by Michael Hansen, Hawaii Shippers Council, September 30, 2015

Reuters in a news article “U.S. Sen. Hatch says no help for Puerto Rico unless better disclosure” posted on September 29, 2015, reported on a hearing held by the U.S. Senate Finance Committee chaired by Senator Orin Hatch (R-UT) on what measures the federal government can take to relieve the Puerto Rico financial crisis.

The hearing centered on Governor Alejandro Garcia Padilla’s financial turnaround plan known as “Puerto Rico Fiscal and Economic Growth Plan” issued on September 9, 2015, and the earlier “Puerto Rico – A Way Forward” commonly known as the Krueger Report issued June 29, 2015.

The Republican members including Sen. Hatch and Senator Chuck Grassley (R-IA) a member of the Finance Committee and Chairman of the Senate Judiciary Committee, were skeptical of a federal financial control board for Puerto Rico on constitutional grounds, opposed to granting Chapter 9 bankruptcy to the Commonwealth because of the effects on the municipal bond market, and were reluctant to increase funding for Medicare and Medicaid due to budgetary considerations. However, the Republicans said they are willing to consider exempting Puerto Rico from the Jones Act and the federal minimum wage.

A witness before the committee, Douglas Holtz-Eakin, president of the American Action Forum (AAF) and former Director of the Congressional Budget Office (2003 – 2005), testified against a Chapter 9 bankruptcy extension and a federal financial control board.

The ranking minority member Senator Ron Wyden (D-OR) expressed support for additional funding for Medicare and Medicaid and noted that the Republicans need to consider the views of the minority to pass a bill.

This puts a new wrinkle on the issue of federal assistance for Puerto Rico. The Democrats have been focused on extending Chapter 9 Bankruptcy protection to the Commonwealth and greater federal funding of the territorial Medicare and Medicaid plans. In response, the Jones Act industry has publically threatened to block these measures if a Puerto Rico relief bill contains a Jones Act exemption.

Meanwhile the Senate Republicans seem to support Jones Act and federal minimum wage exemptions for Puerto Rico, and do not support Chapter 9 Bankruptcy extension and greater federal funding of Medicare and Medicaid.

It will be interesting to see how this turns out.

Key excerpts:

Powerful Senate Finance Committee Chairman Orrin Hatch on Tuesday warned there could be no help for Puerto Rico without better financial disclosure, while expressing doubts about extending bankruptcy protection for the indebted island and questioning the idea of imposing a financial control board.

A turnaround plan unveiled in September by a working group appointed by Governor Alejandro Garcia Padilla asked for help from the U.S. government, including access to court-sanctioned restructuring laws, an exemption from the Jones Act which protects U.S. shipping, and what it would call equitable treatment under Medicaid and Medicare funding schemes.

"If we don't get really well-audited figures, it's going to be pretty hard to help you," Hatch, a Republican, told the head of its Government Development Bank (GDB) Melba Acosta, at a hearing on the island's problems. "I don't think Puerto Rico is treated fairly, for the most part. But we need really good information from you in order to help you."

Hatch questioned one witness, a budget expert from the American Action Forum (AAF) think tank, about his views on extending Chapter 9 bankruptcy protection, which allows a state's municipalities and public agencies to seek bankruptcy protection, but does not apply to Puerto Rico, which is a territory.

Douglas Holtz-Eakin, president of the AAF, said he had "deep reservations" about the focus on allowing Chapter 9 and Hatch said he shared some of Holtz-Eakin's skepticism.

Holtz-Eakin also expressed doubts about using a control board to manage Puerto Rico through its financial crisis, one idea which has been raised by members of U.S. Congress as well as officials on the island.

"A control board independent enough would have to be basically imposed on Puerto Rico and infringe on its sovereignty and I think that's a problematic thing for the federal government to do," said Holtz-Eakin. Hatch said that if there is a board, "it probably should have to be independent".

Iowa Senator Chuck Grassley, a Republican member of the Senate Finance Committee and chairman of the Senate Judiciary Committee, said a local control board "if ever created will be ineffective due to local politics and pressure."

"Perhaps then a federal financial control board should be part of a comprehensive approach to remove obstacles to certain fiscal reform," Grassley said.

Grassley also was skeptical about allowing Chapter 9 bankruptcy for Puerto Rico, saying such a move alone would not solve the U.S. territory's financial problems.

However, he said Congress should consider exempting Puerto Rico from the Jones Act and the federal minimum wage.

Senator Ron Wyden, the top Democrat on the Senate Finance Committee, urged witnesses to propose bipartisan solutions which could succeed. He said a better funding system for Medicaid and improvements to Medicare ought to be on the table.

Hatch, however, said that solving healthcare was not "as simple as deciding to give more health funds to Puerto Rico, because doing so would necessarily mean reduced funding for other priorities, increased taxes, or even more federal debt."

FULL TEXT: Sen Grassley Speech