WASHINGTON – House members, government officials, and stakeholders all say the newest version of a bill to help Puerto Rico is a step forward, but their support for the measure seems tepid at best.
Reps. Sean Duffy, R-Wis., and Jim Sensenbrenner, R-Wis., introduced the much-anticipated legislation late Wednesday night, after some delays. Negotiations between Republicans, Democrats, and administration officials have slowed the bill since a previous version was pulled before a scheduled vote in early April.
House Natural Resources Committee chair Rob Bishop, R-Utah, and his staff have taken the lead on those negotiations and may schedule a vote on the bill as soon as next week.
Puerto Rico is currently struggling with roughly $70 billion in debt and $46 billion in unfunded pension liabilities. This bill, like the past two versions, seeks to balance competing interests by creating a strong oversight board that would have the power to require balanced budgets, address pension liabilities, as well as file debt restructuring petitions on behalf of the commonwealth and its entities in a federal district court as a last resort if voluntary negotiations do not succeed.
"We introduced legislation to responsibly address the crisis in Puerto Rico," Bishop said in a statement accompanying the new version's release. "Any future changes will be done in public committee meetings."
House Speaker Paul Ryan, R-Wis., has played a key role in trying to move the legislation forward and said the most recent version of the bill "is the most responsible solution to the crisis because it gives Puerto Rico a path to real reform while protecting taxpayers."
Though it contains the same basic framework as previous versions, this new bill would slightly increase the oversight board's power while tweaking certain restructuring and miscellaneous provisions and eliminating a prior proposal that Democrats opposed that would have transferred federal land back to the Puerto Rican government. It also softens a proposal to exempt certain employees from federal minimum wage requirements by imposing a defined time period where that would be allowed.
"The new bill introduced today is not perfect," said resident commissioner Pedro Pierluisi, Puerto Rico's nonvoting member of Congress. "Like any product of bipartisan compromise, it contains provisions I oppose or view as unnecessary, and it is my hope that these provisions can be modified or removed as the legislative process moves forward."
Pierluisi said he will be consulting with House leaders and the Treasury Department as he considers whether to vote for the bill.
Reps. Nydia Velazquez, D-N.Y., and Jose Serrano, D-N.Y., both made similar comments to Pierluisi, saying the bill represents a compromise and that they plan to work with their colleagues to make necessary changes.
Puerto Rico Gov. Alejandro Garcia Padilla's support was also tepid. "While the oversight board provisions are not consistent with basic American democratic principles, this draft legislation gets closer to the comprehensive and fair restructuring authority that is essential for providing the 3.5 million U.S. citizens in Puerto Rico with a viable economic future," he said in a release. The top Democrat on the Natural Resources Committee, Rep. Raul Grijalva, D-Ariz., said that the legislation "is not the bill I would write and [Democrats] are well aware that an oversight board will never be the first choice of many in Puerto Rico."
"This legislation is a compromise, so of course there are aspects that cause me concern," he said. "The Treasury Department tells us that this combination of oversight and debt restructuring will work, and that is a significant achievement."
Many Democrats, like Grijalva, have looked to Treasury to sign off on the legislative debt restructuring proposal before committing to vote for the legislation.
Treasury Secretary Jack Lew said in his own statement that the restructuring tools in the new version are "comprehensive and workable."
However, Lew added he and Treasury are disappointed the bill does not include provisions that extend the Earned Income Tax Credit to the commonwealth or provide more funding for Medicaid for Puerto Rico.
The bill would still create a powerful oversight board responsible for fixing Puerto Rico's problems. Its members would still be appointed by the president, with several checks put in place to ensure fairness.
The board would still have seven members, one of which would be appointed by the president without any input required. Two members would be selected from two separate, non-overlapping lists submitted by the House speaker. Two members would be selected from a list provided by the Senate majority leader. The other two members would be chosen by the Senate and House minority leaders.
The member selected from the first list the speaker submits would have to have a primary residence or place of business in Puerto Rico. Additionally, if the president refrains from choosing somebody from a submitted list, that choice would be subject to Senate approval.
However, because of reported Republican concerns that a Democratic president and Democrat-controlled Senate could stack the board, the option to use the Senate for appointments to the board would expire on Sept. 30, 2016.
The new bill also bolsters the board's overall power. It would allow the board to unilaterally set fiscal plans and budgets for the commonwealth if it deems submissions from the governor and legislature unsatisfactory by the end of an agreed upon deadline for submissions. It could also prevent the enforcement of legislation that would violate agreed upon fiscal plans or budgets and could include its own recommendations in any plan, even if the governor and territorial legislature disagree.
Additionally, if the board finds the government is not complying with a set budget, it can ask the governor to remedy the spending. The board could take action itself if the governor fails to solve the problem.
The board also is granted sole authority to file restructuring petitions on behalf of the territory or its public authorities and can only do so if five of the seven members agree that all other options, like voluntary restructuring, have been exhausted.
In an effort to allay Republican concerns, the new bill stipulates the existing legal hierarchy for restructuring debt, which would give highest protection to constitutionally backed general obligation bonds, would be maintained throughout the process. Democrats have pushed for pensions to receive more protection but those efforts have so far been unsuccessful.
Daniel Hanson, an analyst with Height Securities, said that the bill claims to put a "firewall" between constitutional debt and pensions, but that the effort to create a firewall only applies to the board and not to the U.S. District Court for Puerto Rico where any restructuring petitions are most likely to end up.
"The market has dodged a big bullet in the plan of adjustment [because] it focuses on honoring the [Puerto Rico] constitution and does not put pensions ahead," said Matt Posner, a principal with the Court Street Group.
Several changes to the bill's proposed moratorium on litigation and its collective action clause could raise constitutional concerns because of their ability to impair creditor contracts, Hanson said.
The collective action clause would make a voluntary debt restructuring agreement binding on all creditors if two-thirds of the designated creditor pool accepts it. The moratorium would take effect upon enactment of the oversight board and could last until April 30, 2017 if the board and district court decide on extensions.
The oversight board would have to make an effort to have the debtors make interest payments while the moratorium is active, a concession to Republicans who feared a stay would allow Puerto Rico to ignore its payments.
Posner said the moratorium is worse than it was in previous versions because it allows extensions and could set a precedent for similar solutions when U.S. entities are in financial trouble in the future.
"Never in the history of the United States outside of the bankruptcy code has a stay been put in place before a default," Posner said. "We just went through a huge financial crisis and no one talked about a stay of litigation with that. Then all of a sudden a little territory has economic issues and now we're [creating] a stay."
The precedent that sets will cause problems when "some very powerful senators" have an issue with it, Posner added.
Hanson said he believes the bill has a 70% chance of passage, but will likely undergo more revision through amendments in both the House and Senate. The bill also would need to be approved by Congress before Puerto Rico has to make a $2 billion debt payment on July 1 or else the issue will likely be ignored until after the November elections, Hanson said.
