Puerto Rico Gov. Alejandro García Padilla is glad Congress came to the rescue of his debt-ridden commonwealth, but he said Tuesday that the fiscal-relief law carried a heavy price.
The bill, passed last month and signed into law by President Barack Obama, allows Puerto Rico to extend payments on its $72 billion debt and protects the island’s government from lawsuits by bondholders.
In exchange for the debt restructuring and legal protections, the measure sets up a seven-person oversight board that García Padilla said would limit the autonomy of his people.
“I needed to choose: misery for my people or unnecessary intervention from the federal government in our democratic institutions,” García Padilla said at the Brookings Institution, a Washington research center.
García Padilla said the Puerto Rico Oversight, Management and Economic Stability Act was controversial among the island’s 3.7 million residents, with 54 percent opposing it in a recent poll.
The legislation, months in the making, was a rare bipartisan compromise on Capitol Hill.
Under pressure from lobbyists for banks and financial insurance firms, many Republican lawmakers opposed giving Puerto Rico any debt relief.
And many Democratic lawmakers were against setting up an oversight board with the power to modify or even overturn budgets, laws and fiscal decisions of the governor and the Legislative Assembly.
In another Democratic concession, Republicans included provisions restricting overtime pay in Puerto Rico and authorizing a reduced minimum wage for younger workers.
The board will be made up of four Republicans and three Democrats appointed by Obama from congressional recommendations. The appointees will be outsiders, with no required representation by Puerto Ricans.
“The oversight board will not deal with our budget if we do it the right way,” García Padilla told an audience of scholars mixed with lawyers for banks, bondholders, insurers and other parties with large stakes in Puerto Rico’s finances.
Saying “we need to consolidate agencies,” García Padilla said the number of government employees had dropped from 105,000 when he took office in January 2013 to 89,000 now.
Government pension funds are severely underfunded, taking in just 7 cents for each dollar paid out. Along with the $72 billion in accumulated government debt, the funds have a $46 billion shortfall.
To increase revenues, the government has raised gas and sales taxes, but García Padilla said lawmakers had resisted his bid to replace the sales tax with a value-added tax of the sort used in more than 100 countries.
Independent Sen. Bernie Sanders of Vermont, who recently ended his Democratic presidential campaign, was among 30 senators who voted against the bailout bill. He likened the oversight board to “a colonial master” for the island.
Republican Sen. Marco Rubio and Democratic Sen. Bill Nelson, both of Florida, voted for the legislation.
The House of Representatives passed the measure by 297-127, with 103 Republicans and 24 Democrats opposing it.
Rep. Debbie Wasserman Schultz of Florida was among the Democrats who voted against the legislation.
“While this bill takes some meaningful steps, ultimately I found certain parts of the bill weighed it down with provisions that were harmful to working people,” she said.
U.S. Navy forces invaded Puerto Rico on July 25, 1898, during the Spanish-American War, and Madrid later ceded control of the island to the United States.
All other South Florida lawmakers voted for the measure: Republican Reps. Ileana Ros-Lehtinen, Mario Diaz-Balart and Carlos Curbelo and Democratic Reps. Frederica Wilson, Lois Frankel and Ted Deutch.
García Padilla said two key changes in federal law had sped Puerto Rico’s fiscal descent: a 1984 bill that removed bankruptcy protection from it, and 1996 legislation that phased out over a decade tax incentives American companies had received for 80 years to invest in the territory.
The tax incentives ended in 2006 just ahead of the Great Recession that crippled the mainland two years later, delivering a double whammy to Puerto Rico’s economy.
Under critical questioning from some audience members Tuesday, García Padilla accepted some responsibility for his government having issued more bonds that added to the debt and were later downgraded by Moody’s to junk status.
In retrospect, García Padilla said, he might not have signed off on selling the bonds because they continued past administrations’ policies of paying for essential social services with credit.
Asked about the re-establishment of U.S.-Cuba diplomatic ties driven by Obama, García Padilla expressed support. He said the more than 50-year U.S. economic embargo had not led to democracy but only hurt the Cuban people.
“The embargo is bad, no matter if you agree or disagree with the Castro government,” he said.
Puerto Rico is in the process of establishing a business-development office in Havana.
“Cuba will be a formidable (economic) competitor, but not right now,” García Padilla said. “As a governor, as a Latino, that’s something I cannot let bother me. Good for them! I’m happy.”
James Rosen: 202-383-6157; Twitter: @jamesmartinrose