Treasury strikes balancing act on Puerto Rico relief

The Treasury Department is trying to thread a political needle in pushing a fix for Puerto Rico’s debt crisis.

A top department official warned lawmakers Thursday that the island is in need of “an immediate solution,” warning it will likely not be able to make debt payments due in May or July.

{mosads}What started as a recession has turned into a fiscal and liquidity crisis that shows signs of becoming a humanitarian one as well,” warned Treasury counselor Antonio Weiss. “Without action, this crisis will escalate.”

Testifying before the House Natural Resources Committee, Weiss laid out the administration’s two-pronged plan for Congress to help Puerto Rico get out from under its massive, unpayable debt burden.

The plan called for passing legislation granting the island the ability to restructure its debt — although Weiss stopped short of pushing for outright bankruptcy powers similar to those enjoyed by states. In conjunction, the envisioned bill would also subject Puerto Rico to heightened oversight from the federal government via a fiscal oversight board.

But things got tricky from there for Weiss, as the push for heightened oversight — a frequent demand of Republicans that argue years of fiscal mismanagement led Puerto Rico to its current sad state — bumped up against some Democrats wary of the federal government exerting excessive influence on the island.

In particular, some lawmakers of Puerto Rican descent, who contended that an overpowerful oversight board would simply handcuff an island already struggling, directly challenged Weiss.

“They’re saying that there’s a joint responsibility, but it seems to me that all of the responsibility is being weighed on the people of Puerto Rico,” said Rep. Luis Gutiérrez (D-Ill.).

Weiss said the administration’s vision for the board would be that it would be mostly made up of Puerto Ricans, and it would not include any elected officials and be “fully independent” of politics.

At the same time, Weiss struggled to convince some Republicans, wary of allowing Puerto Rico to not pay some of its debts, that the island simply cannot pay off all its debt and needs to be able to rework its obligations.

A few hours after Thursday’s hearing, the Republican Study Committee announced it would oppose any Puerto Rico legislation that included bankruptcy or “forced restructuring of debt.” The RSC represents a huge bloc of House Republicans, counting over 170 lawmakers among its members.

“Changing the rules mid-game would be unfair to Puerto Rico’s creditors who entered into these arrangements with agreed upon terms and would delegitimize future transactions,” said RSC Chairman Bill Flores (R-Texas). “Instead, Congress should consider pro-growth reforms that will spur economic development and investment in Puerto Rico.”

While some Republicans argued the government should be focused on boosting the island’s economy instead of trying to help it get out from under existing debt, Weiss said nothing can happen without fixing the debt problem first.

“Nobody’s going to put money to work in an economy that is in freefall,” he said.

Puerto Rico’s debt struggles have become a major priority on Capitol Hill in the last several months. Speaker Paul Ryan (R-Wis.) said at the end of 2015 he wanted to see the House produce a relief bill by the end of March.

Weiss made clear to lawmakers that inaction from Congress is not an option. He said the Treasury has been studying the matter for nearly a year, and legislation that grants debt restructuring alongside new oversight is the only “durable solution.”

“Anything that falls short of that will not provide a durable remedy,” he said.

No legislation has yet been produced in the House, but there were signs that the two parties were beginning to come together to at least look for a solution.

Rep. Raúl Labrador (R-Idaho), one of the House’s most conservative members and also a Puerto Rican, complimented Weiss’s efforts at the hearing.

“It sounds to me like you’re at least trying to find a solution,” he said. “I can tell the administration is at least acting in good faith.”

And Puerto Rico’s nonvoting delegate to Congress, Rep. Pedro Pierluisi (D), complimented Chairman Rob Bishop (R-Utah) for working with him on a solution.

“The notion that the people of Puerto Rico are not being heard,” he said, “is wrong.”

And from the administration’s perspective, Weiss too was hopeful there may soon be a fix proposed.

“There’s a sense of urgency,” he said. “If there’s a will there’s a way.”

This post updated at 3:51pm.