There was long-overdue drama at a Capitol Hill hearing Thursday. We are referring, of course, to Treasury Department counselor Antonio Weiss’s testimony before the Senate Committee on Energy and Natural Resources, in which he warned of a looming “humanitarian crisis” in the financially distressed commonwealth of Puerto Rico. Mr. Weiss’s words marked a break with the Obama administration’s previous low-key approach to the island’s debt crisis, and if he resorted to hyperbole to compensate for that, it was only slightly. Having already cut spending, jacked up taxes and postponed various bill payments, Puerto Rico is out of cash and facing a year-end liquidity crunch that could lead to a breakdown in public services, or even public order.
Mr. Weiss backed up his words with the administration’s most comprehensive policy proposals yet, the most important of which would require congressional action. Specifically, he advocated not only permitting Puerto Rico’s municipalities and public corporations to file for bankruptcy, which would affect about a third of its $73 billion debt, but also extending the bankruptcy option to the commonwealth government itself. He called for a permanent fix to the island’s Medicaid program, which faces crippling uncertainty because of limits on federal assistance unlike those of the 50 states. And to address its lagging labor force participation – a huge drag on economic growth – he proposed creating an Earned Income Tax Credit to encourage low-wage workers’ return to the job market.