WASHINGTON — Lobbyists are pressuring lawmakers over a proposed bill to allow the territory’s authorities to declare bankruptcy, as a House panel prepares to hold a hearing on whether the territory should become a state.
Lobbyists battling over the PR bankruptcy bill, H.R. 870, were here last week to make their positions clear to House members considering the legislation.
Introduced earlier this year, the bill would allow cash-strapped Puerto Rico authorities, such as the Puerto Rico Electric Power Authority, to formally reorganize under court supervision similar to U.S. localities -- something they cannot do under current law.
Rep. Pedro Pierluisi, D-P.R., introduced the bill, which is pending before the House Judiciary Committee has also received support from Puerto Rico Gov. Alejandro García Padilla. The bill is opposed by funds that invest in Puerto Rico bonds, including Franklin Municipal Bond Group and OppenheimerFunds, Inc.
Proponents favor the legislation because it would give Puerto Rico the same powers afforded to all other U.S. states. Opponents say the bankruptcy process is filled with uncertainty and contend a receivership would be a better option.
Gov. Padilla was in town urging support for the bill as written. Another proponent, former New York Lt. Gov. Richard Ravitch, was pushing to expand the bill to also allow Puerto Rico to restructure its general obligation debt. Ravitch told The Bond Buyer that he has been telling lawmakers and anyone else who will listen that Puerto Rico needs authority to restructure its GO bonds. Simply restructuring the PREPA debt will not fix the problem because Puerto Rico has borrowed so much money it cannot pay it all back, he said.
"I do not believe the economy in Puerto Rico can prosper without a significant restructuring of all the debt," he said.
Ravitch is a board member of the public policy interest group The Volcker Alliance, but said he is not representing that group or any other interest in the Puerto Rico debate. He has been involved with distressed municipalities ever since New York City financial crisis of the 1970s.
On Wednesday, Pierluisi released a statement cautioning that Congress would not support the bill to allow the restructuring of GOs.
"To lobby to amend H.R. 870 to enable Puerto Rico to restructure its general obligation debt is unwise and unnecessary as a matter of public policy," said Pierluisi, the territory's resident commissioner who can introduce bills and vote in the judiciary and other committees where he is a member, but not with the full House.
The funds opposing the bill have sent letters to lawmakers warning that they will be hurting their constituents if they support the legislation, sources said.
Meanwhile, the House Natural Resources Committee's subcommittee on Indian, Insular, and Alaska Native Affairs will hold a hearing on June 24 on a bill that would provide a path to statehood for Puerto Rico. That bill, H.R. 727, would authorize a U.S. sponsored vote to be held in Puerto Rico within one year of its enactment. It would ask one question of the territory's populace: whether Puerto Rico should become a state.
Statehood would make Puerto Rico eligible for billions of dollars in additional annual federal funding. However, Puerto Rico's bonds would probably no longer be tax-exempt in all 50 states as they currently are. Votes of this kind are not new to the territory. In the most recent vote held in 2012, which was not federally sponsored and therefore not binding, the populace narrowly opted for statehood.
Dick Larkin, senior vice president and director of credit analysis at HJ Sims & Co. in Florida, said the outlook for statehood is grim and warned that subsequent hikes in federal income taxes would make Puerto Ricans pay far more than they do under their current system.
"Any people that believe statehood will be a panacea for Puerto Rico's fiscal stress are only fooling themselves," Larkin said.
Former Puerto Rico Gov. Luis Fortuño said the statehood bill is getting a hearing because Rep. Don Young, the Alaska Republican who chairs the panel, is a friend to Puerto Rico and remembers when Alaska was a territory prior to 1959.
Fortuño, now a partner at the law firm of Steptoe & Johnson here, said Puerto Rico could see its real estate values rise along with the economic stability that statehood could bring. "There is a level of certainty that goes with it," Fortuño said.
If the statehood question bill does pass, it will be a slow process: Pierluisi's timetable calls for statehood in 2021.
