THE NEED FOR THE ESTABLISH- MENT OF A PUERTO RICO FINAN- CIAL STABILITY AND ECONOMIC GROWTH AUTHORITY OVERSIGHT HEARING BEFORE THE SUBCOMMITTEE ON INDIAN, INSULAR AND ALASKA NATIVE AFFAIRS OF THE COMMITTEE ON NATURAL RESOURCES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTEENTH CONGRESS SECOND SESSION Tuesday, February 2, 2016 Serial No. 114–30 Printed for the use of the Committee on Natural Resources ( Available via the World Wide Web: http://www.fdsys.gov or Committee address: http://naturalresources.house.gov U.S. GOVERNMENT PUBLISHING OFFICE 98–458 PDF WASHINGTON : 2016 For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Mar 15 2010 08:36 Jul 01, 2016 Jkt 000000 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 J:\114TH CONGRESS\INDIAN, INSULAR & ALASKA NATIVE AFFAIRS\02-02-16\98458.TXT COMMITTEE ON NATURAL RESOURCES ROB BISHOP, UT, Chairman RAU´ L M. GRIJALVA, AZ, Ranking Democratic Member Don Young, AK Grace F. Napolitano, CA Louie Gohmert, TX Madeleine Z. Bordallo, GU Doug Lamborn, CO Jim Costa, CA Robert J. Wittman, VA Gregorio Kilili Camacho Sablan, CNMI John Fleming, LA Niki Tsongas, MA Tom McClintock, CA Pedro R. Pierluisi, PR Glenn Thompson, PA Jared Huffman, CA Cynthia M. Lummis, WY Raul Ruiz, CA Dan Benishek, MI Alan S. Lowenthal, CA Jeff Duncan, SC Matt Cartwright, PA Paul A. Gosar, AZ Donald S. Beyer, Jr., VA Rau´ l R. Labrador, ID Norma J. Torres, CA Doug LaMalfa, CA Debbie Dingell, MI Jeff Denham, CA Ruben Gallego, AZ Paul Cook, CA Lois Capps, CA Bruce Westerman, AR Jared Polis, CO Garret Graves, LA Wm. Lacy Clay, MO Dan Newhouse, WA Ryan K. Zinke, MT Jody B. Hice, GA Aumua Amata Coleman Radewagen, AS Thomas MacArthur, NJ Alexander X. Mooney, WV Cresent Hardy, NV Darin LaHood, IL Jason Knox, Chief of Staff Lisa Pittman, Chief Counsel David Watkins, Democratic Staff Director Sarah Lim, Democratic Chief Counsel SUBCOMMITTEE ON INDIAN, INSULAR AND ALASKA NATIVE AFFAIRS DON YOUNG, AK, Chairman RAUL RUIZ, CA, Ranking Democratic Member Dan Benishek, MI Madeleine Z. Bordallo, GU Paul A. Gosar, AZ Gregorio Kilili Camacho Sablan, CNMI Doug LaMalfa, CA Pedro R. Pierluisi, PR Jeff Denham, CA Norma J. Torres, CA Paul Cook, CA Rau´ l M. Grijalva, AZ, ex officio Aumua Amata Coleman Radewagen, AS Rob Bishop, UT, ex officio (II) VerDate Mar 15 2010 08:36 Jul 01, 2016 Jkt 000000 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 J:\114TH CONGRESS\INDIAN, INSULAR & ALASKA NATIVE AFFAIRS\02-02-16\98458.TXT CONTENTS Page Hearing held on Tuesday, February 2, 2016 ......................................................... 1 Statement of Members: Pierluisi, Hon. Pedro R., Resident Commissioner for the Commonwealth of Puerto Rico ................................................................................................ 4 Prepared statement of ............................................................................... 5 Young, Hon. Don, a Representative in Congress from the State of Alaska . 1 Prepared statement of ............................................................................... 3 Statement of Witnesses: Garcia, Carlos M., Chief Executive Officer, BayBoston Managers, LLC and Former Chairman and President of the Government Development Bank of Puerto Rico, Newton Centre, Massachusetts ............................... 13 Prepared statement of ............................................................................... 15 Johnson, Simon, Professor of Global Economics and Management, MIT Sloane School of Management, Cambridge, Massachusetts ...................... 22 Prepared statement of ............................................................................... 24 LeCompte, Eric, Executive Director, Jubilee USA Network, Washington, DC .................................................................................................................. 27 Prepared statement of ............................................................................... 29 Mayer, Thomas Moers, Partner, Kramer Levin Naftalis & Frankel, LLP, New York, New York .................................................................................... 34 Prepared statement of ............................................................................... 36 Williams, Hon. Anthony A., Senior Advisor, Dentons US LLP and Former Mayor of Washington, DC ............................................................................ 7 Prepared statement of ............................................................................... 9 Additional Materials Submitted for the Record: List of documents submitted for the record retained in the Committee’s official files .................................................................................................... 61 (III) VerDate Mar 15 2010 08:36 Jul 01, 2016 Jkt 000000 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 J:\114TH CONGRESS\INDIAN, INSULAR & ALASKA NATIVE AFFAIRS\02-02-16\98458.TXT VerDate Mar 15 2010 08:36 Jul 01, 2016 Jkt 000000 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 J:\114TH CONGRESS\INDIAN, INSULAR & ALASKA NATIVE AFFAIRS\02-02-16\98458.TXT OVERSIGHT HEARING ON THE NEED FOR THE ESTABLISHMENT OF A PUERTO RICO FINANCIAL STABILITY AND ECONOMIC GROWTH AUTHORITY Tuesday, February 2, 2016 U.S. House of Representatives Subcommittee on Indian, Insular and Alaska Native Affairs Committee on Natural Resources Washington, DC The subcommittee met, pursuant to notice, at 11:01 a.m., in room 1334, Longworth House Office Building, Hon. Don Young [Chair- man of the Subcommittee] presiding. Present: Representatives Young, Denham; Ruiz, Sablan, Pierluisi, Torres, and Grijalva. Also Present: Representatives Bishop, Labrador, Velazquez, Gutierrez, Serrano, and Gallego. Mr. YOUNG. The Subcommittee on Indian, Insular and Alaska Native Affairs will come to order. The subcommittee is meeting today to hear testimony on the following oversight topic, ‘‘The Need for the Establishment of a Puerto Rico Financial Stability and Economic Growth Authority.’’ Under Committee Rule 4(f), any oral opening statements at hear- ings are limited to the Chairman and Ranking Minority Member, and Vice Chairman and Designate of the Ranking Member. This will allow us to hear from the witnesses sooner and help the Members keep to their schedules. Therefore, I ask unanimous consent that all Members’ opening statements be made part of the hearing record when they are sub- mitted to the Subcommittee Clerk by 5:00 p.m. today. Hearing no objections, so ordered. I also ask unanimous consent that the gentleman from Arizona, Mr. Gallego; and the gentleman from Illinois, Mr. Gutierrez; the gentleman from Idaho, Mr. Labrador; the gentleman from New York, Mr. Serrano; and the gentlewoman from New York, Mrs. Velazquez be allowed to join us on the dais to be recognized and participate in today’s hearing. Hearing no objection, so ordered. STATEMENT OF HON. DON YOUNG, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ALASKA Mr. YOUNG. The Subcommittee on Indian, Insular and Alaska Native Affairs meets today again, as I mentioned, on the need for the establishment of a Puerto Rico Financial Stability and Economic Growth Authority. A crisis has gripped the island of Puerto Rico. The Obama administration, Congressional Democrats, the Governor in Puerto Rico, and their local territorial legislation, they are all correct; it is a crisis. (1) VerDate Mar 15 2010 08:36 Jul 01, 2016 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 J:\114TH CONGRESS\INDIAN, INSULAR & ALASKA NATIVE AFFAIRS\02-02-16\98458.TXT 2 In light of that, Republicans in this committee are taking extra precaution to consider all the causes of this crisis and produce a comprehensive solution to a very complex problem. Some on the other side of this dais would have us believe that the solution to the crisis is simply providing the Puerto Rican government tools to restructure their enormous debt by using Chapter 9 of the Bankruptcy Code. I would remind everyone here that Chapter 9 is a process, not a solution. Furthermore, the claim that the island’s miseries will be washed away by extending their government the use of Chapter 9, I believe is shortsighted and naı¨ve to say the least. What we are able to de- termine, despite the lack of access to accurate financial audits from the government of Puerto Rico, is that cramming down debt at this stage will only hurt the problems concerning their current liquidity and access to the financial markets. But the real detriment of offering shortsighted solutions would ignore the real cause of the problem steeped in poor budgeting standards, over-bloated government agencies, lack of fiscal trans- parency and accountability, and severe lack of credibility on the municipal bond market. The key root causes of the economic crisis, coupled with astronomical debt, are producing further deterioration of essential services being provided to the populace. In order for the island to begin to truly recover from this dire sit- uation, there need to be actual reforms within the island. The Americans living in Puerto Rico—these are all Americans—are demanding strong leadership, capable of making the necessary structural reforms and the hard choices, to get the economy grow- ing again and employment opportunities back. These are nothing less than the benefits that come with living within the United States, namely accountability in government, responsibility in fis- cal management, and opportunities to create,