Puerto Rico pleads case to Congress as default looms

Puerto Rican officials struck a dire tone about the island’s fiscal state before lawmakers Tuesday as the territory flirts with a catastrophic default.

On the same day Puerto Rico was due to make a $355 million payment on its general obligation bonds, island officials were in Washington again urging lawmakers to provide support to the debt-burdened territory.

{mosads}“Let us be clear, we have no cash left,” said Gov. Alejandro Javier García Padilla before the Senate Judiciary Committee. “The emergency measures we have taken to avoid default and maintain essential services are unsustainable.”

Puerto Rico faces a flagging economy and massive debts, and even as Padilla testified, it was unclear whether the territory would be able to make Tuesday’s payment. After testifying, the governor told reporters he believed the island would be able to work out a payment using extreme measures, but the details remained incomplete.

“There’s no more tricks to be able to sustain the essential services to the people of Puerto Rico and pay debt in the future,” he said.

Roughly an hour after Padilla testified, Puerto Rico announced it was able to make Tuesday’s payment, but only by using funds that had been set aside for other debt obligations.

While the fiscal drama ramped up in Puerto Rico, the debate in Congress remained largely in the same place it has been for months. As Puerto Rican officials and Democrats push for assistance, primarily through allowing Puerto Rico to use bankruptcy laws similar to how states do, Republicans are showing little interest in that course of action.

Sen. Chuck Grassley (R-Iowa), who chairs the panel, criticized Puerto Rico for years of fiscal mismanagement that has led to its current problems and said the island has not been sufficiently forthcoming with Congress on the state of its finances.

He also noted that many Americans, including 16,000 people in his home state, have invested in Puerto Rican debt through index funds and could be harmed by a bankruptcy.

“These folks aren’t vultures. They’re middle-class Americans that know little about Puerto Rico’s finances,” he said.

Grassley questioned giving Puerto Rico access to the bankruptcy code in light of that and instead has pushed for other steps to right the island’s finances, including a federal board to step in and help steer the territory back to better budgeting.

“Chapter 9 [of the bankruptcy code] cannot address the root causes of fiscal problems, but instead pushes them off to future generations,” he said.

Investors who hold Puerto Rican debt are also pushing back on the bankruptcy option. But Democrats argued that, given the dire state of the island’s economy, expecting it to fix matters simply by trimming its budget is unrealistic.

“Puerto Rico cannot pay debts that come due. That is the definition of insolvency,” said Sen. Richard Blumenthal (D-Conn.). “I’m open to any proposal that will actually solve the problem. What is essential is that we act.”

Rep. Pedro Pierluisi (D), the territory’s nonvoting member of Congress, chastised lawmakers Tuesday for failing to act.

“Five congressional hearings are enough,” he said. “It is time for Congress to legislate.”

Puerto Rico’s finances have drawn attention in Washington since this summer, when Padilla declared the island could not pay back all the money it had borrowed. The territory only made a partial payment on a $58 million bill due in August, but that debt had been issued by an island corporation. Tuesday’s payment was seen as more significant because it was on debt issued by Puerto Rico itself, and its repayment is guaranteed in the territory’s constitution.

While it is unclear when or if Congress will pass legislation to help Puerto Rico, Padilla said that without aid, the island would soon face even tougher choices.

“If anyone puts me into a position of selecting to pay a creditor or a policeman, a teacher or a firefighter, I will pay the policeman, teacher or firefighter. There’s no doubt about it,” he said. “I will do whatever in my powers to protect the essential services to the people of Puerto Rico.

“This is a distress call, and it’s serious,” he added.