Can Technology Help Puerto Rico See Beyond The Next Horizon?

Puerto Rico's governor says island likely to default on Jan. 1 bond payments

Puerto Rico's governor said Wednesday that it's probable the U.S. territory will be unable to make more upcoming debt payments because it has no more money amid a worsening economic crisis.

Gov. Alejandro García Padilla spoke during a trip to Washington to meet with Republican legislators and others before a vote by Congress that might include a provision giving Puerto Rico public agencies access to Chapter 9 bankruptcy provisions.

Puerto Rico faces more than $900 million in bond payments in January, including a $357 million general obligation bond payment due Jan. 1. It would be the island's first major default if the payment is not made. Puerto Rico's Public Finance Corporation already missed a $58 million bond payment in August.

"If I have to choose on Jan. 1 between paying the salary of Puerto Rico workers or paying bondholders, I will pay the Puerto Ricans," García said. "It's that simple. They will have to go to court to force me to do the opposite."

García did not directly answer a question about whether the government could make the Jan. 1 payment if Congress approved the bankruptcy measure. He said only that it would give Puerto Rico flexibility in talking with creditors out how to make upcoming payments.

Puerto Rico recently made a $354 million bond payment even though officials said they were running out of money and warned of a possible government shutdown. Some investors have accused García's administration of exaggerating the financial crisis to evade payment.

Antonio Weiss, counselor to the U.S. Treasury secretary, urged Congress on Wednesday to approve a package that includes a debt-restructuring mechanism for Puerto Rico. He said basic services on the island have not been cut yet in part because the government has deferred payment of $300 million in tax refunds and borrowed $400 million in emergency loans.

"Resolving Puerto Rico's crisis requires congressional action," he said.

On Wednesday, the Republican chairmen of the Senate Judiciary, Finance and Energy committees introduced a bill that calls in part for the creation of an authority that would oversee Puerto Rico's finances and could offer up to $3 billion in repurposed funds.

Sen. Orrin Hatch, R-Utah, said they drew up the legislation using the limited information they had.

"Despite repeated attempts by Congress to clarify how the interplay between federal tax, health care and pension policies affect the territory's economy, we have been unable to receive audited financial statements from Puerto Rico or adequate information from federal health officials," he said.

The U.S. Supreme Court announced last week that it would hear an appeal on a ruling that barred Puerto Rico from giving municipalities the power to declare bankruptcy.

Puerto Rico Gov, Alejandro Javier Garcia Padilla testifies on Capitol Hill in Washington, Tuesday, Dec. 1, 2015, before the Senate Judiciary Committee hearing on Puerto Rico's fiscal problems. Puerto Rico and its debt crisis takes center stage in Congress as its governor testifies before a Senate panel about the U.S. commonwealth's financial woes and the demands of creditors.(AP Photo/Pablo Martinez Monsivais)

Puerto Rico's governor says island likely to default on Jan. 1 bond payments

Congress Is Ready To Act On Puerto Rico

Summary

Republican Congressman Duffy is introducing a bill in the House to create a Puerto Rico Financial Stability Council.

Republican Senators Hatch, Grassley and Murkowski are introducing a bill in the Senate to create a Puerto Rico Financial Responsibility and Management Assistance Authority.

The two bills have many similarities and should be fairly easy to reconcile; it seems unlikely the President would veto the final version.

As the first step in restoring financial stability, these bills represent a positive development for Puerto Rico's residents, businesses, current and retired employees, taxpayers and creditors.

Sean Duffy is introducing a House bill that creates a Puerto Rico Financial Stability Council. Senators Hatch, Grassley and Murkowski are introducing a Senate bill to create a Puerto Rico Financial Responsibility and Management Assistance Authority. The two bills have many similarities, including a board appointed by the President in consultation with Congressional leaders and broad powers to approve budgets, issue subpoenas, obtain financial information and develop and enforce long-term financial plans that lead to fiscal balance. Both bills benefit from Congress's experience with the District of Columbia control board.

The Senate bill goes much further than the House bill by providing significant financial and economic relief and a credible debt structure backed by revenues segregated from Commonwealth operations and controlled by the new entity to accelerate the Commonwealth's ability to regain access to credit markets.

The House bill gives Puerto Rico's subdivisions access to Chapter 9 bankruptcy; the Senate bill does not. Including Chapter 9 in the final version would be a policy mistake that would create more confusion and uncertainty. The Senate bill gives the FRMA Authority all the power necessary to restore financial stability to both the Commonwealth and its public corporations. Adding the potential for multiple bankruptcy court proceedings could turn the effort to restore financial stability into a three-ring circus. Puerto Rico has many inter-related credit structures, and the use of a single new entity empowered to sort out these complex relationships is far superior to multiple bankruptcy court actions.

Daniel Irvin

Congress Is Ready To Act On Puerto Rico

Senate Republicans Introduce Bill for Puerto Rico Relief

Under pressure to help Puerto Rico avoid a bond default on Jan. 1, Senate Republicans introduced a bill on Wednesday to extend several forms of assistance to the island.

But the measure stopped well short of embracing proposals from the Obama administration, which include giving Puerto Rico access to bankruptcy court.

The senators acted as Antonio Weiss, a counselor to Treasury Secretary Jacob J. Lew, warned that without congressional action, Puerto Rico risked "another lost decade."

The Republicans' measure would include up to $3 billion in cash relief, a payroll tax break for residents of the island and a new independent authority that could borrow for Puerto Rico — but with no taxpayer guarantee.

"Consistent with the views of Congress and the administration that there will be no 'bailout' " of Puerto Rico, said a bill summary, "the full faith and credit of the United States is not pledged for the payment of debt obligations issued by the authority."

The bill also called for Puerto Rico — and all the states — to disclose, for the first time, the true financial condition of their pension systems for government workers. Currently, governments use actuarial numbers, which can significantly understate a pension plan's cost. Shifting to fair-value numbers could help with coming negotiations in which Puerto Rico has said it plans to divert money from its bondholders and use it to pay pensions.

The proposed new disclosures would also make it easier to identify other states whose pension systems are so distressed that they may have to try similar negotiations in the future.

To get the $3 billion, the bill proposed tapping a $12 billion public-health fund created under the Affordable Care Act, for research and preventive medicine programs nationwide. The bill summary said the money was as yet "unobligated," and could be "repurposed" with federal supervision to help tide Puerto Rico through an alarming cash squeeze this winter.

To give Puerto Rican workers a tax break, the bill would reduce by 50 percent the Social Security taxes now withheld from their paychecks.

And in an echo of the control board that Congress imposed on the District of Columbia in the 1990s, the Republicans' bill would designate a "chief financial officer" for Puerto Rico to advise the island's governor on drafting and sticking to an annual budget.

The designee would remain in place even if the government changes hands in next year's election, giving Puerto Rico a better chance of seeing through its five-year economic recovery plan no matter who is elected. The five-year plan was announced in September.

The legislation was introduced by the Republican chairmen of three Senate committees with jurisdiction over Puerto Rico's affairs: Senator Orrin Hatch of Utah, whose Finance Committee has jurisdiction over tax policy; Senator Charles Grassley of Iowa, whose Judiciary Committee is responsible for bankruptcy law; and Senator Lisa Murkowski of Alaska, whose Committee on Energy and Natural Resources has jurisdiction over matters involving America's territories.

Each of those committees has recently held a hearing on Puerto Rico's travails, taking expert testimony on the severity of the island's debt crisis and what might be done to restore stability and economic growth. In each of the hearings, Republicans said they wanted to help, but were troubled by a lack of information about the Puerto Rican government's spending practices.

"Despite repeated attempts by Congress to clarify how the interplay between federal tax, health care and pension policies affect the territory's economy, we have been unable to receive audited financial statements from Puerto Rico or adequate information from federal health officials," Mr. Hatch said in a statement. "Federal taxpayers and the Puerto Rican people deserve better."

He and the other senators said they had decided to go ahead with a bill based on the limited information they already had. They said it would take time to solve Puerto Rico's problems, and in the meantime they hoped to get more financial information.

Lawmakers from both parties have been working toward a Jan. 1 deadline, when Puerto Rico owes bond payments of as much as $902 million, according to the Center for a New Economy, a nonpartisan research institute in San Juan. So far, the island has been struggling to stay current on most of its obligations. But officials say they are running out of cash and it is not clear that Puerto Rico will have enough money to pay what it owes on Jan. 1.

About $332 million of that bond payment is for general-obligation bonds, which are constitutionally guaranteed in Puerto Rico. It would be unprecedented, and unlawful, for Puerto Rico to skip such a payment outside of bankruptcy — yet Puerto Rico is barred from using Chapter 9 bankruptcy.

The Obama administration has expressed doubt that Puerto Rico could successfully restructure without being able to impair all of its bonds, including those with constitutional protection. But Republican lawmakers suspect that if Puerto Rico were to get the tools to legally impair its general-obligation debt, it would not be long before fiscally troubled states, like Illinois, came calling for the same thing.

On the details of how to revive Puerto Rico's failing pension system, or changing the way doctors on the island are paid by federal programs like Medicare, the bill proposes only further study.

The legislation was introduced during end-of-the-session drama in Washington, as the governor of Puerto Rico came to Washington to make one last plea for help.

Speaking at the Peterson Institute for International Economics, Mr. Weiss, the Treasury official, said that the National Economic Council and the Treasury had already "convened a broad, administration-wide effort" among federal agencies "to develop the most effective policy response to the crisis."

"But," he added, "it has become clear that resolving Puerto Rico's crisis requires congressional action."

Mary Williams Walsh

Senate Republicans Introduce Bill for Puerto Rico Relief