On Econofact, Daniel Bergstresser provides background information on Puerto Rico’s debt crisis. From his text:
- Unlike U.S. municipalities, a U.S. territory cannot resort to Chapter 9 of the Bankruptcy act.
- The island’s economy benefited from corporate tax exemptions (until 2006) and from tax exemptions on interest paid by municipal bonds issued by Puerto Rico and its agencies (“triple tax exemption”).
- Total bond indebtedness (face value) amounts to over $70 billion, about 70 percent of the island’s GDP. The island owes an additional $50 billion in unfunded pension obligations to its state employees and retirees. Different government-sponsored entities issued the debt, apparently representing different claims on the Commonwealth’s revenue streams.
- Puerto Rican issuers were downgraded from investment grade status in 2014. In March 2015, governor Padilla announced that the island’s debt was unpayable.
- Resolution has been delayed by disagreement about the borrowers’ capacity to repay.
- Puerto Rico defaulted on its general obligation debt in June of 2016 and President Obama signed the “Puerto Rico Oversight, Management, and Economic Stability Act” (PROMESA) law. This created an oversight board with the authority to oversee the island’s budget and facilitate restructuring talks. The law also created a bankruptcy-like “Title III” mechanism. The oversight board placed a moratorium on debt collection by the island’s creditors until May 1, 2017. On May 3 the island entered the debt restructuring process. Chief Justice John Roberts has assigned the case to U.S. District Judge Laura Taylor Swain, and the first hearing in that case is scheduled to occur on May 17.