Congress speeding toward battle over Puerto Rican debt

Speaker Paul Ryan (R-Wis.) has elevated debt relief for Puerto Rico to the top of the congressional agenda in 2016.

Officials in Puerto Rico implored Congress for action before the holiday recess, warning that they are faced with either paying their debts or keeping critical public services functioning.

{mosads}Despite those warnings, help for Puerto Rico did not make the cut in the $1.1 trillion omnibus bill that Congress passed in December.

Puerto Rico Gov. Alejandro Garcia-Padilla (D) blasted Congress for failing to include language in the omnibus package, accusing lawmakers of acceding to hedge funds invested in the island’s debt. 

“By not acting now, Congress has opted for the U.S. Commonwealth to default on its obligations and unfold into chaos,” he said in a statement. “Once again Wall Street has demonstrated its control over Congress; Wall Street rules Congress.”

In an effort to tamp down Democratic grumbling and ward off a potential revolt, Ryan made a public commitment to act on the matter in the first three months of 2016.

“I am instructing our House committees of jurisdiction to work with the Puerto Rican government to come up with a responsible solution by the end of the first quarter of next year,” he said in a statement one day after the omnibus was unveiled.

But while Ryan has committed to act, the parties remain deeply divided over what to do, and it’s an open question whether the Speaker’s March 31 deadline will be sufficient.

Garcia Padilla has reason to be anxious. He has warned that Puerto Rico will have a tough time coming up with $957 million owed on interest payments on Jan. 1, not to mention another $422 million owed May 1.

But for now, Ryan’s statement appeared to have quelled restless Democrats — all but 18 House Democrats voted for the spending bill. 

“I’m delighted that he made that statement, I’m very grateful to Speaker Ryan. He’s been one of the few good shining lights in all of this,” said Rep. Luis Gutierrez (D-Ill.), who nonetheless opposed the omnibus for its lack of Puerto Rico relief, among other things. 

Lawmakers will have just a few months, at best, to find a solution to the debt debate.

Puerto Rico first raised the warning flag in June, when Garcia Padilla said publicly that the island would not be able to pay back all its debt. Years of a struggling economy, a shrinking population, and heavy borrowing has left the territory with a debt load of roughly $70 billion, and little revenue to pay it back. 

Democrats argue that giving Puerto Rico bankruptcy power is critical, and island officials have made it their top ask of Congress. The White House has also backed that approach, saying a restructuring of Puerto Rico’s debt is inevitable and should be done in an organized way through bankruptcy.

But Republicans have resisted that approach, questioning whether it is fair to rework contracts via bankruptcy after years of fiscal mistakes by local officials.

A trio of Senate Republican chairmen unveiled legislation earlier this month that would give Puerto Rico $3 billion in federal relief, and also establish a new independent authority to oversee the island’s finances.

Some Republicans have argued that average investors could be hurt by Puerto Rican bankruptcy, given the bonds’ place in a host of mutual funds. And hedge funds that bought into the island’s debt have hired a host of lobbyists and DC professionals to push back strongly against any attempt to let the territory shake off some of that debt. 

Democrats are clearly eager to take action. The day before lawmakers left town for the holiday break, a host of heavyweight Democratic senators unveiled their plan to help alleviate the island’s troubles temporarily.

The bill, offered by Senate Minority Leader Harry Reid (Nev.), as well as Sens. Charles Schumer (N.Y.), Richard Blumenthal (Conn.) and Elizabeth Warren (Mass.), would protect Puerto Rico from creditor lawsuits until Ryan’s March 31 deadline.

House Minority Leader Nancy Pelosi (D-Calif.) attempted to bring up similar legislation on the House floor just before the chamber voted on the omnibus funding bill in its last vote of 2015. Republicans rebuffed her.

Meanwhile, in Puerto Rico, the government is struggling to rein in costs. After strikes by some public workers, the island government paid out about $120 million in bonuses to public employees, as required by law.

When push comes to shove, Garcia Padilla has been adamant about where he wants to put the island’s dwindling funds.

“I was elected to protect the people of Puerto Rico,” he said earlier this month. “If anyone puts me into a position from selecting to pay a creditor, or a policeman, a teacher, a firefighter, I will pay the policeman, teacher or firefighter. There’s no doubt about it.”