Last week, National Taxpayers Union (NTU) offered recommendations to the Senate on H.R. 5278, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). At that time, when the Senate’s will was less clear, we urged lawmakers to concentrate on maintaining the taxpayer safeguards in the House-passed legislation, and, if additional changes were proposed, work further on strengthening those protections. However, it is apparent from today’s votes that the Senate will proceed with consideration of H.R. 5278 without amendments. We therefore provide the following advice for the present and the future.
While H.R. 5278 is not ideal from the taxpayer’s perspective, the urgent financial situation in Puerto Rico demands timely consideration of the strongest bill capable of enactment in both chambers. The current version of PROMESA has improved significantly from initial drafts, and contains many elements worth supporting. These include:
Oversight. The new federal oversight entity would certify voluntary debt restructuring agreements, as well as take certain actions relating to privatization and commercialization of government assets, a welcome addition to the bill that must be a priority for the island’s economic well-being.
Debt Restructuring. The current bill would establish a less lopsided balance between the rights creditors and debtors—and, as a result, taxpayers. H.R. 5278 helpfully prevents inter-debtor transfers and requires the court to consider in a restructuring proceeding whether remedies available under other laws might offer a better recovery for creditors than whatever was being initially proposed. For its part, the oversight entity must also “respect lawful priorities or lawful liens” as outlined in Puerto Rico’s constitution. Furthermore, more robust provisions have been added to guard against employing the full faith and credit of the United States on Puerto Rico’s behalf.
Economic and Tax Reforms. The version of PROMESA that passed the House would commendably provide for a new Congressional Task Force on Economic Growth in Puerto Rico. We were pleased to see that H.R. 5278 could suspend implementation of the Department of Labor’s recently-finalized and highly flawed overtime rule, pending completion of a GAO impact report and a determination from the Secretary of Labor that the rule would not have a negative effect on the island’s economy. NTU has often stressed the need for pro-growth revisions of the Tax Code toward Puerto Rico that would emulate the concepts of territoriality currently under discussion for the entire corporate tax system.
Despite the commendable progress made by H.R. 5278, further Congressional action will likely be necessary to fully resolve Puerto Rico’s chronic financial difficulties. Toward that end, NTU will support further legislative opportunities to 1) Ensure Puerto Rico’s government respects debt-payment priorities; 2) Strengthen provisions to encourage federal tax reform for the Commonwealth; 3) Limit the influence of the union-dominated “audit commission” that seeks to propel bloated government pension debts to the head of the payment-priority line; and 4) Address regulatory burdens such as Jones Act shipping restrictions. The September 15 preliminary report of the Task Force on Economic Growth, for example, could provide Congress with ideas for immediate consideration and enactment in any post-election session. NTU likewise urges Senators to oppose any attempts to weaken the taxpayer protections in H.R. 5278 that have been outlined above.
A “Yes” vote on H.R. 5278 will be included in NTU’s annual Rating of Congress and will be weighted accordingly with all of the previously-outlined factors in mind. Should you have any questions, please contact NTU Federal Affairs Manager Nan Swift or me at 703-683-5700. Thank you for your consideration, and please call upon us in the future as this vital issue continues to evolve.
Pete Sepp, President