Hillary Clinton's 2016 presidential campaign has, thus far, been rather light on concrete policy proposals. The first exception to that rule, somewhat surprisingly, turns out to relate to the obscure issues of Puerto Rico's treatment in federal bankruptcy code and health-care reimbursement formulas. These are not top priority issues for most voters, but they are urgent for Puerto Ricans.
Clinton's plan arrives as Puerto Rico's governor has said that the island cannot pay all its debts and is trapped in a "death spiral" of recession and debt. This situation hasn't yet secured as much attention as the debt crisis in Greece, but it involves the lives of millions of US citizens, and if Congress doesn't act to do something the resulting fight is going to play out in American federal courts. Clinton offers two big ideas for how Congress could act to help rescue Puerto Rico's economy, plus a hint of larger political change in the future.
Hillary Clinton wants municipal bankruptcy for Puerto Rico
Bankruptcy is a term people often use loosely to just mean something like "is out of money" or "can't pay its debts." But in reality, bankruptcy is a formal legal process through which a person or entity can shed debts and move forward — albeit at the cost of shredding its credit rating for the future. Bankruptcy is governed by the federal bankruptcy code, which contains various chapters for various different kinds of entities.
States cannot file for bankruptcy, and neither can Puerto Rico. But substate entities — cities, towns, counties, school districts, municipally owned water utilities, etc. — can file for Chapter 9 bankruptcy protection. That's what Detroit did last fall, and what a number of smaller towns and counties have done over the decades. But through a strange quirk in federal law, Puerto Rico's sub-Commonwealth entities do not have access to Chapter 9.
Clinton's main proposal is to change that: "Congress should provide Puerto Rico the same authority that states already have to enable severely distressed government entities, including municipalities and public corporations, to restructure their debts under Chapter 9 of the Bankruptcy Code."
Martin O'Malley proposed these ideas first
Clinton is following in the footsteps of former Maryland Governor Martin O'Malley who proposed very similar ideas in late June, saying that "Puerto Rico should be able to negotiate with its creditors just as states can under the U.S. Bankruptcy code" and "the Department of Health and Human Services must end the inequitable treatment of Puerto Rico under Medicare, Medicaid and the Affordable Care Act."
O'Malley's remarks were not widely noted in the English-language press but did attract significant coverage in Spanish-language media increasing pressure on Clinton to say something to compete for Puerto Rican votes.
This is not a bailout
Puerto Rico's creditors and the handful of congressional Republicans who've addressed the issue — always skeptically — have tended to characterize this as a proposal for a federal bailout of Puerto Rico.
That's a fairly abusive use of the term. A bailout is normally understood to be a situation in which a third party — typically the federal government — ponies up the money so that a distressed debtor can pay off its creditors. In the case of Puerto Rico's creditors, the problem with Chapter 9 is precisely that it's not a bailout. In a bailout, they would get all their money back. In a bankruptcy, they will get some of their money back but will be forced to restrain their demands in the interests of letting the Puerto Rican economy recover.
A more reasonable counterargument would simply be that it's unfair to change the rules in the middle of the game. The fact that Puerto Rican municipalities weren't eligible for Chapter 9 is one reason people were willing to lend them so much money. Giving them retroactive access to Chapter 9 gives them a bit of an unfair edge.
That said, there's no real moral hazard here. Other municipalities around the United States already have access to Chapter 9. The slope could conceivably slip to a handful of towns in Guam, but no further than that.
Clinton also wants more federal health-care spending in Puerto Rico
In the statement, Clinton rightly says that Puerto Rico not only needs debt relief, it needs a longer-term plan to address the fact that its economy has "shrunk for eight of the last nine years."
Her main concrete suggestion for doing something about that is a "lack of equity in federal funding for Puerto Rico under Medicaid and Medicare."
What this means is that Medicaid and Medicare reimburse Puerto Rican doctors and other health-care providers at a lower rate than they reimburse doctors on the US mainland. They do this, the federal government says, to account for the lower cost of providing health-care services in Puerto Rico.
Puerto Ricans say the formula doesn't correctly account for Puerto Rican commercial rents. Either way, though, the lower reimbursement rates tend to encourage Puerto Rican doctors to emigrate to the mainland. They also turn something that ought to be an economic advantage for the island — a relatively low cost of providing health-care services — into a disadvantage.
Jeb Bush largely agrees with Hillary
Jeb Bush has not addressed the health-care funding issue, but he was actually ahead of Clinton in calling for a Chapter 9 process for Puerto Rico. Separately, in late April Bush called for Puerto Rico to become the 51st state, which would necessarily entail the bankruptcy switch (among other changes). Statehood for Puerto Rico is actually an element of the Republican Party platform, though congressional Republicans have not taken any concrete steps to advance it.
Clinton has not been as explicit in calling for Puerto Rican statehood, but her statement does say that "underlying all of this is the fundamental question of Puerto Rico’s ultimate future," which "needs to be resolved in accordance with the expressed will of our fellow citizens, the people of Puerto Rico."
The most recent referendum that Puerto Rico held on the subject of its political status was somewhat poorly designed but seemed to indicate a preference for statehood over independence or the status quo.