WASHINGTON – Only Congress can take the necessary steps to fully resolve Puerto Rico's debt crisis, Treasury Secretary Jack Lew said in a letter to congressional leadership on Friday.
"No administrative authority can put an end to this emergency," he said. "It is time for Congress to act to provide order to a chaotic and worsening situation."
Lew's letter comes after House Speaker Paul Ryan instructed House committees with jurisdiction over Puerto Rico to develop a reasonable solution for the commonwealth by the end of March.
Puerto Rico is currently struggling with about $70 billion in debt and has already defaulted on three scheduled debt payments, one last summer and two on Jan. 4.
The commonwealth has also been clawing back revenues marked for non-general obligation bonds and using them to pay debt service on the GO debt. So far, the clawbacks have involved revenues meant for bonds issued by Puerto Rico's Highway and Transportation Authority, Convention Center District Authority, Metropolitan Bus Authority, and Integrated Transportation Authority.
Last week, Assured Guaranty Ltd. and Ambac Financial Group Inc., which insure many of those bonds, filed a lawsuit challenging the constitutionality of Puerto Rico's clawback strategy.
Lew cited the recent lawsuits and defaults in his letter as proof that Puerto Rico is already in the midst of an economic collapse and legal quagmire.
"At Treasury we will continue to bring our full capabilities to bear in the provision and delivery of assistance to Puerto Rico," he said. "But our existing tools are not sufficient for a comprehensive solution."
Lew also pointed out, as have Democrats in Congress, that a congressionally authorized restructuring would not cost taxpayers anything.
The Treasury secretary plans to travel to Puerto Rico on Jan. 20 to meet with Gov. Alejandro Garcia Padilla, representatives from Puerto Rico's Legislative Assembly, and Puerto Rico citizens like labor community leaders and individuals from the territory's business community who are dealing with the commonwealth's fiscal crisis and economic turmoil firsthand.
Those meetings will include a discussion of the territory's situation as well as a four-part plan the Treasury released last year. The plan calls for expanding Chapter 9 bankruptcy protection to the entire commonwealth, not just its public authorities as others have suggested, in return for the creation of a federal oversight body. It also seeks action by Congress to reform Puerto Rico's access to federal healthcare programs and extend the Earned Income Tax Credit, as well as provide funding to update and modernize the commonwealth's antiquated accounting and disclosure practices.
Resident Commissioner Pedro Pierluisi, the non-voting Democrat representing Puerto Rico in Congress, said he is pleased Lew will travel to Puerto Rico and added he will have a one-on-one meeting with the secretary during the visit. "I am not asking for special treatment, but rather for equitable treatment," Pierluisi said.
Garcia Padilla, in a release announcing Lew's visit and commenting on the secretary's letter, said his administration's relationship with both the White House and Treasury Department during Puerto Rico's "time of crisis" has been crucial to tackling the challenges facing the commonwealth.
"We thank Secretary Lew for reminding congressional leaders that they can still prevent this humanitarian crisis from spinning out of control," Garcia Padilla said about the secretary's letter. "Puerto Ricans deserve swift action from Congress in this time of need."
Democrats in Congress have mostly favored extending bankruptcy protections to Puerto Rico, but want to limit it to the territory's public authorities, while Republicans are much more wary of the proposal and have been slow to move without more financial information from the Garcia Padilla administration.
Legislators from both sides of the aisle have already introduced a number of bills aimed at helping Puerto Rico. Democrats have focused on extending bankruptcy access and putting a moratorium on legal action against the commonwealth until Ryan's March 31 deadline for House action.
Rep. Sean Duffy, R-Wis., also introduced a bill that would extend bankruptcy to the commonwealth, but the extension would be contingent on the territory accepting a presidentially-appointed five-member Financial Stability Council. Duffy will be the keynote speaker at an event on Puerto Rico's crisis to be held by the American Action Forum on Jan. 25.
The chairs of the Senate committees that have jurisdiction over Puerto Rico also released a bill that would not include bankruptcy but would create a financial oversight authority for the commonwealth and make $3 billion of unallocated Affordable Care Act funding available to Puerto Rico.
