Inside Puerto Rico’s Debt Crisis: Lessons from David Skeel’s New Book

When the tiny Caribbean island of Puerto Rico found itself staring at the largest governmental default in U.S. history, few outside the finance world really grasped what was at stake. It wasn’t just a local hiccup—it was a warning shot for every state, city, and special district that relies on bonds to fund schools, roads, and hospitals.

Enter David Skeel, a law professor at the University of Pennsylvania and the former chair of the federal oversight board that was created to shepherd Puerto Rico back to fiscal health. In a recent Slate Money interview, host Felix Salmon pulled Skeel apart, episode by episode, to dig into the messy details that most headlines skip.

First, Skeel reminds us that the crisis didn’t happen overnight. Decades of structural problems—tax exemptions, dwindling federal funding, and a fragile economy tied to a single industry—stacked up like a house of cards. When the island’s debt ballooned to more than $70 billion, investors started demanding higher yields, and the government’s cash flow dried up.

Congress, alarmed by the prospect of a U.S. default ripple, passed the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) in 2016. The law set up a so‑called “bankruptcy‑like” board, which Skeel later chaired, to negotiate with bondholders, trim expenditures, and try to get the island’s finances back on track. It was a novel, somewhat controversial, experiment—no state had ever been forced into a federal bankruptcy framework before.

“It felt like we were building a new kind of court on the fly,” Skeel chuckles in the podcast, noting the steep learning curve for both the board and the island’s officials. He describes endless meetings, sleepless nights, and the occasional “aha” moments when a stubborn creditor finally agreed to a haircut.

His new book, Promise Land, chronicles that saga in plain language, mixing legal jargon with personal anecdotes—like the time a Puerto Rican mayor brought homemade empanadas to a negotiation to break the ice. Skeel argues that the crisis taught us three big lessons: first, that governments can’t treat debt like a personal credit card; second, that federal oversight can be a double‑edged sword; and third, that transparency and community involvement are crucial if you want any kind of lasting recovery.

Listeners also hear Skeel weigh in on the broader debate about state bankruptcy. He’s skeptical that a one‑size‑fits‑all federal solution will work across the diverse fiscal landscapes of the United States, but he does see merit in giving struggling jurisdictions a structured, court‑like process—something that could avoid the messy, ad‑hoc bailouts of the past.

What does this mean for the future? Skeel warns that without clear rules, another region could slide into a similar quagmire, especially as climate‑related disasters strain local budgets. He urges lawmakers to study Puerto Rico’s experience, refine the oversight model, and, most importantly, keep the conversation with the people who actually live through these policies.

In the end, the interview feels less like a dry policy lecture and more like a candid coffee‑shop chat—filled with the occasional stumble, a laugh about paperwork piles, and a sincere hope that the island’s story can help steer the nation away from another fiscal disaster.