(Rewrites, adds comments from hearing)
By Megan Davies and Jessica DiNapoli
(Reuters) – Powerful Senate Finance Committee Chairman Orrin Hatch on Tuesday warned there could be no help for Puerto Rico without better financial disclosure, while expressing doubts about extending bankruptcy protection for the indebted island and questioning the idea of imposing a financial control board.
Puerto Rico, in recession for nearly a decade, has grown its debt to $ 72 billion, while the number of taxpayers shouldering the burden has dwindled, with thousands moving to the U.S. mainland each year.
The U.S. territory defaulted on debt on Aug. 1 by paying only a fraction of what was due on some Public Finance Corp bonds. The Caribbean island is not a U.S. state but as a U.S. territory its financial stability is a concern for U.S. lawmakers.
A turnaround plan unveiled in September by a working group appointed by Governor Alejandro Garcia Padilla asked for help from the U.S. government, including access to court-sanctioned restructuring laws, an exemption from the Jones Act which protects U.S. shipping, and what it would call equitable treatment under Medicaid and Medicare funding schemes.
“If we don’t get really well-audited figures, it’s going to be pretty hard to help you,” Hatch, a Republican, told the head of its Government Development Bank (GDB) Melba Acosta, at a hearing on the island’s problems. “I don’t think Puerto Rico is treated fairly, for the most part. But we need really good information from you in order to help you.”
Puerto Rico’s last annual financial statement on the GDB’s website is for the year ending June 2013. Acosta said while she agreed that the information was “not the best,” the territory was making improvements.
“Unless you get that to us, I don’t see how we can solve anything,” said Hatch. “We … better have the right tools and information or nothing is going to be done.”
A bailout from Washington is not expected, and while some on Capitol Hill are pushing laws or reforms that could help Puerto Rico, their prospects are uncertain.
Hatch questioned one witness, a budget expert from the American Action Forum (AAF) think tank, about his views on extending Chapter 9 bankruptcy protection, which allows a state’s municipalities and public agencies to seek bankruptcy protection, but does not apply to Puerto Rico, which is a territory.
Douglas Holtz-Eakin, president of the AAF, said he had “deep reservations” about the focus on allowing Chapter 9 and Hatch said he shared some of Holtz-Eakin’s skepticism.
Holtz-Eakin also expressed doubts about using a control board to manage Puerto Rico through its financial crisis, one idea which has been raised by members of U.S. Congress as well as officials on the island.
“A control board independent enough would have to be basically imposed on Puerto Rico and infringe on its sovereignty and I think that’s a problematic thing for the federal government to do,” said Holtz-Eakin. Hatch said that if there is a board, “it probably should have to be independent”.
Iowa Senator Chuck Grassley, a Republican member of the Senate Finance Committee and chairman of the Senate Judiciary Committee, said a local control board “if ever created will be ineffective due to local politics and pressure.”
“Perhaps then a federal financial control board should be part of a comprehensive approach to remove obstacles to certain fiscal reform,” Grassley said.
Grassley also was skeptical about allowing Chapter 9 bankruptcy for Puerto Rico, saying such a move alone would not solve the U.S. territory’s financial problems.
However, he said Congress should consider exempting Puerto Rico from the Jones Act and the federal minimum wage.
Senator Ron Wyden, the top Democrat on the Senate Finance Committee, urged witnesses to propose bipartisan solutions which could succeed. He said a better funding system for Medicaid and improvements to Medicare ought to be on the table.
Democrats in the U.S. Senate in August introduced a bill proposing eliminating a cap on the amount of funding that the federal government provides to support Medicaid in U.S. territories including Puerto Rico. That bill was referred to the Committee on Finance.
Hatch, however, said that solving healthcare was not “as simple as deciding to give more health funds to Puerto Rico, because doing so would necessarily mean reduced funding for other priorities, increased taxes, or even more federal debt.” (Reporting by Megan Davies and Jessica DiNapoli; Editing by Christian Plumb and Bill Rigby)