Puerto Rico asked the U.S. Supreme Court on Tuesday for permission to restructure the debt of its financially struggling public utilities under a court-supervised regime similar to Chapter 9 bankruptcy laws used by U.S. cities such as Detroit and Stockton, California.
In addition to potentially giving the commonwealth a better chance at repaying some of its $70 billion debt, the case “tests, at a fundamental level, how much authority the island of more than 3.5 million people has to manage its own governmental affairs,” Lyle Denniston wrote at SCOTUSblog last week.
“And lurking just beneath the surface,” he continued, “is the broader question of whether it is unconstitutional to treat Puerto Rico differently than the fifty state governments on the mainland and in Alaska and Hawaii.”
What’s more, the case could chip away at hedge funds’ stranglehold on the island. As journalist David Dayen wrote for the Winter 2016 issue of The American Prospect: “Puerto Rico is just the latest battlefield for a phalanx of hedge funds called ‘vultures,’ which pick at the withered sinews of troubled governments. In Greece, Argentina, Detroit, and now Puerto Rico, vultures have bought distressed debt on the cheap, and then used coercion, threats, and legal action to secure a massive windfall, compounding the effects on millions of citizens.”
Reuters reports Tuesday:
According to the Associated Press, “four liberal justices on a short-handed Supreme Court seemed sympathetic” to Puerto Rico’s argument on Tuesday. Justice Samuel A. Alito, Jr. has recused himself from the case and the late Justice Antonin Scalia’s seat remains vacant.
SCROLL TO CONTINUE WITH CONTENT