A nurse dispatched to Puerto Rico by the Registered Nurse Response Network described the island’s dire situation earlier this month. “A line formed outside FEMA in Rio Grande two nights ago,” she wrote in a public letter. “People waited 24 hours only to receive 1 16oz water and one snack size Cheez-it’s. The people of Puerto Rico are starving and have no access to water.… They have turned off the water and we are running out of bottled water.”
A humanitarian catastrophe is unfolding, and the federal government urgently needs to fund public services, transportation, and basic goods. But, rather than provide the money as aid, Congress approved a $5 billion loan, which will only add to the island’s immense debt. On top of that, Puerto Rico has little say over how it will be rebuilt. In 2016, the federal government appointed a seven-person Federal Oversight and Management Board (FOMB) to restructure the island’s debt, with the belief that the US territory needed sweeping cuts. Austerity, exacerbated by the FOMB, had already deteriorated the quality of life, but the ravages of Hurricane Maria have made local control and additional spending critical. Instead, hands tied, the island’s elected governor has been reduced to nonprofit fundraising.
Puerto Rico should be a cautionary tale for the mainland United States. The legal theories that have been applied to Puerto Rico also undergird the “emergency management” of cities like Detroit, Flint, and Atlantic City, where elected local governments have been suspended in favor of financial overseers tasked with imposing regimes of economic austerity.
At the root of this antidemocratic approach is the idea that the elected government in any given crisis is to blame for the economic distress. As Puerto Rico’s financial situation worsened in 2016, a dominant narrative emerged that it was corruption—and not population decline, poverty, and the federal government’s role in encouraging Puerto Rico’s debt (by allowing people to lend money to the island without paying any taxes)—that caused the problems. And if a government is unable or unwilling to pass the kind of tough policies needed to help its constituents in a fiscal emergency, then suspending it becomes justified.
This paradigm of austerity-based intervention is supported by a growing body of legal and economic theory. In 2014, Clayton Gillette of New York University Law and David Skeel Jr. of University of Pennsylvania Law began drafting a transformative legal argument about municipal bankruptcies. The paper was published in 2016 in The Yale Law Journal, under the title: “Governance Reform and the Judicial Role in Municipal Bankruptcy.” It sounds dry, but its implications are far-reaching.
In the piece, the lawyers rigorously defend the legal theory that municipal governments ought to be treated like private corporations when they go bankrupt. To Skeel and Gillette, local governments and private corporations share many similarities. Both, they write, are “vehicles for providing goods and services.” Skeel told me by phone that one of the key questions they explore in their work is, “To what extent is it appropriate to use the kinds of processes used for private entities, when you’re talking about a public entity?”