On behalf of taxpayers in Puerto Rico and the rest of the United States, I write to offer the views of National Taxpayers Union (NTU) as the Senate undertakes consideration of H.R. 5278, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). We urge Senators to concentrate on maintaining the taxpayer safeguards in the existing legislation, and, if additional changes are proposed, focus on: 1) Ensuring Puerto Rico's government respects debt-payment priorities; 2) Strengthening provisions to encourage federal tax reform for the Commonwealth; and 3) Limiting the influence of the union-dominated "audit commission" that wants bloated government pension debts to go to the head of the line.
After a great deal of constructive consultation and deliberation, the House of Representatives recently passed a modified version of PROMESA. Thanks to the efforts of Leadership and the House Natural Resources Committee, the PROMESA bill that came to the House floor earlier this month contained much stronger protections for taxpayers than its initial drafts. In our opinion, H.R. 5278, had many elements worth supporting. These included: a better-structured oversight entity with more robust capabilities to restore fiscally responsible policies; stronger protections against bailouts employing the full faith and credit of the United States; a less lopsided balance between creditors’ rights and debtors’ prerogatives in restructuring negotiations; and, a greater recognition, through legislative provisions for a commission, of the imperative to restore sustainable economic growth to the Commonwealth.
Now that the bill has reached the Senate, attention will inevitably turn toward what changes the upper chamber might make to the legislation. Although it is unclear what form those proposed changes could take, NTU can make some broad recommendations based upon the course of debate in the House.
1) Oversight Board. H.R. 5278 as passed provided greater detail over how the new federal oversight entity would certify voluntary debt restructuring agreements, and would modify the selection and confirmation process for members of the body. The entity is also empowered to 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. NTU would oppose attempts to weaken these changes, and would caution against adopting further amendments to expand the entity’s powers over Qualifying Modifications to debts. NTU would on the other hand support amendments to further equip the oversight entity with the capacity to quickly reestablish financial transparency and spending restraint in the Commonwealth.
2) Debt Restructuring. The current bill has made important progress on respecting the balance of rights between creditors and debtors … and, as a result, taxpayers. H.R. 5278 helpfully prevents inter-debtor transfers, and now 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. NTU would oppose any amendments to reverse these gains but would support distinct language clarifying that in any restructuring action resulting from PROMESA’s new authorities, pension debt is subordinate to constitutional obligations. The stay on litigation envisioned in H.R. 5278, wisely shortened and better defined, should not be expanded. In addition, Senators should oppose attempts to further elevate the credibility of the Puerto Rico Commission for the Audit of the Public Debt, and support attempts to limit its influence. The entity’s “findings” on the legitimacy of certain debts have often sowed confusion, to the advantage of bloated, unsustainable government pension programs that are deeply in the red.
3) 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 would hope that the Task Force’s report, issued at the end of 2016, would not simply be shelved by the next Congress. NTU would support any amendments that strengthen the likelihood these findings will receive expedited consideration from House and Senate Committees and on the floor of both chambers. 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 would oppose amendments to roll back these hard-won gains, and conversely would support moves to expand them. Other amendments to address shipping restrictions like the Jones Act between the Island and the mainland would be welcome.
Although the Task Force mentioned above could make recommendations for tax reform, the House’s final iteration of PROMESA contained additional, desirable Sense of Congress language that stated, “any durable solution for Puerto Rico’s fiscal and economic crisis should include permanent, pro-growth fiscal reforms that feature, among other elements, a free flow of capital between possessions of the United States and the rest of the United States.” 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. Affirmative expressions of Senate support for these approaches are important as PROMESA moves forward.
As NTU’s House Vote Alert noted, the weight we will provide for a “Yes” vote on PROMESA reflects not only past improvements to the legislation, but future changes – for better or worse – the Senate may soon make. We hope the Senate will find this guidance (along with previous communications available online here, here, here, here, and here) useful in the coming days. NTU looks forward to continuing our work with Senators as PROMESA nears floor action. The urgent financial situation in Puerto Rico demands timely consideration of the strongest bill capable of enactment in both chambers. Thank you for all of your efforts!Sincerely,Pete SeppPresident