By: Derek Hunter
President Donald Trump is in need of some political wins. Congress is stuck in procedure and partisanship, with no real hope for an end in sight, so the odds for legislative victories are long…at least right now. But like everywhere else in life, people love a winner, and a few victories, even small ones, can go a long way toward rallying more people (and more Congressional support) toward his legislative goals.
The office of the President is unique in the world, in that it matters very little what its occupant does – people want to see their president doing “something.” President Barack Obama always polled well because people saw him “accomplishing” things he said would make the country better and help people. They didn’t, but he got credit for the action while almost being exempted from the result.
President Obama’s “pen and phone” served him much better than it did the country. But his example can be a roadmap for President Trump.
While Obama overstepped his Constitutional authority and was regularly smacked down by the Supreme Court, there are plenty of legitimate opportunities for President Trump to exercise his executive authority that would benefit the country and give him some much-needed, though smaller victories.
These won’t be Obamacare repeal, tax reform, or a wall being built on the southern border-level achievements – a president can’t do those things alone – but that doesn’t mean they can’t be significant or important.
One area in which President Trump could, and should, act unilaterally is on Puerto Rico’s bankruptcy.
The US territory may be an island paradise, but it’s also an economic disaster. With more than $70 billion in debt, which balloons to over $100 billion when you add in pension liabilities, Puerto Rico defaulted on its obligations in July of 2016, violating its own constitution.
To deal with this catastrophe, the federal government passed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) under President Obama. PROMESA created an oversight board to help steer the island through bankruptcy. The Board consists of seven members, six selected by Congress and one appointed by President Obama. Obama’s appointee, New York Judge Anthony Gonzalez.
But that board is not acting openly or transparently, according to investigative journalists following the case.
Under PROMESA, the board is charged with first paying “essential services,” then service on their debt. But the board has refused to define what qualifies as an “essential service,” allowing the board to be in a position to decide on whim who wins and who loses.
Picking winners and losers based on politics over the law sets a horrible precedent that will ripple across the country as other states and cities flirt with their own bankruptcy.
Puerto Rico’s bankruptcy may seem small in the grand scheme of things, especially in a country with $20 trillion in debt. But how its bankruptcy is handled will set the precedent of how all future bankruptcies are handled.
Illinois has a seemingly insurmountable debt, for example. While the worst case, the state is hardly alone. Profligate spending coupled with massive pension liabilities mean many states and municipalities could be marching down the bankruptcy path in the near future. How Puerto Rico’s collapse is handled will be the model going forward. While it may not seem like something you should care about, you should have a keen interest in how it goes.
Municipal bonds have been a major haven for retirement accounts, so your retirement could be dependent, in part, upon how these bankruptcies are handled. That’s what makes Puerto Rico so important – it could serve as the template for something that could significantly impact the retirement security of millions of Americans.
President Trump, as authorized by PROMESA, could replace Judge Gonzalez with a fiscal conservative who will ensure Puerto Rico’s bankruptcy, and therefore future state and city bankruptcies, is handled in regular order and not influenced by political favoritism.
Transparent negotiations made in good faith with creditors should be the norm, and the President has a chance to make it so – while putting others on notice that cronies and politically favored entities will not take priority over the law.
It may seem like a small message, but it is a crucial one.
The Obama administration set the bankruptcy process on its ear with the auto company bailout, picking winners and losers, favoring political donors over investors and the law. President Trump knows bankruptcy laws from his time in business, and he knows experts in managing debt. He should exercise his legal authority to replace Obama’s appointee with a strong fiscal conservative to lead the effort and put everyone on notice that the old way of doing things is over.
He doesn’t need Congress to do it and, if he sold it well, it would be an important and much needed notch in the victory column. And once you start adding up notches in the victory column, they have a way of multiplying.