Puerto Rico's debt crisis just got worse

Puerto Rico governor: We are out of cash
Puerto Rico governor: We are out of cash

Puerto Rico's debt crisis keeps getting uglier.

The island has even less money than everyone thought, according to the latest figures out Monday, and it's having to resort to "extraordinary measures" to pay its bills.

The cash crunch is so bad that Puerto Rico's prison system is no longer paying the vendor that supplies food for inmates, and some special education instructors have stopped getting paid, according to a senior government official. The island is also delaying people's tax refunds.

Over the next decade, Puerto Rico must close a nearly $24 billion funding hole, worse than previously projected in September. That's after raising taxes and severely cutting expenses.

The island's problems center on how to deal with just over $70 billion in total debt.

"A significant restructuring of the Commonwealth's debt is inevitable," the government report concluded.

Related: Puerto Rico defaulted AGAIN

The island can no longer pay all its bills. It has already defaulted on debt payments twice. It has large bond payments due again in May and June.

The Obama administration has been pushing to grant Puerto Rico the same bankruptcy rights that other states have, a law known as Chapter 9. That could help Puerto Rico by letting it shed or restructure some of its debt under the supervision of a judge.

Republican House Speaker Paul Ryan vowed that Congress would do something to aid Puerto Rico by the end of March. Puerto Rican government officials say talks with Congress are ongoing. Treasury Secretary Jack Lew will visit the island this week.

The crisis has become a 2016 campaign issue. In the Democratic debate on Sunday, Martin O'Malley lamented the "shameful treatment that the people of Puerto Rico, our fellow Americans, are being treated with."

Hillary Clinton and Jeb Bush have said they support giving Puerto Rico Chapter 9 rights.

Puerto Rico's problems

Puerto Rico is in what the governor calls a "death spiral" and "humanitarian crisis."

The island has repeatedly warned that it will have to modify its debts (either by delaying payments or else trying to get creditors to accept less than they are owed). But any restructuring without Chapter 9 or some other federal process would be very complex because the island is not a state.

Related: Puerto Rico's brain drain: Fewer children in schools

Many were surprised that Puerto Rico was able to make most of the bond payments that were due on January 4, but it did that by delaying over $100 million in tax refunds and not paying government suppliers. The island even clawed back some funds that it had already paid out. Those "tricks" can't last much longer, government officials say.

Puerto Rico's economy has been contracting for a decade, and the government has been wracking up debt. Meanwhile people are fleeing the island and moving to the mainland United States in search of better jobs and pay. That only erodes the tax base on the island even more.

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