The Answer to Puerto Rico Debt Crisis is Reform, Not Bankruptcy

(Alexandria, VA) – Today, National Taxpayers Union (NTU) President Pete Sepp submitted comments to Congress urging legislators to avoid Chapter 9 bankruptcy for Puerto Rico, and consider comprehensive reforms that can put the Commonwealth on reliable fiscal footing long-term while avoiding burdening American taxpayers.

“Before rushing to pass legislation making Puerto Rico’s public corporations and municipalities eligible for Chapter 9 bankruptcy, Congress must consider all options,” said Sepp. “Specifically, reforms like a control board are better suited to protect taxpayers from the risk of a bailout and provide budgetary stability.”

Click to read NTU’s complete comments; highlights below:

  • The Chapter 9 Experience Is Mixed. Based on recent experiences among U.S. localities, especially among California cities, Chapter 9 would hardly be a cure-all for Puerto Rico’s woes. The process, which can be lengthy, has not uniformly led to prudent budgetary reductions, and has even resulted in tax increases.
  • Chapter 9 Alone May Not Produce the Desired Stability Puerto Rico Needs. For one, Chapter 9 would be especially difficult to implement amid Puerto Rico’s opaque public institutions. Only recently has PREPA, the state-owned electricity company, initiated transparency measures. In addition, the process to settle debt obligations could take years and could be very expensive. If these procedures became too arduous to complete, the political temptation to bail out indebted entities with taxpayer money could actually grow. Finally, there have been only sporadic indications so far of the political will that Puerto Rico’s institutions would need to fairly carry out Chapter 9 for the benefit of their citizens, i.e. by setting budgetary priorities and increasing the island’s economic development.
  • To Avoid a Bailout over the Long Term, Create Safeguards for Taxpayers. For example, creditors have voluntarily agreed to provide billions in new financing to Puerto Rico’s power utility. Legislation should encourage rather than cut off this option to Chapter 9. Furthermore, over nine million Americans have a portion of their retirement savings invested in Puerto Rico’s bonds. A poorly implemented Chapter 9 procedure could undermine the rights of these investors, who took their decision-making cues from Congress itself when the law made these bonds tax-exempt in every state.  Ultimately, structured oversight would generate the maximum good for all stakeholders. The District of Columbia’s financial control board, which helped to restore sustainability to that government’s finances, might be adaptable to Puerto Rico’s circumstances.


National Taxpayers Union, “The Voice of America’s Taxpayers”, is a nonpartisan, nonprofit organization working for lower taxes, smaller government, and economic freedom at all levels. More information on NTU’s work is available at