Bill Sarno CTLatinoNews.com
The Puerto Rico debt crisis, if not resolved soon, is expected to have an impact far beyond the troubled commonwealth, with Connecticut, as the home to more than 250,000 Puerto Ricans, many with deep ties to the island, likely to be hit harder than other states, both financially and emotionally.
The fallout from Puerto Rico defaulting on more than $72 billion in public debt would pose problems for financial markets and investors through the United States and millions of retirees, according to Latino activists seeking to increase public awareness of the problem and pressing the Obama administration and Congress for action.
Moreover, how U.S. leaders deal with this potential catastrophe bearing down on Hispanics who are American citizens could have significant political implications as the Latino Spring gains momentum.
The situation on the island is particularly worrisome in Connecticut because of its strong economic and cultural connections, as well as a higher proportion of Puerto Rican families than any other state, warns Its junior U.S. Senator, Christopher Murphy. “Connecticut will feel it first and the most” if Puerto Rico defaults on its municipal and public utility bonds, he said Friday during a visit to Hartford, the city with the largest concentration of Puerto Ricans on the mainland.
“As Puerto Rico goes so goes Connecticut,” said Murphy a few minutes after he and his Connecticut senatorial colleague, Richard Blumenthal, met with the state’s Latino leaders to hear their observations of how the crisis is specifically affecting the state’s Puerto Ricans ‘and to drum up support for legislation they say is needed to help the commonwealth avoid default and to move toward a sounder economy.
For Connecticut’s Puerto Rican community, the picture that emerges is that the island’s troubles hit very close to home, threatening friends and relatives who have been struggling for years to endure economic hardships. Many of the state’s Hispanic families are feeling the strain of not only great anxiety about loved ones on the island, but also financially as they try to muster whatever assistance they can.
The consequences for the island’s population if default takes place, a prospect heightened by the commonwealth being unable to get protection under the U.S. bankruptcy laws, could be economic and social devastation. The hedge funds and other large investors are expected to descend on the courts seeking to recoup as much value as they can. The resolution could be draconian cuts in the commonwealth’s already shrinking education, health care and social service funding, thereby inflicting greater pain on many residents, who already are suffering from high employment and poverty rates, as well as battering the island’s business community.
In Connecticut, Latino social service agencies, such as the Center for Latino Progress in Hartford, have begun to see signs that Puerto Rico’s crisis is causing island residents, especially young people, to head north, primarily to central Florida and New York but also to Connecticut, looking for employment. This migration threatens to add stress on tight job and housing situations, as well as to severely tax the ability of government and nonprofit programs that assist the Latino needy.
The concern for retirees, Murphy said, is that nearly 70 percent of the American municipal bond funds, which are common in retirement nest eggs, have some level of exposure to Puerto Rican debt. This amounts to at least 5 percent of more than 180 municipal bond funds, according to the Morningstar financial research firm. Murphy and Blumenthal met in Hartford with representatives of several Latino social service organizations, including Ingrid Alvarez-DiMarzo of the Hispanic Federation, Yanil Teron of the Center for Latino Progress and Fernando Betancourt of the San Juan Center. Government leaders, such as Hartford Mayor Pedro Segarra and state representatives Hilda Santiago of Meriden and Edwin Vargas of Hartford, as well as Werner Oyanadel, the director of the state’s Latino and Puerto Rican Advisory Commission, were also present. What the senators took away from this meeting held at the Hispanic Health Council was a sense of how much this crisis hits home in Connecticut, said a spokesperson for Sen. Murphy. In addition, this discussion underscored that national leaders need to be doing more to sound the alarm, to draw more attention to the crisis and to act on help for the island.
What the senators left behind was a request that the Latino activists help make the reforms contained in the proposed Puerto Rico Chapter 9 Uniformity Bill happen by “mobilizing people of good will,” as well as investors who be affected by default.
Alvarez, whose organizations works with several Latino oriented agencies and scores throughout the New York City area, made a statement after Friday’s meeting that called on President Obama and the leaders in Congress “to commit” to federal programs that would address the underlying economic issues in Puerto Rico and “grow the economy.”
The legislation, introduced by Blumenthal and Sen. Chuck Schumer of New York and co-sponsored by Murphy, would allow the island’s municipalities and public utilities, the major debtors, to have the same bankruptcy and debt restructuring provision available in the states. Currently, Puerto Rico has a special status as a U.S. commonwealth making its residents U.S. citizens, but at the same time the island is not covered by the U.S. Chapter 9 bankruptcy code that might allow for an orderly restructuring of its crippling debt.
According to information from Murphy’s staff, Puerto Rico has more debt than any state other than California and New York, “and U.S. investors for years snapped up its bonds because they’re tax-exempt and offered higher yields than other securities.” Moreover, the commonwealth’s ability to keep borrowing has receded as investors demand extra compensation for the risk.
Blumenthal said his plan would not be a bailout and not “one cent of federal money” would be involved. Essentially, his program would be similar to the Chapter 9 provisions used when Detroit and Stockton, California,, went bankrupt. He noted that Puerto Rico would have to make some tough choices.
In addition, the Democratic senator said his measure does not involve a loan to Puerto Rico such as was the case recently in Greece which is a “red herring in some ways” and only comparable because the entire financial community is involved.
Blumenthal also said that there needs to be more investment in Puerto Rico for cleaner energy programs, jobs and economic growth that benefit the entire country. At their press briefing Friday, the Connecticut senators did not address some of the issues which have been cited by various analysts as having precipitated this crisis, such as the greed of the investors, bad decisions by the island’s leaders or, as Rep. Vargas said, “global piracy” by U.S. financial interests.
However, Blumenthal did emphasize that decades of “discriminatory behavior” toward the Puerto Rican economy by the federal government have fueled the economic malaise suffered by Puerto Rico. He mentioned adverse shipping laws, which inflate the cost of food and other imports for island residents, and unequal treatment and less funding under the Medicare and Medicaid.
On Aug. 3, Puerto Rico’s Public Finance Corporation paid only $628,000 on a $58 million payment on the overall $72 billion debt, putting the island into default for the first time. This was only a relatively small part of what is due and that commonwealth leaders say is beyond their means after a decade of economic decline.
Blumenthal said Friday that to avoid what he called “a self-inflicted crisis, turmoil and tragedy,” Congress and the president need to act soon because interest on Puerto Rico’s general obligation bonds is due in September and default “would be felt across this country” with the misery likely to be felt disproportionately in Connecticut.