Two of the biggest questions surrounding the debate about Puerto Rico’s fiscal and economic crises are whether there should be a fiscal control board to oversee a restructuring of the c
ommonwealth’s finances, as was done previously with New York and Washington, D.C., and whether Puerto Rico should be granted access to Chapter 9 bankruptcy in order to reorganize portions of its debt.
But perhaps the biggest unresolved question in this debate is whether Puerto Rico is actually insolvent or not. It has so far been unable to produce audited financials for fiscal 2014, despite numerous requests from Congress, while it has been warning of an impending “humanitarian crisis” if it is rebuffed
But this apocalyptic language was absent when the commonwealth was touting the bonds to investors from which it now wants relief. Thomas Moers Mayer, a representative of two of the largest groups of Puerto Rico bondholders, recently recalled at a forum at the American Enterprise Institute that, “only two years ago the Government Development Bank of Puerto Rico told investors that Puerto Rico could easily repay its debts, that it had one of the lowest ratios of debt per American citizen, because unlike other American citizens, Puerto Ricans are not responsible for the debt of the United States Treasury in that they don’t pay federal income taxes.”
The Government Development Bank and members of the Puerto Rican government have been telling a different story as of late. Their 2015 “Puerto Rico Fiscal and Economic Growth Plan,” put out numbers that claimed that the commonwealth’s debt service represents 40% of the general operating budget. That number was disputed in recent congressional testimony by Carlos Colon De Armas, a professor of finance at the University of Puerto Rico, who put the number closer to 16%, when the consolidated budget numbers and alternate revenues are added in.