Sustained congressional control in Puerto Rico entrenches economic failure

But, critics argue, that’s where the similarities end. It makes a certain sense for Congress to impose a tight rein on D.C.: Many D.C. residents work within the federal government or interact with it on a daily basis and Congress already retains control over certain powers of government, including the ability to overturn any D.C. law.

Not so Puerto Rico. Washington, D.C. is more than 1,500 miles from Puerto Rico’s capital, San Juan, and Puerto Rico’s population is more than five times as large. Asking Congress to take control of an area so far away invites civil unrest as unelected officials parachute in and impose harmful policies to solve the economic crisis. “D.C. was much more intertwined with the federal government [than Puerto Rico is],” Johnson said. They also are treated differently under the law. For instance, D.C. residents are eligible for the Earned Income Tax Credit. Puerto Ricans are not.

In a sense, Washington operates like a normal American city whose state governor happens to be Congress. But Puerto Rico is not like either a city or a state. It has many of the same responsibilities as a state, but lacks any representation in Congress.

And while D.C.’s crisis was mostly limited to negative annual operating balances, Puerto Rico’s is more like a sovereign debt crisis, said Alice Rivlin, who was the chair of the D.C. control board from 1998 to 2001 and is now a senior fellow at the Brookings Institution. Puerto Rico’s debt has risen to $72 billion, equal to nearly 70 percent of the island’s GDP, a far higher debt-to-GDP ratio than any other state. Already, Puerto Rico has defaulted on minor amounts of the debt. But unlike states, the island’s municipalities cannot declare bankruptcy through Chapter 9 of the bankruptcy code, leaving it with little leverage to negotiate a voluntary restructuring of its debt with its creditors.

To those creditors, the draft financial plan is major threat to their leverage. The proposal would allow the control board to mediate negotiations between Puerto Rico’s government and creditors and if the board deemed it necessary, to facilitate a court sanctioned restructuring. Such a restructuring would apply to all of Puerto Rico’s debt—what creditors are calling Super Chapter 9. The draft also proposes a stay for all debt litigation upon enactment.

The government faces a $422 million debt payment on May 1 and another $2 billion payment on July 1, and it is unclear whether it has the funds to pay either of them. That’s put increased pressure on Congress to come up with a solution. The Natural Resources Committee plans to hold a hearing on a final discussion draft the second week in April and proceed to a markup of the full legislation soon thereafter. The Senate is likely to move quickly as well.

The big worry is that the Puerto Rican deal might start to resemble the fallout from the Greek financial crisis, where strict bailout requirements from the European Union and the IMF have fostered unrest in Greece amid complaints that Europe is undermining its sovereignty. Puerto Rico’s situation isn’t quite the same—it’s not its own country, and isn’t seeking a bailout—but critics say the European experience demonstrates the need to have buy-in from the local population. And that buy-in is premised on allowing elected, democratically-accountable leaders to make the final policy decisions.

“Contrary to D.C., which is a city, in dealing with Puerto Rico, you would have to assume that you’re dealing with Connecticut,” said Luis Fortuno, a former governor of Puerto Rico. “And the question that should be asked is whether this level of attention to every single detail would work in Connecticut or not? And I would say probably not.”