President Obama is proposing to provide Puerto Rico with billions of dollars in relief, in addition to allowing the territory to declare bankruptcy on some of its debt, The Hill reported today. The president’s fiscal 2017 budget proposal, released yesterday, includes several policy changes aimed squarely at helping the territory boost its economy, and get out from under a debt burden island officials say is unmanageable. Among the changes are bankruptcy power for Puerto Rico, an expansion of the Earned Income Tax Credit to the island, and increased Medicaid funds. All the policy changes, if enacted, would apply to Puerto Rico and other U.S. territories. The president’s plan would also subject the island to “strong fiscal oversight,” but does not detail the exact nature of that oversight. Read more.
In related news, officials from the U.S. territory of Guam, which issued $143 million of tax-free water bonds on Tuesday, said that borrowing costs could swell if Congress extends chapter 9 protection to U.S. territories as a way for Puerto Rico to reduce its $70 billion of debt, Bloomberg News reported yesterday. “When it comes to the policymakers in Washington, D.C., dealing with the Puerto Rico situation, I’ve made it very clear: Guam has no need nor desire to look at any type of backdoor such as bankruptcy protection,” said Guam Governor Eddie Calvo, a Republican who in 2014 won a second term to lead the island of 167,500. “That’s something we’ve always believed has made our triple tax-exempt bond sales very attractive — that we were treated a certain way,” Calvo said. Calvo’s argument is the same as the one made by some Senate Republicans and Puerto Rico investors, who say retroactively changing the rules around the commonwealth’s bonds could disrupt the functioning of the $3.7 trillion municipal market. Yet the proposal is most pressing for the four territories besides Puerto Rico that issue bonds that are tax-exempt at the federal, state and local level nationwide: American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands. Read more.
For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.
