Sunday, July 15, 2018

PolitiFact: Strom Thurmond's intent in Puerto Rico bankruptcy protection is murky

The statement

"We knew Strom Thurmond had proposed" the amendment that blocked Puerto Rico's use of Chapter 9 bankruptcy protection.

John Oliver, April 24 on HBO's Last Week Tonight

The ruling

Mystery surrounds whether, back in 1984, former U.S. Sen. Strom Thurmond, R-S.C., knowingly deprived Puerto Rico of bankruptcy protections that every U.S. state enjoys.

The island territory needs to pay bondholders $422 million by today. But it doesn't have the cash and can't use bankruptcy to reschedule its payments.

During his April 24 HBO show Last Week Tonight, comedian and social critic John Oliver described the devil's brew of legal oddities and fiscal recklessness by Puerto Rican officials that brought the island territory of the United States to the financial brink.

"If you are massively in debt and you can't declare bankruptcy, you are stuck," Oliver said. "And this happened because of a tiny amendment to a law in 1984, and the crazy thing is, no one can say why it was written."

The tiny amendment Oliver mentioned was stuck in the definitions section of HR 5174, a bill geared mainly to fixing the bankruptcy court system. Buried in a long list of changes was the meaning of "state."

"'State' includes the District of Columbia and Puerto Rico, except for the purpose of defining who may be a debtor under chapter 9 of this title."

That was it. With those two dozen words, bankruptcy protections that applied to every state and, until 1984, to Puerto Rico were wiped away.

"We tried to find out for ourselves why that amendment got attached," Oliver said. "We knew Strom Thurmond had proposed it. So we asked an archivist at the library where his papers are kept to go through the relevant papers, and they came up with nothing."

Did Thurmond propose the cunning words that ultimately caught Puerto Rico in a debtor's vise?

Technically, yes. But it's not entirely clear he meant to.

To see why, we have to go back to 1978.

That year, Congress gave the bankruptcy law a complete overhaul. As often happens with major legislation, various gaps and ambiguities emerged and, in 1979, the Senate passed a bill to tidy up the loose ends. Among the dross, the Senate defined states to include Puerto Rico, the District of Columbia and any territory or possession of the United States.

That legislation moved to the House, and here the trail becomes murky. Bankruptcy law professor Stephen Lubben at Seton Hall University traced the twists and turns in a 2014 article.

"In July 1980, the House Judiciary Committee returned with an 'amendment' to the Senate bill that struck the entire Senate text and replaced it with the Judiciary Committee's desired text, including a new definition of 'state,' " Lubben wrote.

The House version, under Democratic control, had the Chapter 9 bankruptcy exclusion for Puerto Rico and the District of Columbia.

That bill never passed, but in April 1981, Lubben found that the exclusion language "resurfaced" in the Senate.

"This exclusion was never discussed by Congress, at least publicly, and the language apparently simply materialized as a result of the House Judiciary Committee's extensive revision of the 1979 Senate 'technical corrections' bill," Lubben wrote.

In short, we have a bit of a mystery. Oliver's statement is accurate but requires some additional information. We rate it Mostly True.

— Jon Greenberg, Times staff writer

Edited for print. Read the full version at PunditFact.com.

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