Puerto Rico is in serious financial trouble. It has been almost a year since Gov. Alejandro Garcia Padilla announced he did not expect the commonwealth would be able to pay its $72 billion debt when due. The scope of potential economic damage from the island’s financial crisis is becoming clear, and the deadline for action is short.
There is a lesson here.
Puerto Rico’s financial crisis is both an opportunity for leadership and a dire warning to our leaders at the federal, state and local level. It’s time to work together to solve the Puerto Rican crisis now, and to begin to confront our federal and other government debt challenges before they reach crisis proportions.
In a rare occurrence, Chairman Rob Bishop Utah and the other Republicans on the House Natural Resources Committee are working with Democrats to craft a solution that would ensure additional transparency and accountability, provide economic incentives to enhance economic growth, facilitate a much-needed transformation of the commonwealth’s government, and include a means to restructure its debt and other unfunded obligations in an comprehensive and equitable manner. But perhaps more important than the nuts and bolts of the solution is the question: How did we get to this crisis situation?
Puerto Rico is an example of what can happen through years of irresponsible fiscal actions and the politics of avoidance. Puerto Rico has been spending more than it takes in and accumulating massive debt burdens and unfunded retirement obligations for years. The political leadership finally admitted that it had hit a breaking point. After Gov. Padilla’s announcement last summer, the situation went largely unaddressed, and now, Congress is drafting legislation to solve this financial dilemma while operating in crisis mode under the pressure of a ticking time bomb.
Yet amid the crisis, citizens witness a rare event — members of Congress working across party lines to solve an important problem. Under pressure of deadlines and significant financial fallout, the political process is finally moving forward. While both parties have their preferred means for solution, neither has dug in its heels to halt the process. Bipartisanship is essential.
Pedro Pieroluisi, the non-voting member of Congress from Puerto Rico and a Democrat, found at least a dozen items in the draft with which he does not agree — and yet, he is willing to continue to work with the Republican leadership in an effort to find sensible solutions.
This kind of bipartisan approach is required in crisis situations; however, we need more bipartisan leadership to address other government fiscal challenges before they reach crisis proportions.
While Congress tries to alleviate some of Puerto Rico’s financial stress before a formal default occurs less than two months from now, it should capitalize on insight gained and lessons learned and, once resolved, continue to work together to encourage troubled states to put their finances in order and to begin to place the federal government on a prudent and sustainable fiscal path.
It would be naive — and shortsighted — to look at Puerto Rico’s financial woes as an isolated event. Greece and Argentina are two recent examples of what happens when national governments turn a blind eye to fiscal responsibility. The United States does not face a short-term financial crisis; however, our nation has almost quadrupled the national debt since 2000. In addition, the nation has a range of unfunded obligations that amount to multiples of the more than $19 trillion in national debt.
Puerto Rico could be the tip of a much larger government financial iceberg. Detroit and Stockton, Calif., are both alarming examples of cities gone bankrupt — the consequences of which have been messy. Illinois, New Jersey, Connecticut and other states also face serious financial challenges and, like Puerto Rico, can’t print money, manipulate interest rates, or use the federal bankruptcy law to restructure their finances.
Shirking leadership responsibilities by avoiding confronting these financial problems leads to bankrupt cities, crises in commonwealths and states, and ever-growing national debt that will, if left unaddressed, have widespread consequences on the services expected of government, our social safety net, and the opportunities afforded to and burdens borne by younger and future generations.
Puerto Rico’s financial turmoil should be a wake-up call to Congress, governors and our next president: We cannot avoid the increasing debt burdens and unfunded obligations without suffering severe financial consequences at some point in the future.
One hopes our federal leaders will continue to work in a bipartisan fashion to quickly find a remedy for all parties affected by Puerto Rico’s likely default. But Puerto Rico’s current crisis should also be seen as an opportunity for leaders from both parties, at all levels of government, to begin to work together to address their own financial challenges before it’s too late.
• Dave Walker, a former U.S. comptroller general, currently serves as co-founder of No Labels.