JOL Online Article

The Coming Collapse of the Paris Climate Agreement

By Bryan H. Druzin [*]

I. Introduction

Now that the Trump administration has abandoned the Paris Climate Agreement, the question is whether the agreement will collapse. A strong case can be made that it will indeed unravel—perhaps not immediately, but eventually. Although the world’s leaders have been quick to reaffirm their continued resolve to implement the agreement,[1] the problem is that multilateral environmental agreements are uniquely fragile because their value depends directly upon the number of states that are party to it and the collective perceptions that surround this. Environmental agreements have a certain “all or nothing” quality to them. For example, an agreement to reduce carbon emissions between only two states provides little value. The value of the same agreement, however, increases dramatically with twenty, ninety, or 195 governments in hand. They are thus extremely reliant on unanimity of agreement and uniquely sensitive to the loss of it.

This is why it was so vital that the Paris Agreement lock down the participation of all the states in the international system.[2] For all of its flaws, the Paris Agreement had the strength of unanimity. Countries that remain in an environmental agreement while other states pull out understandably grow reluctant to assume the burden of their commitments.[3] Because of this, withdrawal—particularly of a major player such as the U.S.—can create a knock-on effect, causing other states to follow. A slow trickle can become a flood. This dynamic renders multilateral environmental agreements extremely “tippy” and highly susceptible to collapse.[4] For international environmental cooperation to succeed, everyone needs to be onboard and everyone needs to stay onboard.

Many hold hope that the U.S. will ultimately not withdraw from the Paris Agreement, noting that under Article 28(1) the U.S. cannot exit the agreement until three years from the date on which the agreement entered into force for the party, which in the case of the U.S. was November 4, 2016. Article 28(2) mandates that withdrawal will then take effect one year after notification is received, putting the earliest date of actual withdrawal after the next presidential election, which is to be held on November 3, 2020.[5] However, this ignores that, while not yet manifest, the process of collapse has in fact already begun. The issue now is whether further erosion can be prevented. Because the agreement depends so much on international unanimity, the Paris Agreement was dealt a potentially fatal blow the moment the U.S. signaled its intention to withdraw.

II. Multilateral Environmental Agreements Turn on Network Effects

A multilateral environmental agreement’s value increases as more parties comply with the agreement, and the inverse is equally true: a multilateral environmental agreement’s value decreases commensurate with the number of actors who either do not comply or leave the agreement altogether. This is a classic example of a network effect.[6] The larger the network of adopters, the greater value the agreement provides and vice versa.[7] Language is a commonly employed example of a network effect. The more people who speak a language the greater its value. As its value increases, more people learn the language, and on it goes, increasing in value. This dynamic, however, can operate in either direction—it can thunder towards success or it can plunge towards failure.

Collective perceptions are immensely consequential under such conditions. Indeed, they reign supreme. Because the value of a multilateral environmental agreement depends upon how many other actors adopt it, agents’ choices are largely based on the expected size of the network.[8] In markets exhibiting network effects (as with any game with multiple equilibria), expectations are thus of paramount importance. As such, the network effect character of a multilateral environmental agreement renders it uniquely vulnerable to “bandwagons.” A positive bandwagon of actors joining the treaty is a case of increasing returns. A negative bandwagon of actors abandoning the treaty—a sort of “jumping ship” effect—is a case of the opposite, a death spiral towards escalating destabilization and eventual collapse.

III. Multilateral Environmental Agreements Are Uniquely Fragile

The unique nature of a multilateral environmental agreement—that its value is contingent upon other parties also complying—must be fully appreciated to understand the potential destructive impact of the U.S.’s withdrawal from the Paris Agreement. This dynamic is markedly different than those at play with most other kinds of international agreements. For example, in the case of a multilateral trade agreement, even if a large number of signatories exit the treaty, the agreement will still retain a substantial degree of value for the remaining treaty members. While such agreements may reap benefits from an increase in network size, unanimity, or near unanimity, is not such an essential element. They do not possess an “all or nothing” quality to them. As such, they can better withstand the blow of one or more parties withdrawing from the agreement. This logic does not hold for multilateral environmental agreements—even a trickle of nations exiting can trigger the withdrawal of more governments and bring about the agreement’s collapse.

Multilateral environmental agreements are not the only type of agreement that possess this “tippy” quality. For instance, in the case of International Labour Organization (ILO) treaties that impose international labor standards, the withdrawal of a state renders the states that remain in the treaty relatively less competitive. A similar process of decreasing value may metastasize in, for instance, treaties concerning intellectual property rights. Treaties, however, range in how vulnerable they are to negative bandwagons. Upon this spectrum of “tippiness,” multilateral environmental agreements clearly sit on the furthest end of fragility. There are several reasons that combine to render multilateral environmental agreements uniquely tippy. First, unlike other tippy agreements, multilateral environmental agreements offer no immediate advantages, only burden.[9] Such agreements usually require significant economic sacrifice with merely the promise of future benefit in the form of a negative gain (i.e. preventing environmental damage) and are typically public goods vulnerable to free riding. Compounding this, the sheer enormity of the challenge posed by climate change combined with the fact that states share a common environment that is oblivious to political borders demands that collective action be taken on a comprehensive scale.

Because the value of a multilateral environmental agreement is so dependent upon sweeping collective action, parties are uniquely sensitive to a loss in numbers and thus such agreements are highly susceptible to this pattern of failure.[10] A strong argument could be made that the Kyoto Protocol’s lack of success stemmed from its failure to secure an equal commitment from all the world’s states, thereby undermining its chances at success from its very inception.[11] The U.S.’s failure to ratify the Kyoto Protocol initiated a negative bandwagon, tipping the agreement towards inevitable failure. Canada’s subsequent withdrawal from Kyoto in 2011, citing as its primary justification the absence of the U.S. and China, furthered this erosion. The Kyoto Protocol was a far more comprehensive agreement than what effectively replaced it; however, it suffered from the same lack of unanimous participation the Paris Agreement is now facing. More than 100 countries, including China and India, were exempted—the Kyoto Protocol never achieved an equal global contribution. It fell, as it were, stillborn from the discordant consensus that created it.

IV. Now What?

U.S. participation in the Paris Agreement was crucial. The U.S. is historically responsible for more carbon emissions than any other nation.[12] While the U.S. comprises roughly four percent of the world’s population, it is responsible for close to a third of the total excess carbon dioxide that is warming the earth.[13] The U.S. is the biggest carbon polluter in history, and it simply unilaterally withdrew from the 195-nation agreement.

In the wake of the United States’s sudden withdrawal from the Paris Agreement, an exodus of other states may emerge as a negative bandwagon takes hold. Even if this does not occur in the short term, the U.S.’s withdrawal from the Paris Agreement will substantially weaken the agreement’s cohesion because confidence in other parties’ commitment has now been deeply undermined. At the present moment, perception can quickly become reality. If actors believe others will comply, they are likely to comply, but if actors believe others may not comply, they are in turn less likely to comply. Public international declarations of continuing commitment aside, each state is undoubtedly afraid other states will abandon the agreement. All is in doubt. The Trump administration’s decision to discard the U.S.’s commitment to the world has destabilized the agreement and has potentially already initiated a negative bandwagon that will likely cause the treaty to “tip” irreversibly towards collapse.

The fact that the Paris Agreement, possessing no compliance mechanisms, was already widely greeted with skepticism and perceived by many to be a weak foundation for cooperation only increases the likelihood that a collapse will occur. The Paris Agreement’s legislative underpinnings were never sturdy, and this was by design. While the agreement was technically binding in that it required participating governments to work towards decreasing their emissions, the key commitment—namely, the emission targets—were intentionally left non-binding.[14] This was to encourage the unanimous participation of the world’s nations, particularly key emerging economies like India and China who might have otherwise wavered.[15] Given the urgent need to subpoena the conscience of the world’s nations and move them to action, the hope was merely that the Paris accord would serve as a durable framework for binding future agreement.

But is there no small margin for optimism? The hope that the U.S. will eventually recommit to the agreement may be one. If global leaders perceive today that the U.S. will change its position four years from now, their commitment to the agreement may hold firm, averting a negative bandwagon. Four years, however, is a long stretch of time to keep such a massive agreement on life support now thrown into uncertainty. The world’s governments would have to be very confident in this political calculation and even more crucially, convinced that other countries share their certainty. Maybe other factors involved in the geopolitics of environmental protection may intervene. Despite the costs that the U.S.’s absence will bring, leaders like Emmanuel Macron, Angela Merkel, Justin Trudeau, and Xi Jinping have seized the opportunity to present themselves as responsible statesmen before global (and domestic) audiences by reaffirming their commitment to the agreement.

Perhaps opposing the Trump administration may be more valuable to these political figures than securing a competitive advantage for their economies. To be sure, there are political points to be scored in establishing oneself as the global counterpoint to Trump.[16] However, absent immediate and tangible demonstrations of commitment, these declarations ring hollow and are likely to be mutually perceived as little more than political theatre by the very governments that are making these noises.[17] Talk was already cheap, but with the sudden departure of the U.S. it has been made even cheaper. Unfortunately, a loss of consensus is a powerfully disruptive force. As such, a negative bandwagon may be difficult to prevent.

When the Paris Agreement was reached in the winter of 2015, I argued that the international community needed to seize that rare moment of global consensus and move quickly to graft a compliance framework onto the agreement precisely to avert the potential collapse of the accord, should the withdrawal of a significant player trigger a negative bandwagon.[18] This brief window of opportunity, it seems, has now closed. A major power has withdrawn from the agreement, and now there is no choice but to await the consequences of our inaction.[19] A process of collapse may have been irreversibly triggered. Most likely the Paris Agreement will now sputter along in its new incapacitated form for some time, similar to the Kyoto Protocol. But even if the Paris Agreement never fully collapses, with the most powerful actor in the international system absent, the Paris Agreement has now been profoundly enfeebled as a viable scaffolding for future environmental cooperation.

V. Conclusion

The U.S.’s jarring withdrawal from the Paris Agreement—a reckless abdication of global leadership—is a powerful signal to the international system that coordination has faltered. It has infused the agreement with a sudden miasma of doubt. The perception that commitment to the agreement may now also be flagging among other states will likely undermine compliance, becoming a self-fulfilling prophecy. As such, the possibility of a negative bandwagon taking hold now looms over the agreement. Substantial concrete action beyond mere declarations of support must be swiftly taken if we are to prevent the Paris Agreement from unraveling. Yet the international system is ensnared in a prisoner’s dilemma of historic proportion and consequence that constrains the actions of nations. We have seen this movie before with the failure of Kyoto. The Paris Agreement now faces a period of potential stagnation as parties either peel away from the agreement or fail to meet its terms. In an international system that lacks a central coercive authority, international environmental governance is exceedingly fragile. A small spark can incinerate cooperation. And the withdrawal of the U.S. from the Paris Agreement is no small spark—not by any stretch of the imagination. It is a lacerating blow.

[*] Assistant Professor and Director of LLM Common Law Program, Faculty of Law, The Chinese University of Hong Kong. PhD in Law, King’s College London; LL.M, LL.B., B.A., University of British Columbia.

[1] Somini Sengupta, Melissa Eddy & Chris Buckley, As Trump Exits Paris Agreement, Other Nations Are Defiant, N.Y. Times (June 1, 2017), https://www.nytimes.com/2017/06/01/world/europe/climate-paris-agreement-trump-china.html [https://perma.cc/5XVJ-77LY].

[2] Joby Warrick & Chris Mooney, 196 Countries Approve Historic Climate Agreement, Wash. Post (Dec. 12, 2015),  https://www.washingtonpost.com/news/energy-environment/wp/2015/12/12/proposed-historic-climate-pact-nears-final-vote/ [https://perma.cc/5NK7-ZDGP].

[3] The impact of the free riding problem in environmental conservation is central to the well-known tragedy of the commons, a concept first formulated in a rigorous way by Garrett Hardin. See G. Hardin, The Tragedy of the Commons, 162 Science 1243, 1248 (1968). It is also captured formally in game theory by the prisoner’s dilemma. For a good overview of the structural conditions that produce the dynamic, see Margaret Foddy, et al., Resolving Social Dilemmas: Dynamic, Structural, and Intergroup Aspects 9 (2013).

[4] For a similar analysis in this vein, see Scott Barrett, Environment and Statecraft: The Strategy of Environmental Treaty-Making: The Strategy of Environmental Treaty-Making 254–67 (2003).

[5] Madison Park, 3 ways Trump could dump Paris climate agreement, CNN (June 1, 2017), http://edition.cnn.com/2017/06/01/politics/paris-climate-agreement-trump-ways-to-withdraw/ [https://perma.cc/Q2MX-GZSP].

[6] Network effects emerge where the value of a product or service increases as the number of other agents using the same product or service grows, which in turn draws more users. See S.J. Liebowitz, et al., Network Externalities, in The New Palgrave Dictionary of Economics and the Law 671, 671 (Peter Newman ed., 1998). For the foundational literature on network effects, see Mark L. Katz & Carl Shapiro, Network Externalities, Competition, and Compatibility, 75 Am. Econ. Rev. 424, 424 (1985); see also Scott Barrett, Environment And Statecraft: The Strategy of Environmental Treaty-Making 261–62 (2003) (discussing network externalities in environmental treaties).

[7] I have discussed network effects at length elsewhere. See, e.g., Bryan Druzin, Anarchy, Order, and Trade: A structuralist Account of why a global Commercial Legal Order is emerging, 47 Vand. J. Transnat’l L. 1049, 1076–83 (2014); Bryan Druzin, Buying Commercial Law: Choice of Law, Choice of Forum, and Network Effect, 18 Tul. J. Int’l & Comp. L. 131 (2009); Bryan Druzin, Spontaneous Standardization and the New Lex Maritima, in The Role of Arbitration in Shipping Law 63–79 (2016); Bryan Druzin, Towards a Theory of Spontaneous Legal Standardization, J. of Int’l Disp. Settlement 1–29 (2016); Bryan Druzin, Why does Soft Law have any Power anyway?, Asian J. of Int’l L. 1–18 (2016).

[8] Luís M. B. Cabral, Introduction to Industrial Organization 312 (2000). I have written elsewhere on the impact of collective expectations in tippy treaties. See Bryan Druzin, The Parched Earth of Cooperation: How to solve the Tragedy of the Commons in International Environmental Governance, 27 Duke J. Comp. & Int’l L. 73, 96 (2016). I draw from that article in this section.

[9] While public figures may see benefits to their political reputation and the international standing of their country, such action also imposes personal political costs, as environmental protection typically conflicts with powerful private interests. Such interests may be corporate; however, elected political figures may also suffer a backlash from individual constituents affected by these measures.

[10] Bilateral environmental agreements are also vulnerable to this model of collapse. However, because the dynamic involves only two players, the pattern plays out in a less obvious sequential fashion.

[11] The developed nations of the world accepted the initial reductions called for under the Protocol, even though the reductions did not bind the developing world. See A.W. Galston & Christiana Z. Peppard, Expanding Horizons in Bioethics (2005). For a good general discussion of the failure of the Kyoto Protocol, see generally Gerald Kutney, Carbon Politics and the Failure of the Kyoto Protocol (2014) (examining the political gamesmanship throughout the Protocol’s negotiation process); David G. Victor, The Collapse of the Kyoto Protocol and the Struggle to Slow Global Warming (2011) (arguing that the Protocol did not provide for adequate monitoring and enforcement of emissions trading).

[12] Justin Gillis & Nadja Popovich, The U.S. Is the Biggest Carbon Polluter in History. It Just Walked Away From the Paris Climate Deal, N.Y. Times (June 1, 2017), https://www.nytimes.com/interactive/2017/06/01/climate/us-biggest-carbon-polluter-in-history-will-it-walk-away-from-the-paris-climate-deal.html [https://perma.cc/RR66-5FVT].

[13] Id.

[14] See Tess Bridgeman, Paris Is a Binding Agreement: Here’s Why that Matters, Just Security (June 4, 2017), https://www.justsecurity.org/41705/paris-binding-agreement-matters/ [https://perma.cc/Y6MM-NAK2].

[15] Todd Stern, Mr. Trump’s climate decision, Brookings Institution: Planet Policy (Mar. 6, 2017), https://www.brookings.edu/blog/planetpolicy/2017/03/06/mr-trumps-climate-decision/ [https://perma.cc/EKQ3-8U54].

[16] Emmanuel Macron’s appeal (in English) to “make our planet great again” stands out in this regard. See Vivienne Walt, France’s Emmanuel Macron Reaps the Benefits of Being the Anti-Trump, Time (June 12, 2017), http://time.com/4814715/emmanuel-macron-president-donald-trump-assembly/ [https://perma.cc/4GZZ-ZRTK].

[17] A similar process may play out on the sub-state level. Scores of states, municipalities, and private institutions within the U.S. are pledging to respect the agreement despite the national withdrawal. See Hiroko Tabuchi & Henry Fountain, Bucking Trump, These Cities, States and Companies Commit to Paris Accord, N.Y. Times (June 1, 2017), https://www.nytimes.com/2017/06/01/climate/american-cities-climate-standards.html [https://perma.cc/9VFA-8N3T]. However, the same dynamic pertains—without immediate powerful displays of commitment, a negative bandwagon will be difficult to avoid.

[18] See generally, Bryan Druzin, A Plan to Strengthen the Paris Climate Agreement, 84 Fordham L. Rev. 101 (2016) (proposing the creation of an international bond as a mechanism through which to signal commitment and thereby reinforce the Paris Agreement). I also published a more expansive and more rigorous examination of the proposal with the Duke Journal of Comparative of Comparative and International Law. See generally Druzin, supra note 8 (proposing the use of a signaling game to sustain cooperation and preempt the tragedy of the commons in international environmental governance).

[19] The compliance framework I articulated in the two pieces cited above could still be grafted onto the Paris Agreement. The absence of the U.S., however, would now make this task extremely difficult.

The Mathematics of Constitutional Failure

By Carrie Leonetti [*]

The federal courts were intended as anti-democratic structures.[1] Their interpretations of the federal constitution were supposed to be a counterweight to the excesses of the other two “democratic” branches.[2] The problem with this system is that the other two branches of government are not democratic. No one likes math less than I do, but the anti-democratic nature of our government only becomes apparent if one runs the numbers.

Begin with Congress. The Senate was designed to be less than democratic, as a concession to regional, states’-rights interests.[3] Its seats are decided not in proportion to electoral votes, but rather with an equal number of seats for each state, regardless of population.[4] California, the most populous state, has almost 39 million people. Wyoming, the least populous, has fewer than 600,000. Both get two Senators. So, in the Senate, the vote of each person in Wyoming counts for roughly sixty-seven times as much as the vote of each person in California.

This has ideological consequences. The high-population states, whose votes are diluted, tend to be “liberal” (California, New York, Illinois). The rural states, whose votes are supercharged, tend to be “conservative” (Wyoming, North Dakota, Alaska). So, the Senate ends up being not just unrepresentative geographically, but ideologically, as well.

The House of Representatives, by contrast, was supposed to have population-based representation.[5] But, due to gerrymandering, it no longer does. The total popular vote in the November election was divided almost evenly between Republicans and Democrats, with Republicans receiving about 56 million votes and Democrats receiving about 53 million.[6] The Republicans, however, ended up shellacking the Democrats in the House, with 239 seats compared to Democrats’ 193.[7] The contrast was even starker in 2012, when Democrats garnered several hundred thousand more total votes than Republicans in Congressional elections, but ended up as the minority party (201 seats compared to Republicans’ 234).[8] This is why media coverage of national elections focuses on whether Democrats can regain control of the Senate but not the House: because Republicans have figured out a way to control the House even when they get fewer votes than Democrats.

How? By controlling a super-majority of state legislatures, which are largely responsible for drawing federal Congressional districts. Prior to last month’s elections, Republicans had a controlling majority in thirty-two state legislatures, while Democrats only controlled thirteen. These state legislatures draw their federal Congressional districts in ways that “crack” Democratic-majority districts into different Republican-majority districts and “pack” inevitably Democratic-majority districts so that they are as Democratic as possible. Here is a simple snapshot of how this works. Imagine a metropolitan area with one million people in its core (which would amount to approximately 1.3 House seats, on average) with another million or so people ringing it, like a donut, in suburbs (another 1.3 House seats). All told, this metropolitan area would likely elect roughly three of its state’s representatives to Congress. Imagine that the inner circle, “the city,” is ethnically diverse and votes about 70%-30% Democrat. Imagine that the outer circle, “the suburbs,” is majority white and votes 55%-45% Republican. This demographic description probably applies to a lot of urban areas in the United States. If the entire metropolitan area voted collectively for three Representatives, almost 2/3 of its residents would vote Democrat, and a little more than 1/3 would vote Republican, so one would expect the metropolitan region to elect two Democrats and one Republican for this mega-district. One can imagine a similar scenario across an entire state with multiple large, mid-size, and small cities surrounded by sparsely populated rural areas. Statewide voting would not be perfectly representative because the total number of a state’s legislative seats might not be perfectly divisible along party lines. In the hypothetical metropolis, Republicans would be slightly “under-represented” as a function of total voting population and vice versa for Democrats, but it would be a much closer rep-to-vote ratio than one currently sees in Congress.[9]

Federal law, however, requires that Representatives be elected in single-member districts, rather than in statewide, multi-member districts,[10] which is the traditional method in many other countries and currently used to draw a few states’ legislative districts. So, this metropolitan area (or a whole state) cannot come together and elect Representatives in a way that is roughly proportionate to the party affiliation of its total population. Instead, the area has to be divided in three.  If one divided it like a pizza, with three rectangular districts coming to a point in downtown, it would elect three Democrats, assuming that the suburbs at the three corners of the metropolitan area and the neighborhoods within the city limits were roughly similar to one another across partisan lines (i.e., that the Northeast suburbs and the Southwest suburbs have roughly equal portions of Democrats and Republicans and the same for the East End of downtown and the West End of downtown). This is probably not a completely valid assumption (e.g., the North and South sides of L.A. or Chicago are quite demographically different from one another). But the variation between “city” and “suburb” is still likely greater than the variation among city neighborhoods or individual suburbs, such that one would still expect each of the three pie-piece-shaped districts to vote approximately 2/3 Democrat and 1/3 Republican. This would result in three Democratic Representatives, diluting the Republican suburban votes so that those voters would have no say in their representation in Congress (and presumably no Representative responsive to their concerns).

Now imagine the opposite. Imagine drawing the three metropolitan districts with one district in the inner city and two districts (each shaped like half a donut) of suburbs and outer city neighborhoods. Now, one would expect to have one Democratic Representative for “downtown” and two Republicans for the outer-city and suburban areas, diluting Democratic votes in the area by “packing” them into one downtown district and “cracking” them into two minority groups in the outer districts. The latter is how many Republican-controlled state legislatures draw their federal districts, and it is how a party that often has a minority of overall votes nonetheless has established an enduring majority in the “popular” house of Congress. While the country is essentially “tied” Democrat/Republican, Congress is not, because strategic Republican redistricting at the state level has silenced much of the half of the country that disagrees with it. This practice is so widespread that academics have named it. They call it “partisan symmetry”[11] or the “efficiency gap” – the gap between the total number of votes and the smaller number of votes that actually “count” one way or another.[12]

When one looks at “representative” government on a state-by-state basis, the math is alarming. There are large swaths of the country where Republicans barely outnumber Democrats (or even are in the minority statewide), but have much larger majorities in their state legislatures and, therefore, Congressional delegations.

According to Gallup, Oklahoma is 49% Republican and 36% Democrat,[13] yet its entire Congressional delegation (two Senators and five representatives) is Republican.[14] Delaware County, which contains the Oklahoma half of Kansas City, is majority Democrat, but it only has 450,000 people, so it is not big enough for its own district. Osage County, which contains Tulsa, is also majority Democrat, but Tulsa is even smaller, with a population of approximately 400,000. Tulsa and Kansas City are both in the Northeast of the State. It would be possible to combine them and their surrounding areas to form two majority-Democrat districts.  Instead, the Oklahoma legislature combined Kansas City with a huge swath of Eastern Oklahoma, which added just enough population to make the entire district (Oklahoma’s Second) majority Republican, and it created a stovepipe-looking swath of territory up to the Kansas border that dilutes the votes of Tulsa residents creating a second majority Republican district (Oklahoma’s First). The Oklahoma legislature, despite being in a fairly closely divided state, comprises 110 Republicans and 39 Democrats.[15]

Arkansas is more closely divided, with 45% Republicans and 39% Democrats,[16] but its Congressional delegation is also entirely Republican (two Senators and four representatives).[17] Arkansas’s largest city is Little Rock, and it votes predictably Democratic. But, with approximately 250,000 in its metro area, it is much too small to have its own Representative. Pine Bluff, Arkansas, immediately Southeast of Little Rock, has another 50,000 solidly Democratic voters. Head further Southeast, along the Mississippi river, and you hit another solidly Democratic part of the State where most of Arkansas’s black residents reside. Each of these areas is in the Southeastern quartile of the state, but the Arkansas legislature has managed to crack them into three different majority-Republican districts (Arkansas’s First, Second, and Fourth, respectively). The Arkansas legislature has 66 Republicans and 33 Democrats.[18]

West Virginia is also fairly evenly divided, with 46% Republicans and 40% Democrats.[19] Its Senate delegation reflects this divide, with one Democratic and one Republican Senator, but its House delegation of three is 100% Republican.[20] The counties that contain the state’s three largest cities, by population, are Kanawha (Charleston), Cabell (Huntington), and Monangalia (Morgantown).[21] All three counties vote heavily Democratic.[22] Morgantown is in far Northwest Virginia, bordering Maryland, but Charleston and Huntington are both in Southwest West Virginia, not very far apart. The state’s legislative districts do not appear gerrymandered (in shape), since they cut in horizontal lines across the state, but these lines neatly cleave the three Democratic-leaning metropolitan areas into three separate districts, whose votes get diluted by the Republican-leaning rural counties around them. The West Virginia legislature is 2/3 Republican.[23]

Even Alabama, one of the reddest states, has a surprising share of Democratic voters in comparison to its almost 90% Republican Congressional delegation.  According to Gallup, Alabama is 51% Republican and 34% Democratic,[24] but it has six Republican Representatives and only one Democrat.[25] One big reason is Alabama’s Second District, with its barely attached hammerhead top and beak-shaped Western appendage. The Western beak manages to sweep up just enough conservative, white voters to dilute the remaining majority-minority district around the hammerhead of Montgomery and the heavily black Southeastern part of the state, leaving a just barely Republican-leaning district. The only majority Democratic district in the state is the packed Seventh District, in the Western “black belt,” with a finger that reaches far Northwest to nab Alabama’s liberal bastion, college-town Tuscaloosa, and downtown Birmingham for good measure. The Alabama legislature is more than 70% Republican.[26]

One sees similar numbers and districting patterns across many states: South Carolina (population 35% Democratic but only one Democratic Representative out of seven, with a state legislature in which Republicans hold 65% of its seats), Louisiana (41% Democratic versus 43% Republican, but only one Democratic Representative out of six, thanks in part to the notoriously packed district that includes both New Orleans and Baton Rouge drawn by its state legislature, in which Republicans hold 57% of the seats), Iowa (40% Democratic versus 43% Republican, but only one Democratic Representative out of four, with a state legislature that is 57% Republican), Mississippi (39% Democratic versus 44% Republican, but only one Democratic Representative out of four, with a state legislature that is 60% Republican), Missouri (38% Democratic versus 46% Republican, with a Senate delegation of one Democrat and one Republican, but only two Democratic Representatives out of a delegation of eight, with a state legislature that is 71% Republican), Indiana (38% Democrat versus 44% Republican with a Senate delegation of one Democrat and one Republican but only two Democratic Representatives out of nine, with a state legislature that is 70% Republican), Tennessee (36% Democratic versus 46% Republican, but only two Democratic Representatives out of nine, with a state legislature that is 75% Republican), and Georgia (39% Democratic versus 44% Republican, but only four of its fourteen Representatives are Democrats, with a state legislature that is 65% Republican).[27]

Even more incredible are states that do not have a Republican majority, but whose Congressional delegations are nonetheless quite scarlet. One of the most egregiously districted states is North Carolina, which most commentators no longer consider a “red” state.[28] Voters are equally divided between Democrats and Republicans (41% each),[29] but North Carolina’s House delegation has ten Republicans and three Democrats.[30] Once again, this is the product of districting by a state legislature 62% of whose seats are occupied by Republicans.[31] The North Carolina legislature – the one that just famously retaliated against its voters for electing a Democratic governor by stripping the post of its power[32] – has managed to pack most black and liberal-white voters into two huge Democratic districts: the Fourth, which captures the “research triangle” of Chapel Hill, Raleigh, and Durham, and the Twelfth, which captures a huge swath of urban Democratic voters in a long squiggly line that packs Charlotte and Greensboro into a single district.

Virginia, with 41% Democrats and 42% Republicans by population,[33] is similarly no longer considered a “red” state.[34] But its House delegation comprises eight Republicans and three Democrats, because its state legislature remains 66% Republican.[35] Ohio, another perennial battleground state, has 42% Democrats and 42% Republicans by population,[36] with an equally divided Senate delegation of one each, but, of its sixteen House seats, only four are occupied by Democrats.[37] This is the result of yet another act of district engineering by its state legislature, which is 65% Republican.[38] Toledo and Cleveland are 120 miles apart, in nearly opposite corners of Ohio with little but lakefront in common. But they are together at the voting booth every two years. Wisconsin, another battleground state, evenly divided between Democrats and Republicans (43% each),[39] has one Democratic and one Republican Senator, but three of its eight Representatives are Democrats, thanks to its state legislature, which is 64% Republican.[40] Michigan is considered a “blue” state.[41] Statewide, it has 43% Democrats and 39% Republicans,[42] but only five of its fourteen Representatives are Democrats, and Republicans hold a majority (56%) in its state legislature.[43]

Perhaps no place exemplifies the power of, and battles over, redistricting like Texas, which, because of its size, also demonstrates the rigged mathematics of partisan politics in the United States. While many think of Texas as very red, it merely seems that way because of the outsize power that Republicans enjoy.  According to Gallup, Texans are 37% Democrat and 43% Republican.[44] Because of its size, Texas has a House delegation of thirty-six Representatives, only eleven of whom (31%) are Democrats.[45] Its state legislature is 66% Republican.[46] Because Texas has a history of discriminatory voting access, it used to require Department of Justice (“DOJ”) “preclearance” for its districting plans.[47] In 2011, the Texas Legislative Council submitted its 2010 plan to DoJ, which refused to approve it because it discriminated against voters of color (who tend to vote heavily Democratic).[48] In 2012, a federal court upheld DoJ’s decision, so Texas appealed to the Supreme Court.[49] Shortly thereafter, in Shelby County. v. Holder,[50] the Court struck down the preclearance formula.[51] So, the heavily Republican legislature (in a not nearly as heavily Republican state) is now free to redistrict without federal interference.

Individually, these numbers may not seem like much, one extra Republican Representative here or there in states that many already consider inevitably “red,” but together they add up to an unassailable minority majority in Congress. To put it in mathematical terms, the Republican party is exploiting our now ironically named republican system of indirect representation to “round up” its share of elected office, in comparison to its statewide shares of voters, by 10 or 20% across a majority of states. If Texans, for example, voted for their Representatives statewide, one would expect roughly 46% to be Democrats and 54% to be Republicans.  That would mean six more seats for Democrats and fewer seats for Republicans from Texas alone. Nationwide, it would mean that the House would pretty much be perpetually evenly divided between Democrats and Republicans (like the country), occasionally swinging in one direction or other by two or three seats, rather than being permanently dominated by Republicans. The result would be that both parties would have to compromise to govern, rather than a majority party always riding roughshod over a futile opposition.

Then there is the presidency. Most Americans are by now quite familiar with the anti-democratic math for this branch. Americans do not elect the President; they elect Electors who elect the President.[52] Electors are not assigned by population. A state gets the same number of electors as its total Congressional delegation (Senate and House), so the anti-democratic nature of Senate representation gets replicated, giving extra weight to states with less population.[53] More importantly, in almost all states, the electoral delegates are winner take all, not proportional.[54] So, if one candidate wins twenty-four states in a landslide, and the other candidate barely wins twenty-six, so that the first candidate wins 60% of the popular vote but 48% of the electors and the second candidate wins 40% of the popular vote but 52% of the electors, the second candidate becomes the President.

As a result, last November, for the second time in less than two decades, the person for whom the majority of Americans voted did not take office on Inauguration Day.[55] The math for 2016 is particularly stark. While Al Gore barely squeaked a victory in the popular vote in 2000 (earning a little more than 500,000 more votes than George W. Bush),[56] Hillary Clinton both won the popular vote and lost the Electoral College by margins which could be considered landslides: garnering almost 3,000,000 more votes than Donald Trump (or almost three percent of votes cast) while losing the Electoral College by almost seven percent.[57]

The math clearly demonstrates that the United States has no “democratic” branches of government. According to Gallup, 32% of Americans currently identify as Democrats while 27% identify as Republicans.[58] Nonetheless, the Republicans soundly control both houses of Congress and the Presidency. In sum, our nation is pretty much evenly divided between Democrats and Republicans, tending to bank, if anything, a bit more Democratic each passing year, but the “democratic” branches do not reflect that reality.[59]

These discrepancies have significant effects on policy, with a majority of Americans wanting Congress to prioritize policies and actions that it does not and refrain from taking many of the actions that it does. For example, according to Gallup, only 19% of Americans want abortion to be illegal under all circumstances, with 29% wanting abortion to be available under all circumstances and 50% wanting it to be legal under some.[60] 55% want stricter gun laws. 51% believe that the federal government has a responsibility to guarantee health care for all, and 58% favor replacing Obamacare with a federally funded health-care system (definitely not the idea behind Republicans’ “repeal and replace” mantra).[61] 59% support free universal preschool and childcare, and 47% support free college tuition (versus 45% opposed).[62] A whopping 63% think that corporations have too much influence in Washington, and a majority of those with an opinion support campaign-finance reform, with 88% in favor of heightened disclosure requirements, 78% in favor of lowering the maximum allowed donation, and 58% in favor of public finance.[63]

How can this America be the one that elected Donald Trump and put Mitch McConnell and Paul Ryan in charge of Congress? Why do Americans continually elect a Congress with an approval rating below twenty percent?[64] Why do a majority of Americans look at their new President and say, “He’s not my President.”?[65] Many attribute these discrepancies to campaign finance and the power of special-interest organizations. Surely these lobbies play a role, but mostly these discrepancies exist because they have no consequence. Because a majority of legislators are elected by a minority of the electorate, it does not have to govern with accountability to the wishes of its constituents, but rather only to those few constituents whose votes have outsized weight, which tends to be rural, conservative, white America (the national “suburbs”). So, if you are one of the majority of Americans that Gallup says feels like Congress is “out of touch,”[66] if you are progressive, urban, coastal, multi-lingual, or brown and you feel like your “representatives” do not represent your community or your country, it is because they do not.

Can anything be done? Certainly: amend the Constitution. We could amend Article I, § 3, which dictates that each state gets two Senators, so that Senators are elected in proportion to population.[67] We could amend Article I, § 4, which dictates that Congressional elections are governed by state law,[68] and then demand that Congress repeal § 2C and require statewide elections. We could repeal Article II, § 1, which establishes the Electoral College,[69] and replace it with a provision requiring direct popular election of the President. We could even change the Twenty-Third Amendment, which conferred only the right to vote for President on (super-majority-Democratic) D.C.,[70] and add Congressional representation. But this is where math, once again, gets in the way of democracy. Under Article V, the Constitution can only be amended by a vote of 2/3 of Congress or 2/3 of state legislatures,[71] both of which are controlled by Republicans, the minority party that governs like a majority.

[*] Associate Professor & Dean’s Distinguished Faculty Fellow, University of Oregon School of Law

[1] See generally Marbury v. Madison, 5 U.S. (1 Cranch) 137 (1803).

[2] See Charles Warren, The Supreme Court In United States History 748–49 (Rev. ed. 1935).

[3] See Charles Warren, The Making of the Constitution 267–312 (1928).

[4] See U.S. Const. art. I, § 3.

[5] See U.S. Const. art. I, § 2.

[6] See Paul Singer, Democrats Won Popular Vote in the Senate, Too, USA Today (Nov. 10, 2016, 6:17 PM), http://www.usatoday.com/story/news/politics/onpolitics/2016/11/10/democrats-won-popular-vote-senate-too/93598998/ [https://perma.cc/E7BT-8XBP].

[7] See Patrick Scott, Who Won the US Senate and House of Representatives? Did the Democrats or Republicans Win?, Telegraph (Nov. 10, 2016, 10:51 AM), http://www.telegraph.co.uk/news/2016/11/02/us-senate-and-house-of-representatives-the-most-likely-outcomes/ [https://perma.cc/X8CY-BJFW].

[8] See Ezra Klein, House Democrats Got More Votes than House Republicans. Yet Boehner Says He’s Got a Mandate?, Wash. Post: Wonkblog (Nov. 9, 2012), https://www.washingtonpost.com/news/wonk/wp/2012/11/09/house-democrats-got-more-votes-than-house-republicans-yet-boehner-says-hes-got-a-mandate/?utm_term=.7ce4f65a1ac0 [https://perma.cc/F5HV-F6YF].

[9] See Partisan Composition of State Houses, Ballotpedia, https://ballotpedia.org/Partisan_composition_of_state_houses [https://perma.cc/D482-6BW9]. For an in-depth explanation of why state legislatures are hyper-Republican, see Philip Bump, How Your State’s Politics Have Shifted over the Years, in 49 Charts, Wash. Post: The Fix (Sept. 13, 2015), https://www.washingtonpost.com/news/the-fix/wp/2015/09/11/49-charts-that-tell-the-partisan-history-of-state-legislatures/?utm_term=.1c7b9eff1de5 [https://perma.cc/3VJT-Y7HR].

[10] See 2 U.S.C. § 2C (2012).

[11] See Anthony J. McGann, et al., Gerrymandering in America 8–9 (2016).

[12] See Kim Soffen, Wisconsin’s Gerrymander Being Struck Down Should Scare Republicans Nationwide, Wash. Post (Nov. 23, 2016), https://www.washingtonpost.com/news/wonk/wp/2016/11/23/wisconsins-gerrymander-being-struck-down-should-scare-republicans-nationwide/?utm_term=.1e22d8d42712 [https://perma.cc/RC9M-CXLT].

[13] See Jeffrey M. Jones, Red States Outnumber Blue for First Time in Gallup Tracking, Gallup (Feb. 3, 2016), http://www.gallup.com/poll/188969/red-states-outnumber-blue-first-time-gallup-tracking.aspx [https://perma.cc/P4TH-U9GT].

[14] See State & Legislative Partisan Composition (2016 Election), Nat’l Conf. of State Legislatures (Dec. 15, 2016), http://www.ncsl.org/portals/1/documents/elections/Legis_Control_2016_Post12_28_2pm.pdf [https://perma.cc/Y6XL-7WBC] [hereinafter NCSL Composition].

[15] See id.

[16] See Jones, supra, note 13.

[17] See NCSL Composition, supra note 14.

[18] See id.

[19] See Jones, supra note 13.

[20] See NCSL Composition, supra note 14.

[21] See Charleston Only West Virginia City with 50,000 Population, Charleston Gazette-Mail (May 21, 2015), http://www.wvgazettemail.com/article/20150521/article/150529842 [https://perma.cc/Q3RF-4C7C].

[22] See Voter Registration, W. Va. Sec’y of State (Feb. 20, 2017), http://www.sos.wv.gov/elections/voterRegistration/Pages/Voter_Registration.aspx [https://perma.cc/WF5F-RE4T].

[23] See id.

[24] See Jones, supra note 13.

[25] See NCSL Composition, supra note 14.

[26] See id.

[27] See Jones, supra note 13; NCSL Composition, supra note 14.

[28] See, e.g., Gary Legum, North Carolina’s in Play: The Red State Just Might Be up for Grabs in November, Salon (July 1, 2016, 10:00 AM), http://www.salon.com/2016/07/01/north_carolinas_in_play_the_red_state_just_might_be_up_for_grabs_in_november/ [https://perma.cc/LXF5-GKUH].

[29] See Jones, supra note 13.

[30] See NCSL Composition, supra note 14.

[31] See id.

[32] See Trip Gabriel, North Carolina G.O.P. Moves to Curb Power of New Governor, N.Y. Times, Dec. 15, 2016, at A14.

[33] See Jones, supra note 13.

[34] See Jenna Portnoy, How Did Deeply Red Virginia Become Such a Challenge for the GOP in a Single Decade?, Wash. Post (Aug. 13, 2016), https://www.washingtonpost.com/local/virginia-politics/how-did-deeply-red-virginia-become-such-a-challenge-for-the-gop-in-a-single-decade/2016/08/13/36b2014e-5f21-11e6-9d2f-b1a3564181a1_story.html?utm_term=.497715b7aab1 [https://perma.cc/XY89-P8EA].

[35] See NCSL Composition, supra note 14.

[36] See Jones, supra note 13.

[37] See NCSL Composition, supra note 14.

[38] See id.

[39] See Jones, supra note 13.

[40] See NCSL Composition, supra note 14. A federal court recently struck down Wisconsin’s state districting plan after finding that the Republican-controlled legislature had intentionally manipulated districts to favor Republicans. See Soffen, supra note 12.

[41] See Emily Lawler, Following Republican Sweep, Michigan’s Status as a Blue State Teeters, Mich. Live (Nov. 10, 2016, 11:30 AM), http://www.mlive.com/news/index.ssf/2016/11/following_republican_sweep_mic.html [https://perma.cc/44H2-V32U].

[42] See Jones, supra note 13.

[43] See NCSL Composition, supra note 14.

[44] See Jones, supra note 13.

[45] See NCSL Composition, supra note 14.

[46] See id.

[47] See Voting Rights Act, 42 U.S.C.A. §§ 1973–1973q (2006); 28 C.F.R. Pt. 51, App. (2011) (listing jurisdictions required to get preclearance under the Act).

[48] See 2010s Cycle, Texas Senate Redistricting, Tex. Legis. Council, http://www.tlc.state.tx.us/redist/history/2010s.html [https://perma.cc/7WW4-3DVD] (last updated Jan. 9, 2015).

[49] See Texas v. United States., 887 F. Supp. 2d 133, 161–62 (D.D.C. 2012), rev’d Texas v. United States, 133 S.Ct. 2885 (2013) (mem.).

[50] Shelby Cty. v. Holder, 133 S.Ct. 2612, 2631 (2013).

[51] See id. at 2623–24.

[52] See U.S. Const. art. II, § 1.

[53] See id.

[54] See Nate Cohn, How to Explain Split Between Popular Vote and Electoral College, N.Y. Times, Dec. 20, 2016, at A17.

[55] See Michele Gorman, Extraordinary Moments in Electoral College History, Newsweek (Dec. 19, 2016, 7:10 PM), http://europe.newsweek.com/moments-electoral-college-history-533766?rm=eu [https://perma.cc/G9BH-NDHB].

[56] See Kenneth P. Doyle, Clinton Won Popular Vote by More Than 2.8 Million: FEC, Bloomberg BNA (Feb. 14, 2017), https://www.bna.com/clinton-won-popular-n57982083769/ [https://perma.cc/J7RS-5E67].

[57] See Gregory Krieg, It’s Official: Clinton Swamps Trump in Popular Vote, CNN (Dec. 22, 2016, 5:34 PM), http://edition.cnn.com/2016/12/21/politics/donald-trump-hillary-clinton-popular-vote-final-count/ [https://perma.cc/2QRS-36YV].

[58] See Jones, supra note 13.

[59] See Lydia Saad, Americans’ Attitudes Toward Abortion Unchanged, Gallup (May 25, 2016), http://www.gallup.com/poll/191834/americans-attitudes-toward-abortion-unchanged.aspx [https://perma.cc/Y49H-CJAQ].

[60] See Guns, Gallup (Dec. 23, 2016), http://www.gallup.com/poll/1645/guns.aspx [https://perma.cc/NR84-23Z9].

[61] See Healthcare System, Gallup (Dec. 23, 2016), http://www.gallup.com/poll/4708/healthcare-system.aspx [https://perma.cc/C9DL-KL9C].

[62] See Lydia Saad, Americans Buy Free Pre-K; Split on Tuition-Free College, Gallup (May 2, 2016), http://www.gallup.com/poll/191255/americans-buy-free-pre-split-tuition-free-college.aspx [https://perma.cc/HUG5-9DXS].

[63] See David W. Moore, Widespread Public Support for Campaign Finance Reform, Gallup (Mar. 20, 2001), http://www.gallup.com/poll/1885/widespread-public-support-campaign-finance-reform.aspx [https://perma.cc/5F89-8CHB]; Lydia Saad, Half in U.S. Support Publicly Funded Financed Campaigns, Gallup (June 24, 2013), http://www.gallup.com/poll/163208/half-support-publicly-financed-federal-campaigns.aspx?g_source=campaign%20finance&g_medium=search&g_campaign=tiles [https://perma.cc/7352-EHR6] .

[64] See Congress and the Public, Gallup (Dec. 23, 2016), http://www.gallup.com/poll/1600/congress-public.aspx [https://perma.cc/3UYW-Q82Y].

[65] See Sonam Sheth, Trump’s Approval Rating is the Lowest of Any Incoming President in Nearly 25 Years, Bus. Insider (Dec. 21, 2016, 1:33 PM), http://www.businessinsider.com/trumps-approval-rating-lowest-of-last-3-incoming-presidents-2016-12 [https://perma.cc/HC6E-DEKZ].

[66] See Andrew Dugan, Majority of Americans See Congress as Out of Touch, Corrupt, Gallup (Sept. 28, 2015), http://www.gallup.com/poll/185918/majority-americans-congress-touch-corrupt.aspx [https://perma.cc/S8N2-6Q6S].

[67] See U.S. Const. art. I, § 3.

[68] See U.S. Const. art. I, § 4.

[69] See U.S. Const. art. II, § 1.

[70] See U.S. Const. amend. XXIII.

[71] See U.S. Const. art. V. In addition, any amendment to Senate apportionment must comply with the Article V requirement that “no state, without its consent, shall be deprived of its equal suffrage in the Senate.” Id.

“The Debt Is Not Payable”

by James L. Tatum III, MPA ’17, Maxwell School of Citizenship and Public Affairs at Syracuse University

“The debt is not payable,” said Governor Alejandro Garcia Padilla of Puerto Rico to the New York Times on June 28th, 2015.[1] In fact, by most independent analysis, the island’s $117 billion in total liabilities is not payable.[2] Given this fact, the decision by elected officials not to provide Puerto Rico with access to Chapter 9 bankruptcy is cause for confusion.[3]

Puerto Rico has suffered dramatic population loss for a decade, loss of industry, and a decline that has mirrored the City of Detroit.[4] Puerto Rico has borrowed heavily in an effort to maintain the same quality of life, despite a diminished tax base. For decades, it has had uninhibited access to capital markets. In 1955, The Analysts Journal issued a report titled “A New Look at Puerto Rico and Puerto Rican Bonds” that was spurred by findings that the debt marketed by Puerto Rico was, and still is, triple tax exempt.[5] Despite the decline of the island’s economy since the boom period of 1950 to 2000, investors have continually been attracted to its bond issuance. The result of Puerto Rico’s attractive debt and fiscal policies has been an estimated $71 billion in bonded debt, and $46 billion in pension liabilities.[6]

Further discussion of Puerto Rico’s financial distress requires understanding three terms: insolvency, default, and bankruptcy. Insolvency is an inability to pay debts. Default is the failure to pay—either because of insolvency or by choice. Bankruptcy is the process by which defaults are resolved in an orderly manner.

Puerto Rico is insolvent. The island has had problems with cash flow for years, and is expected to run out of money in the near future. Debt service, or the amount of annual appropriations dedicated to interest and principal payments, exceeds 25 percent (far beyond the recommended 10 percent limit).[7] Puerto Rico has already defaulted on a portion of its debt. On January 4th, 2016 the territory declined to make $174 million in debt service payments.[8] Another payment of $1.9 billion scheduled for July 1st was suspended under powers to enact a debt moratorium passed by the Legislature.[9]

Ordinarily, bankruptcy would be the next step for a similarly distressed entity. However, neither Puerto Rico nor municipal units like the deeply indebted Puerto Rico Electric Power Authority (PREPA) are authorized to file for Chapter 9 bankruptcy.[10] This omission appears to be without reason. In the recent Supreme Court case, Puerto Rico v. Franklin Cal. Tax-Free Trust, the justices were perplexed as to why Congress would omit Puerto Rico from Chapter 9 and take away its power to adjust debt unilaterally.[11] A cursory read of the justices’ questions made it apparent that Puerto Rico would lose its case, and it did, but not because Puerto Rico should not be able to adjust its debts or because of constitutional conflict. Rather, as Justice Stephen Breyer joked, he cannot “say that an airplane means a horse,” and the text of Chapter 9 is clear—even if its justification is not.[12]

Here is Puerto Rico’s dilemma. The island cannot bind creditors under any other kind of deal, which is necessary to restructure debt under Chapter 9. Without such a rule, creditors have an incentive to “race to the courthouse,” where the quickest to sue have the best recovery, and the rest are left to pick over the diminished assets of the debtor. There is also an incentive for “vulture” funds to purchase the depreciated bonds and hold out for payment which exceeds the amount the bonds were purchased for. NML Capital, an investment firm, successfully employed this strategy against Argentina.[13] Note that because of Puerto Rico’s territorial status it does not appear to have the sovereign power to default or even attempt to bind creditors to a debt exchange like Argentina did (before those efforts were usurped by creditor holdouts).

The promise of bankruptcy, and the reason it is needed for Puerto Rico, is that bankruptcy determines who will be paid, how much they will be paid, and who will not be paid at all in a far more orderly manner than a “race to the courthouse.” Secondly, bankruptcy binds creditors to whatever deal comes out–and such a deal would be formally titled a plan of adjustment. The Secretary of the Treasury, whose office has been deeply involved with Puerto Rico, has insisted that the island be provided debt relief of the sort that only Chapter 9 can provide.[14]

Instead Congress has offered Puerto Rico a different system through PROMESA (Puerto Rico Oversight, Management, and Economic Stability Act), which creates a bankruptcy-like process for the island.[15] Why has Congress decided to embark on the odd and unchartered course of creating a bankruptcy-like process that is not bankruptcy? The answers are uncertain. In part, the answer could be that bondholders have successfully lobbied lawmakers to prevent bankruptcy. A separate answer is that lawmakers are unsure Chapter 9 or a Bankruptcy Court could resolve Puerto Rico’s debts. But then, there is no reason to doubt that Chapter 9 could resolve Puerto Rico’s debts.

In 1988, Congress amended the Bankruptcy Code, including Chapter 9, to accommodate sizable jurisdictions with heavy debt burdens, in response to New York City’s fiscal crisis in the 1970s, and Cleveland, Ohio’s shortly thereafter.[16] Before New York and Cleveland teetered on the precipice of default, bankruptcy was rare, and when it was filed, it was by small municipal units, such as water and sewer districts, and transportation authorities. Chapter 9 was amended should another major city or county tumble into insolvency and default on its debt.

The most recent cases display how well bankruptcy can work as a last resort for municipal financial distress. Jefferson County, Alabama filed in 2011 with $4.2 billion in total liabilities—many of which were tied to the county’s use of exotic instruments known as interest rate swaps.[17] Detroit filed in 2013 with $18 billion in total liabilities, which also included interest rate swaps and another type of exotic instrument known as certificates of participation.[18] In both cases, the courts were able to unwind those debts (Jefferson County in two years, Detroit in one year) and successfully provide debt relief to those two entities. Puerto Rico’s debt burden far exceeds that of Detroit and Jefferson County, but its liabilities are not any more sophisticated.

Rather than create a bankruptcy-like structure, Congress would be better advised to use the architecture that already exists. To provide Puerto Rico with bankruptcy authority would not preclude the other measures insisted on by members of Congress or the Treasury Department. Senator Orrin Hatch of Utah has been said to be infuriated by the island’s inability to provide timely and accurate financial statements.[19] A bankruptcy by Puerto Rico would answer this frustration. Bankruptcy requires that debtors detail their assets and liabilities in a disclosure statement, which would provide absolute clarity to the island’s financial condition. There would finally be a detailed list of what is owed to whom, and under what terms.

The United States Treasury Department should also be authorized to loan money directly to Puerto Rico, and to underwrite a possible “super bond” or new debt to replace the old bonds the island has defaulted on. A loan from the Treasury Department would provide money to fund public services while the island restructures. The Treasury Department extended this kind of aid to New York City at the time of its fiscal crisis, and to General Motors and Chrysler LLC when the two automakers were in bankruptcy.[20] The new “super bond” would further entice bondholders to turn in their old debt for new debt that would carry a later maturity date, or a lower interest rate and reduced principal amount.

Treasury Department assistance is needed for bondholders who have either factually or perceptually better claims and security interests (i.e. claims on specific revenues) than others, who will need enhanced security in order to be incentivized to accept the new “super bond.” Bondholders will need security that only the Treasury Department can provide. In tandem, bankruptcy and a loan or debt guarantee provided by the Treasury Department can mend Puerto Rico’s balance sheet.

The island is short on cash, debt service has crowded out other necessary expenditures, and it has been unable to normally fund its operations. Puerto Rico must be provided with the ability to adjust debts in Bankruptcy Court, because the island is past the point of more politically palatable options. The Federal Government’s policies toward Puerto Rico helped created this mess, and the island is owed forceful action, not a haphazard and untested process.

[1] Michael Corkery & Mary Williams Walsh, Puerto Rico’s Governor Says Island’s Debts Are ‘Not Payable,’ N.Y. Times: DealBook, (June 28, 2015), http://www.nytimes.com/2015/06/29/business/dealbook/puerto-ricos-governor-says-islands-debts-are-not-payable.html?_r=0 [https://perma.cc/8YZX-QLFZ].

[2] Clayton Gillette & David Skeel, How Congress Can Help Puerto Rico, N.Y. Times: DealBook (Sept. 14, 2015), http://www.nytimes.com/2015/09/14/opinion/how-congress-can-help-puerto-rico.html [https://perma.cc/5BK9-6CG5].

[3] Puerto Rico Oversight, Management, and Economic Stability Act, H.R. 4900, 114th Cong. (2016).

[4] See generally Puerto Rico’s Economic and Fiscal Crisis, U.S. Dep’t of the Treasury (2016), https://www.treasury.gov/connect/blog/Documents/Puerto_Ricos_fiscal_challenges.pdf [https://perma.cc/VS9F-7JTB].

[5] John P. Broderick, A New Look at Puerto Rico and Puerto Rican Bonds, 11 Analysts J. 107, 107–09 (1955).

[6] U.S. Dep’t of the Treasury, supra note 4 at 3.

[7] Id. at 4.

[8] Mary Williams Walsh, Puerto Rico Defaults on Debt Payments, N.Y. Times: DealBook (Jan. 4, 2016), http://www.nytimes.com/2016/01/05/business/dealbook/puerto-rico-defaults-on-debt-payments.html [https://perma.cc/Y8JV-WQYQ].

[9] Mary Williams Walsh, Puerto Rico Passes Bill Allowing Halt to Debt Payments, N.Y. Times: DealBook (Apr. 6, 2016), http://www.nytimes.com/2016/04/07/business/dealbook/puerto-rico-passes-bill-allowing-halt-to-debt-payments.html [https://perma.cc/V55B-QPAE0].

[10] 11 U.S.C. § 903 (2012).

[11] Puerto Rico v. Franklin Cal. Tax-Free Trust, Oyez (Mar. 22, 2016), https://www.oyez.org/cases/2015/15-233 (click the “Oral Argument” button; relevant portion begins at around 5:00).

[12] Id. (Relevant portion begins at around 18:50).

[13] Jonathan Gilbert & Alexandra Stevenson, Argentina Reaches Deal with Hedge Funds Over Debt, N.Y. Times: DealBook (Feb. 29, 2016), http://www.nytimes.com/2016/03/01/business/dealbook/argentina-reaches-deal-with-hedge-funds-over-debt.html [https://perma.cc/C5TN-FVAA].

[14] Letter from Jacob Lew, U.S. Sec’y of the Treasury, to Congress (Jan. 15, 2016), https://www.treasury.gov/connect/blog/Pages/Secretary-Lew-Sends-Letter-to-Congress-on-Puerto-Rico.aspx [https://perma.cc/4LU6-V5YZ].

[15] Id. at 3.

[16] Robert S. Amdursky, The 1988 Municipal Bankruptcy Amendments: History, Purposes and Effects, 22 Urb. Law. 1, 1–21 (1990).

[17] Kelly Nolan, Largest Municipal Bankruptcy Filed, Wall St. J. (Nov. 11, 2011), http://www.wsj.com/articles/SB10001424052970204224604577028491526654090 [https://perma.cc/3A6G-6RWV].

[18] Matthew Dolan, Record Bankruptcy for Detroit, Wall St. J. (July 19, 2013), http://www.wsj.com/articles/SB10001424127887323993804578614144173709204 [https://perma.cc/TA94-YTDD].

[19] Mary Williams Walsh, Senate Republicans Introduce Bill for Puerto Rico Relief, N.Y. Times: DealBook (Dec. 9, 2015), http://www.nytimes.com/2015/12/10/business/senate-republicans-introduce-bill-for-puerto-rico-relief.html [https://perma.cc/EWJ4-KDCP].

[20] David A. Skeel, From Chrysler and General Motors to Detroit, 24 Widener L. J. 121, 124–25 (2015).