WASHINGTON – The House Natural Resources Committee will "very soon" begin forming legislation designed to aid Puerto Rico following a hearing one of its panels held on Tuesday on the need for a federal oversight authority in the commonwealth, said committee chair Rob Bishop, R-Utah.
The committee's Subcommittee on Indian, Insular, and Alaska Native Affairs hearing included testimony from several witnesses with histories of working with control boards and others who were involved in Puerto Rico's current struggle with about $70 billion in debt.
Bishop said on Monday that he believes the House can meet a March 31 deadline that Speaker Paul Ryan, R-Wis., set for committees with jurisdiction over Puerto Rico to have a legislative solution for the commonwealth. Bishop also said he will work with Pedro Pierluisi, Puerto Rico's sole representative in Congress and a member of the committee.
Pierluisi said during the hearing that any bill or package the committee crafts will have to be "bipartisan and balanced."
"A bad bill will not be approved by both chambers of Congress and signed into law by the president," Pierluisi said. "So we are either going to pass a good bill or no bill at all."
Puerto Rico officials have consistently asked the federal government to extend Chapter 9 bankruptcy protections to the commonwealth's public authorities, but have been wary of a federal control board as it risks usurping the territory's authority over local affairs.
Pierluisi said he supports creating an independent board to approve things like Puerto Rico's long-term financial plan, annual budgets, and effort to publish accurate and timely financial information. But he warned that "if the forthcoming bill seeks to extinguish rather than enhance" Puerto Rico's democracy at the local level, he "will do everything in [his] power to defeat it."
Democrats have mostly sided with Pierluisi's view that any oversight authority would have to allow Puerto Rico to keep some control. They also have said legislation should link an oversight authority with the ability to restructure under Chapter 9.
Republicans generally have been wary of granting the island any Chapter 9 protections and instead have backed a strong federal authority that is both acceptable to the Puerto Rico government and has the ability to reform Puerto Rico's financial accounting and approve any financial plans the commonwealth creates. One exception is Rep. Sean Duffy, R-Wis., who has a bill pending that would provide public authorities in Puerto Rico with Chapter 9 bankruptcy protection in exchange for the commonwealth's acceptance of oversight from a presidentially-appointed five-member Financial Stability Council.
The members of the subcommittee agreed that some type of oversight authority that respects Puerto Rico's government is necessary, but there was no final consensus on what specific powers the authority should have.
"Our biggest challenge will go back to how to give the territory the needed assistance without making it more of a colony," said Rep. Jose Serrano, D-N.Y. "To bring Puerto Rico to its knees when it is already on one knee would just add more pain."
The question of extending Chapter 9 protections to the commonwealth's public authorities had even less of a consensus.
Rep. Raul Labrador, R-Idaho, echoed other committee Republicans when he called Chapter 9 a possible "tool" for Puerto Rico, but added he "is not sure bankruptcy should come in at all."
Anthony Williams, a former mayor of Washington D.C. who worked with the city's control board and is a current senior advisor with Dentons US, said talk of restructuring should follow a joint effort by Puerto Rico's government and an appointed authority to put the commonwealth's "basic housekeeping in order" by reforming things like the island's tax collecting capabilities.
Williams said any authority should have to approve the commonwealth's financial plans and have goals of both achieving financial stability and a balanced budget for the island. Carlos Garcia, a former chair and president of Puerto Rico's Government Development Bank, agreed with Williams, saying it is important for Puerto Rico to establish strong practices to create confidence with creditors and the federal government.
An ideal authority for Puerto Rico, according to Williams, would be limited to between five and seven members who have the necessary experience to address Puerto Rico's crisis and a portion of which are Puerto Rican residents or of Puerto Rican ancestry. There would also be a chief financial officer to coordinate with the board staff and meet regularly with the Puerto Rico administration and the commonwealth's creditor groups.
Thomas Moers Mayer, a partner with Kramer Levin Naftalis & Frankel, told the subcommittee he also supports a "bipartisan, strong" authority for the commonwealth that has control over the commonwealth's funds and makes Puerto Rico's access to federal funds contingent on the authority's approval of a Puerto Rico budget. Mayer represents Franklin Advisors and OppenheimerFunds in connection with their investment in approximately $10 billion of bonds issued by the commonwealth and most of its 16 governmental corporations. "A substantial amount of the [Puerto Rico] problem is found in government mismanagement and not in investment," Mayer said.
Mayer, representing a long-held position of the funds with Puerto Rico holdings, added he opposes a Chapter 9 bankruptcy solution because it would not force the commonwealth to take steps toward reforming its systems. Instead, he proposed that after Puerto Rico commits to an oversight authority and follows the body's direction, it should be allowed to restructure its debt contingent on the majority of bondholders supporting the restructuring proposal.
There are currently a number of bills circulating in Congress to address Puerto Rico's situation, but Duffy's is the only one to include both the Chapter 9 restructuring Democrats have favored and a strong oversight authority more acceptable to Republicans.
