Puerto Rico is so far gone that not even bankruptcy can save it.
That’s what experts in financial distress told a House subcommittee on Tuesday.
The New York Times reports that the witnesses told members of the House Subcommittee on Indian, Insular, and Alaska Native Affairs that Congress should appoint a federal control board—that is, take over management of the island.
That’s because while declaring bankruptcy would help the sunny Caribbean island restructure and reduce its $72 billion debt load, it wouldn’t help Puerto Rico slim down its costly government operations in order to avoid getting in trouble again.
One of the witnesses was Anthony Williams, a two-term mayor of Washington D.C. who, before his time in office, was the troubled federal district’s CFO while it was being overseen be a Congressional control board similar to the one he recommended.
“In my view, the time is now for Congress to create an authority that would have as its goals both achieving financial stability and a balanced budget for the island,” Williams said, according to the Times.
Another witness, Thomas Moers Mayer, a bankruptcy lawyer who represents bondholders, said that if the island was allowed to declare bankruptcy without being forced to cut spending, little would improve. He pointed to Detroit as an example.
“The city exited Chapter 9 with the same 28 government agencies it had when it entered bankruptcy,” Mayer said. “Note that Puerto Rico has at least 120 government agencies, and 78 municipalities for an island with 3.5 million people.”
Of course, residents of Puerto Rico might object to having their island taken over by managers appointed by politicians in Washington. Former D.C. mayor Williams dismissed that worry, however.
“Whatever negative hue and cry is initially heard readily erodes as positive developments, achieved by a neutral body, start taking hold,” the Times quoted the poetic Williams as saying.
Congress may soon have to find out if that’s true. Puerto Rico’s biggest debt payments since the drama began come due in June.