The Puerto Rico Paradox
January 07, 2015
By Luis A. Ferré Sadurní, SAS ’17
For example, take the issue of bankruptcy, an ongoing topic in Puerto Rico that has recently made national headlines as well. Not only has Puerto Rico’s current administration been dealing with a $72 billion government debt, an unemployment rate almost double the stateside average, degrading credit ratings, and soaring criminality rates, but also with the imminent insolvency of some of its public corporations. The state-owned Puerto Rico Energy Power Authority (PREPA) has been the center of bondholders’ well deserved preoccupation as the government corporation faces a $9 billion debt, recurring operational and budgetary shortfalls, limited fuel diversification, the highest electricity rates in the U.S. and a very precarious cash-flow situation.
However, since Puerto Rico is not a state, its public corporations cannot file bankruptcy under Chapter 9. Because of these limitations, the territory government passed its own version of the chapter, the Public Corporations Debt Compliance & Recovery Act, on June 17, which would enable specific government-owned corporations (such as PREPA) in financial calamity to restructure their debt obligations. This action, in turn, provoked multiple investment firms that own Puerto Rico bonds to sue the local government in federal district court on the basis that the newly enacted law is unconstitutional.
Whether or not the law is proven unconstitutional, the absurdity of the issue lies in Puerto Rico’s exclusion from Chapter 9 in the first place, an irrationality caused by the island’s colonial paradox.
On November 6, 1978,President Jimmy Carter signed into law the Bankruptcy Reform Act of 1978, which established a uniform law on the subject of bankruptcies codified in the Title 11 of the United States Code and referred to as the “Bankruptcy Code”. Chapter 9 of the Code is available exclusively for a municipality — defined as a “political subdivision or public agency or instrumentality of a State” — to adjust their debts. Curiously, the 1978 Act did not contain a definition of the term ‘State’, thereby leaving Puerto Rico’s eligibility under the Code open to interpretation. Puerto Rico could have or could have not been included; the interpretation was never challenged.
The following year, Senator Dennis DeConcini (D-AZ) introduced S.658, the Bankruptcy Technical Amendments Act, to put forth minor changes to the 1978 Act. The bill added a new paragraph to Section 101 to, as the accompanying report indicates,
“amend the definition of ‘State’ to include the Commonwealth of Puerto Rico, the Panama Canal Zone, the District of Columbia, and any territory or possession of the United States. These government units were inadvertently left out of the definition of ‘State’ during the passage of the Reform Act.”
On September 1979,the bill passed the Senate, was referred to the House, and Puerto Rico was on track to be deliberately included in the Bankruptcy Code. Months later, after going through the Judiciary Committee, the bill was reported to the House with its own set of amendments, one of them being that:
“(39) “State” includes the District of Columbia and Puerto Rico, except for the purpose of who may be a debtor under Chapter 9 of this title.”
Puerto Rico and the District of Columbia were, all of a sudden, being excluded by the House from Chapter 9. Although the bill died in the Senate that same year, most of the provisions from S.658 (embodied in S. 3259) were carried over into a bill that was signed into law four years later on July 10, 1984, The Bankruptcy Amendments and Federal Judgeship Act of 1984. Puerto Rico had officially been barred from being an eligible debtor under Chapter 9 of the Bankruptcy Code.
Now, thirty years later, when some of Puerto Rico’s public corporations are in dire need of debt restructuring, but are restricted to do so because of Puerto Rico’s exclusion from Chapter 9, questions arise as to how and why Puerto Rico was excluded from said Chapter. What could have possibly happened when the bill was in the hands of the House Judiciary Committee that led lawmakers to exclude Puerto Rico from being an eligible debtor under Chapter 9?
After an extensive review of legislative records, no evidence arises as to why Congress ultimately chose to include Puerto Rico within the definition of “State” for every purpose other than Chapter 9. Only reasonable assumptions can be made from this point on.
It can be argued that Puerto Rico was overlooked and/or unjustly discriminated due to lack of equal representation in Congress and their second-class status in the eyes of the U.S. government. There were no hearings or public discussion held on a decision that was to affect the millions of U.S. citizens living in the territory. Without any public exposure, Puerto Rico simply slipped under the radar and no reasonable claims were presented as to why it should be excluded from one Chapter, but included in all the others. Surely, if the exclusion regarded one of the 50 states it would have been attended to in a transparent and democratic manner, not in the discriminatory way Puerto Rico’s case was dealt with. Three decades later, this “technical” adjustment has the Puerto Rico government trapped in a constitutional struggle with stakeholders, which challenges the jurisdictional balance of power between the state and federal governments.
Any reasonable observer would describe this anomaly as what it clearly is: an absurdity, one of the countless that are part and parcel of Puerto Rico’s colonial status. Puerto Rico’s unequal treatment in many Acts of Congress is something that has become the norm due to the island’s entrapment in its wider ranging paradoxical scenario.
While the island does have representation in Congress, Puerto Rico’s lone Resident Commissioner has to represent all of the 3.6 million citizens living in the island (as compared to a Representative’s average representation of 700,000 constituents). Although active in the drafting of legislation and in representing constituents’ interests, Puerto Rico’s representative cannot vote on bills in the House floor, thereby losing much of his political leverage. While Puerto Rico is granted significant economic autonomy, an antiquated Jones Act forces all marine commerce to be carried out in U.S. built ships (the world’s most expensive fleet), thereby raising consumer prices, lowering standards of living, and stagnating economic development. Although ample federal programs are made available to Puerto Rico, reduced funding many times burdens the territory government with the obligation to fund missing services, thereby depriving the island of budgetary flexibility.
Puerto Rico currently coexists as a paradoxical hybrid that lies within the grey areas found between the extremes of statehood and independence. Ultimately it has endured an absurd, unhealthy relationship with the U.S., which has consequently deprived it of its full economic, political, and social potential. The answer to freeing the island of its colonial paradox lays in the transformation of that relationship, whether by perfecting the union with the U.S. or declaring independence. Only then will Puerto Rico, for the first time in its history, assert its dignity and be capable of shedding its colonial shackles to march towards a, currently unattainable, brighter future.
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