House Puerto Rico Bill Fate Unclear Ahead of Two-Day Markup

  • Many Republicans say plan still looks too much like a bailout
  • Committee releases latest draft in effort to win support

House Republicans were still wrangling Tuesday over their proposed bill to help Puerto Rico cope with its $70 billion debt, amid signs that many conservatives remain opposed to provisions they say look too much like a bailout.

The House Natural Resources Committee is scheduled to hold a hearing on the measure Wednesday morning and a two-day markup starting in the afternoon, although it delayed the afternoon meeting by an hour to accommodate delays in releasing the latest version of the bill.

Those delays underscore the eleventh-hour battles being waged over details, including the composition of a new federal control board, the process to allow some of the territory’s debt to be restructured, and whether creditors could be forced to accept less money for their claims.

Many House Republicans are still balking over concerns that the revised bill will weaken the control board’s authority in an effort to overcome Democratic objections, said a lobbyist opposed to the measure who received a preview of the bill. The opposition means that the bill may have trouble even moving out of committee, said the lobbyist, who spoke on the condition of anonymity.

Senate Support

Even as House Republicans remain divided over the measure, the No. 2 Senate Republican, John Cornyn of Texas, said he backs the House bill’s approach on Puerto Rico. He also said he sees the Senate taking action on it if the House can pass it.

Cornyn said, in his view, it is the "opposite of a bailout" because taxpayer money isn’t involved. He also warned that if Congress doesn’t act on a bill, the situation in Puerto Rico could spiral downward.

House Speaker Paul Ryan last fall gave lawmakers until March 31 to come up with a plan to help Puerto Rico with its debt crisis. But the bill being offered by Natural Resources Chairman Rob Bishop of Utah may be headed for a rocky reception by Ryan’s own rank-and-file Republicans, and he may have to rely more on Democrats for passage.

"It is the island’s best shot to mitigate its financial collapse and future calls for a bailout, which would be untenable," Bishop said in a statement Tuesday. "Congress must act now to avoid a humanitarian crisis that will severely impact 3.5 million Americans living in Puerto Rico and millions of Americans on the mainland."

In his own statement, Ryan said the bill will protect taxpayers from bailing out Puerto Rico.

"Congress has a constitutional and financial responsibility to bring order to the chaos that is unfolding in the U.S. territory—chaos that could soon wreak havoc on the American bond market," Ryan said in a statement.

Representative Bill Flores, who chairs the Republican Study Committee that represents a broad swath of House conservatives, put out a conciliatory statement Tuesday evening, but stopped short of endorsing the bill. 

"We are still reviewing the updated legislative text, but we are encouraged that there appear to be some improvements," he said, without offering any specifics.

Contentious Provisions

A draft version circulated two weeks ago had drawn fire from both sides of the aisle. In negotiations since that have included the White House, Democrats sought to scale back of some of the powers of a proposed federal oversight board. House conservatives are opposed to measures that would allow a court-ordered restructuring of the territory’s debt.

The revised bill boosts the number of members of the control board from five to seven, changes how the members are appointed and amends the duration of the board’s authority. Puerto Rico’s nonvoting delegate, Pedro Pierluisi, a Democrat, said Tuesday the new version contains "substantial improvements."

"The oversight board section of the bill has been dramatically improved in terms of substance and clarity," he said in a statement, adding that he is not ready to formally announce his support for the bill because it may be modified during the committee’s meeting.

Another contentious provision is whether creditor lawsuits can be put on hold while Puerto Rico is under federal oversight and its debt is being sorted out.

The bill also includes a creditor collective action provision that could allow bondholders to vote on whether debt should be altered. If enough investors agree to modify the debt, then it could go forward. Investors have been asking Congress to include a creditor action clause in the legislation.

The new draft comes after Puerto Rico Governor Alejandro Garcia Padilla last week signed into law the territory’s unilateral debt-moratorium bill that allows him to suspend payments to investors. The revised House bill would severely limit those debt-moratorium powers, requiring Puerto Rico to obtain consent from creditors before imposing a moratorium.

Emergency Period

The governor on Saturday declared an emergency period for the Government Development Bank -- which lends to the commonwealth and its agencies and serves as its fiscal agent -- to preserve its dwindling cash, create a bridge bank to take on some liabilities and begin a receivership process. Garcia Padilla declined to place a moratorium on the bank’s debt payments. It owes investors $422 million by May 1.

Puerto Rico, hedge funds, municipal mutual funds and bond-insurance companies have been negotiating how to reduce the island’s $70 billion debt load as Washington lawmakers have been working on legislation to address the commonwealth’s financial problems. 

Puerto Rico’s latest offer to its creditors would cut its $49.3 billion of tax-supported debt to between $32.6 billion and $37.4 billion and reduce the amount of potential losses for creditors compared with an earlier proposal.

Puerto Rico and its agencies acquired $70 billion of debt after years of borrowing to pay for expenses as its economy contracted. Garcia Padilla in June 2015 said the island was unable to repay all of its obligations on time and in full. Two agencies have missed debt payments since then and the commonwealth and its agencies owe $2 billion on July 1.

The island’s 11.7 percent unemployment rate is more than double the U.S. average. Residents have been leaving at record numbers to find work on the mainland.

Under the proposed House measure, Puerto Rico would be allowed to lower its minimum wage in some cases to as low as $4.25 an hour for up to five years after passage of the bill. The current $7.25 minimum wage is seen as discouraging employment growth given the lower standard of living in Puerto Rico.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE