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Old 05-04-2016, 12:03 PM
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Mary Pat Campbell
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
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To solve this situation, we need only look back in time to how Congress addressed the financial woes of Washington, D.C., in the 1990s. The D.C. model worked because its cornerstone was a strong independent control board. In this case, Congress created an oversight board that supervised the city’s budgeting and spending practices, which stayed in place for six years until D.C. was able to get back on sound financial footing and had its fourth consecutive balanced budget.
We could make this same practice work in Puerto Rico — a strong independent control board would provide oversight of the island’s finances and help them regain control of their bloated budget. Republican proposals in Congress have called for such a board to help the island reassess its financial situation and make structural changes that will get Puerto Rico’s fiscal affairs back on track. Such a move would be an essential first step to remedying this crisis.

But an independent control board alone is not enough. The island’s creditors – seniors, savers, and investors from all across the world — need to have a say in how the government debt is restructured. Remember, two-thirds of U.S. pension and retirement funds are invested, at least partially, in Puerto Rico municipal bonds. Seniors, retirees, and families would lose billions if these bonds aren’t repaid; they’d get only pennies on the dollar back for what was supposed to be an essentially risk-free investment.

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Nowhere in John Oliver's recent 20-minute segment on Puerto Rico's massive $70 billion debt (it officially defaulted on its payments yesterday) does he mention public employee pensions and benefits and the role they've played in the island territory's financial crisis.

He talks about the various business tax incentives that helped create the situation, and there's actually a lot to learn from his segment, so we shouldn't dismiss it entirely. But like a lot of political activism over municipal debt crises, Oliver zeroes on only certain components and downplays or outright ignores others in order to create a class of villains and victims that doesn't completely reflect reality. In this case, he sets his sights on the whipping boys who run hedge funds who want to make sure Puerto Rico prioritizes paying their municipal bond debts. The victims are the people of Puerto Rico who are seeing all their government services reduced (and taxes increased) as a result of the island struggling to scrounge up money to pay its bills.

What is misleading in Oliver's story is the assumption that what Puerto Rico's government had been spending its money wisely and appropriately for the benefit of the populace it serves prior to this crisis. And when you look deeper, what you see is very similar to what we see in ailing municipalities in the United States: Puerto Rico has been throwing its money at its employees now and not adequately preparing for what would come down the line. In fact, not only does Oliver not engage in this issue at all, he ends a quote by former reformist Gov. Luis Fortuņo by accusing him of being part of the problem (while presenting no facts), though Fortuņo fought hard to salvage Puerto Rico's financial situation. For a better perspective, watch Fortuņo speaking at Reason Weekend back in 2012 here.


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