Spring is here! I don’t know about you but I have been enjoying the longer days and warmer weather. Few things are better than a nice spring breeze, but what you feel blowing up your kilt at the moment is no breeze, but the winds of political change!
No matter your political opinions, I think we can all agree that across the globe there has been contention with the status quo. In June of last year, the global tone was set after the announcement of Brexit, then November brought forth the unexpected election of Donald Trump. 2017 doesn’t appear to be any less interesting with France and Germany’s Presidential Elections looming, but the one vote we wanted to single out is scheduled for the summer.
On June 11th Puerto Rico will hold a referendum to vote on the option of statehood or independence/ free association. This isn’t the first-time Puerto Rico has held a referendum on the topic but the intrigue is more palpable than ever. The last referendum was in 2012 and the majority of voters elected to pursue statehood. Nothing ever came of it because of some controversy with the vote as about 20% of the voters turned in blank ballots that became omitted. Going into this one there is a feeling that electing for statehood is the preferred option for many and that statehood would help their looming $70 billion debt crisis.
The question from us mainlanders then is what would adding a state with this much debt imply for us? Well as of right now it could mean a few things. Right now, the only people on the hook for Puerto Rico’s problems are its bondholders who felt a shock last year when the commonwealth admitted that it couldn’t pay back its debt. Puerto Rico has attempted a kind of bankruptcy process that was created for it by law called the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). This allows a board of congressmen to facilitate a financial restructuring and stop further claims against the territory for the time being. What will be interesting to see is what happens if Puerto Rico decides it wants to become a state with the process of restructuring its debt ongoing.
Currently, unlike cities, States cannot go bankrupt. This lack of ability to restructure can make borrowing costs for struggling states very high, but protects people like state employees from being subject to the terms of bankruptcy proceedings. If Puerto Rico becomes a state the case for allowing state bankruptcy would be stronger than ever and would probably be preferred as opposed to a full-on government bail-out where tax payers would shoulder the burden.
While the US has always been a nation of immigrants, adding Puerto Rico as the 51st state is an entirely different task. If this vote for statehood passes and is approved by congress, it could set the table for some major decisions on how to handle states with excess debt and who will help alleviate that debt. With all that will be happening this year, this will definitely be one to keep an eye on.