The Obama administration has devised a plan to help rescue Puerto Rico from its insolvency and, according to a report in The Hill today, it's more sizzle than steak, with no chance of enactment. The island's increasingly dire economic outlook and its threat to stop paying its bondholders if it means "not paying a teacher, policeman or nurse" have frozen the government out of financial markets, leaving it with just a few weeks of liquidity on hand. To head off a cash crunch, the island's government asked Congress to extend it the same chapter 9 bankruptcy protection given to the states. To its credit, the White House's plan does contain some sensible reforms, according to the commentary. It would allow the island's residents to receive the earned-income tax credit — an effective poverty-reduction plan that is much more copacetic to the labor market than the minimum wage — and would substantially boost Medicaid spending in Puerto Rico. Nearly half of the island's residents are on Medicaid. So far so good — but the proposal would also create a more expansive, or "super," version of chapter 9 for Puerto Rico that would cover all of the island's debts, and not just the debts of its municipalities or government agencies.
