Puerto Rico Bill Faces Unclear Fate as House Debate Nears

  • Republican leaders to decide whether to allow any amendments
  • Bill must clear high ‘hurdles’ on House floor, says Grijalva

Puerto Rico Debt Deal Faces Hurdles

The U.S. House plans to vote next week on a proposal to address Puerto Rico’s debt crisis, but it’s not clear the measure has enough support to pass despite the backing of Speaker Paul Ryan and Minority Leader Nancy Pelosi. 

“It still has some hurdles,” said Representative Raul Grijalva, the top Democrat on the Natural Resources Committee, who backs the bill even though he says it’s imperfect. “I think it can pass, but it’s going to be a difficult process.”

If the bill can’t clear the House, it would leave Puerto Rico and its bondholders in limbo with no clear road ahead on how to keep the island’s government functioning ahead of a likely July 1 default on a $2 billion debt payment.

House leaders still want to move ahead with a vote next week as they try to figure out how to cobble together votes to pass the legislation.

One question for Republican leaders is whether to allow debate on any amendments, and, if so, which ones. Leaders may be tempted to avoid any surprises or complications by holding a simple up-or-down vote with no amendments, but that may not bring enough lawmakers on board.

For a Bloomberg Government summary of the bill, click here.

The bill, approved last week by the Natural Resources Committee, has been attacked from two sides: by conservatives who oppose anything resembling a bailout of Puerto Rico, and by liberals, including Democratic presidential candidate Bernie Sanders, who reject restrictions on the island’s government.

The legislation, H.R. 5278, would create a seven-member board to manage a restructuring of Puerto Rico’s $70 billion debt and oversee the island’s finances. The control board could ask a judge to order a forced restructuring if the commonwealth’s government can’t reach a deal with bondholders. The board could enforce balanced budgets for Puerto Rico’s government and recommend sales of assets.

For more on the Puerto Rico debt crisis, click here.

Treasury Secretary Jacob J. Lew said this week he was lobbying lawmakers on the bill even as he was en route to Seoul, South Korea, for economic talks. He has been warning Congress that the proposal must be “protected” from significant changes when the House considers it. Natural Resources Chairman Rob Bishop of Utah has said he is convinced that can happen, although he has suggested Congress might not meet the July 1 deadline.

Before the bill reaches the House floor, it will pass through the Rules Committee, which will help decide how to proceed on amendments. Rules Committee Chairman Pete Sessions on Friday set a 10 a.m. Tuesday deadline for members to offer amendments.

Blocking any amendments during the floor debate would prevent “poison pills” from being added that could scuttle the measure, Grijalva said.

But many Democrats say they will have trouble voting for the current version of the bill, unless they can try to strip out a provision allowing Puerto Rico’s minimum wage to be reduced for young workers. They unsuccessfully tried to eliminate that provision during the committee debate.

"I think if Democrats aren’t able to lay out what they think are improvements to the bill it would jeopardize some votes,” Grijalva said.

Republican Amendments

If Democrats are granted votes on amendments, Republicans will almost certainly make their own demands, including some proposals that could ultimately kill the bill entirely.

Before the Natural Resources panel approved the bill on a 29-10 vote, several Republicans tried unsuccessfully to change it in ways that Bishop and Grijalva warned could doom the plan. An amendment offered by John Fleming of Louisiana would strip the bill of a temporary moratorium on lawsuits over Puerto Rico debt. Fleming said that provision would be unfairly “picking winners and losers” among the island’s creditors.

Another offered by Tom McClintock of California would exempt general obligation bondholders -- who hold $18 billion of Puerto Rico’s bonded debt -- from the bill’s provisions, including forced restructurings.

A proposal by Thomas MacArthur of New Jersey would state that the bill applies only to Puerto Rico and not other U.S. territories. A congressional aide who sought anonymity to discuss the matter said the Obama administration has expressed concern that the measure could be open to court challenges if it doesn’t apply uniformly to U.S. territories.

No Bailout

The bill contains no taxpayer funds to cover debt payments. Ryan has been stressing that repeatedly with his party’s rank and file, amid assertions by some Republicans and outside groups that it is a bailout. Ryan got backing from the nonpartisan Congressional Budget Office, which said Friday that the measure would have no effect on the federal deficit.

Some Republicans also have expressed concern that the measure might create precedents for financially troubled U.S. municipalities and states.

The proposal “addresses Puerto Rico’s fiscal crisis at no risk to taxpayers, giving the territory the opportunity to make much-needed reforms,” Ryan’s office said in a statement this week. “The only risk to taxpayers comes if we do not pass this plan.”

Even if the bill passes the House, it still faces potential snags in the Senate.

Senate Majority Leader Mitch McConnell said this month he wants to put a House-passed measure directly on the Senate floor, and Senate Democratic Leader Harry Reid has said he’s not taking a position on the measure at this time.

Labor Secretary Thomas Perez and Cecilia Munoz, director of the White House Domestic Policy Council, said in an opinion piece supporting the bill on the Univision website that “without legislation, creditor groups may run to the courthouse to file lawsuits against Puerto Rico to try to take its revenues and its assets.”

While the proposal would require funding of pensions, “without legislation, Puerto Rico’s pensions stand last in line, imperiling the retirement security of hundreds of thousands in Puerto Rico,” they said.

Sanders Plan

Sanders plans to weigh in next week with an alternative that would let the Federal Reserve provide the island with emergency loans and bankruptcy protections. It would create a seven-member public corporation to help facilitate a debt restructuring and bankruptcy filing, with six of the corporation members selected by island officials. It also would protect pensions of commonwealth residents, provide $10.8 billion over five years to rebuild roads and bridges, and allow the island to get payments under Medicare and Medicaid that are on par with U.S. states.

“It is morally reprehensible that Wall Street vulture funds are demanding that Puerto Rico fire even more teachers, close more schools, cut pensions and slash the minimum wage so that they can reap huge profits off the misery of the people of Puerto Rico,” Sanders said in a statement.

Other Democrats led by Senator Robert Menendez of New Jersey are advancing a proposal that also would give much more control over the process to Puerto Rico’s government. The territory’s governor would develop a five-year fiscal plan subject to a federal oversight board’s approval. There would be no restructuring until Puerto Rico’s legislature votes to “opt in” to such a process, and top officials in the commonwealth would make many of the control board’s appointments.

‘Bad Bill’

Menendez told reporters earlier this month that he wouldn’t agree to speed up a vote on legislation without an agreement to consider some amendments.

“I don’t believe in being jammed on a bad bill,” Menendez said, adding that while he doesn’t take the July 1 deadline lightly, it shouldn’t “be the end-all and be-all.”

Congress already blew past one debt payment deadline May 1, when the island defaulted on $370 million in bond payments. The heftier $2 billion payment by Puerto Rico comes due July 1, and Governor Alejandro Garcia Padilla has warned that the commonwealth doesn’t have the money to make that payment in full. That amount will include more than $700 million in general-obligation bonds that are guaranteed repayment under the island’s constitution.

The next major deadline is January, when general-obligation interest is due once again.

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