To get debt payments — and we are primarily talking about the money lent to the island's government in the form of bonds — under control, some Puerto Rican officials say they have a solution. They'd like to do what a few American cities have done and declare bankruptcy. The problem is that existing law won't let Puerto Rico declare bankruptcy or even let some of its large public entities do the same.
And that's where the 2016 politics comes in — in a potentially big way.
Florida's large and growing mainland Puerto Rican population — it's approaching 1 million and is about 20 percent of the Hispanic population in the state — has a lot of votes that the 2016 candidates want. Their votes played a critical role in boosting the share of the Latino electorate that supported President Obama. Those votes have been widely credited with helping to deliver Florida to Obama in 2008 and 2012.
And Florida has 29 electoral college votes — a tally no sane candidate will dismiss. It's by far the biggest state that both parties actually compete for and where each side suspects that they have a chance to win. It is, in short, the ultimate swing state, and the Puerto Rican population is big enough that it matters plenty.
Back to the crisis. This month, stories about the risks and benefits of bankruptcy have been published in the Spanish-language media. And over the long holiday weekend, Puerto Rico's governor, Alejandro García Padilla (D), talked about the role that mainland Puerto Ricans can play in helping the island get the legal changes needed for a bankruptcy on the nation's second-highest rated Spanish-language network, Telemundo. All of which is making Puerto Rico's bankruptcy efforts a political matter on the mainland.
So what do we know about where the 2016 candidates stand on Puerto Rico's bid for bankruptcy? Not a whole lot, but we're starting to hear more.
That's what we know on the Republican side.
Among Democrats, the picture is murky. Hillary Rodham Clinton tweeted out a message last week that some read as support for a Puerto Rican bankruptcy.
Her campaign initially declined to comment when asked about bankruptcy directly. Then on Tuesday, Clinton took a clear pro-bankruptcy position in a statement issued to Reuters. Among other things, Clinton said:
As a first step, Congress should provide Puerto Rico the same authority that states already have to enable severely distressed government entities, including municipalities and public corporations, to restructure their debts under Chapter 9 of the Bankruptcy Code.
Sen. Bernie Sanders (I-Vt.) appears to have made no public statements on the bankruptcy question. Maybe he's been a little busy with 10,000-person crowds at his rallies. But he did offer support for Greece's vote to reject its bailout deal.
Update 3:14 p.m.: Sanders is now out with a statement joining Bush and Clinton in calling for bankruptcy protections: “I strongly believe Puerto Rico should be afforded the same bankruptcy protections that exist for municipalities across the United States.
Former Maryland governor Martin O'Malley (D) has said repeatedly that he supports a bankruptcy option for Puerto Rico and other legal changes that would reduce cost burdens the island shoulders for health care. Both changes would bring Puerto Rico in line with mainland states. In El Nuevo Dia, Puerto Rico's largest circulation paper, O'Malley was quoted as saying that Americans have an obligation to help fellow citizens and shore up the regional economy.
So among those who have weighed in, there is plenty of support on both sides for allowing Puerto Rico to declare bankruptcy.
The billionaire Koch brothers, who are an increasingly massive and well-funded force in GOP politics, and an organization they fund are reportedly opposed to a bankruptcy because of what it would mean for investors. Bankruptcy, they say, rewards years of financial mismanagement. They favor a financial control board that would be appointed to make a variety of financial decisions for Puerto Rico.
That position surely complicates things for GOP candidates who would love to have Koch backing.
A bankruptcy would all but force the island's creditors to take what are known as “hair cuts.” That's a cute term for reduced repayment terms or smaller payment promises that leave the investor with less of a return than expected. Government bonds are often touted as safe investments with little to no tax burden and guaranteed pay out. (Puerto Rican bonds actually carry no federal, state or local taxes for investors).
A hair cut changes that equation. But, it could also free up some of the island money slated for debt service to provide better-quality essential public services, such as police, public transit and education. And it could get rid of the looming and very real threat that the island won't be able to pay its bills. Island officials say they barely made it this month.
Expect to hear plenty more about this as the 2016 campaign ramps up.