Tough road ahead for Puerto Rico debt bill

Lawmakers are racing to finish legislation that would save Puerto Rico from a debt crisis but remain at loggerheads over the details.

Democrats Tuesday praised efforts by the House Natural Resources Committee to craft a bill but also said they would not support the draft proposal in its current form.

{mosads}A central issue is how much power to hand to an outside fiscal oversight board that the bill would create. Republicans insist strict controls are needed to get the island’s finance back on track, while Democrats warn that going too far would undermine the authority of the Puerto Rican government.

That gulf in opinion looms large as Congress hopes to pass a Puerto Rico relief bill in the coming weeks, before the island potentially defaults on some of its $70 billion in debt.

Staffers and lawmakers involved in crafting the bill emphasize that it is very much a work in progress and likely will undergo significant changes between now and April 11, when it is expected to be introduced.

At the same time, they are hopeful that Congress will act with haste to pass the final product. 

Already it appears the House is unlikely to meet Speaker Paul Ryan’s (R-Wis.) March 31 deadline to produce a Puerto Rico bill, but a more significant threat is the possibility the island defaults on upcoming bond payments beginning in May.

Obama administration officials have expressed confidence the island will not be able to make those upcoming payments, given the island’s economic struggles.

Under the current timeline, the House Natural Resources Committee plans to unveil its Puerto Rico bill on April 11, followed quickly by a hearing on April 13 and a markup session just days later.

The working assumption among staff is that the House will act first on any Puerto Rico legislation, followed by the Senate.

Draft versions of the bill would establish an outside oversight board that is within the government of Puerto Rico but not controlled by the governor or island legislature. The board would have the power to require audited financial statements from island agencies and could force a budget on the island if Puerto Rican officials cannot pass one that balances. 

In turn, the bill would give Puerto Rico the power to restructure some of its $70 billion in outstanding debt in court.

However, that restructuring would only be an option after the island turned over audited financial statements to the board, passed a budget and sat down for voluntary debt negotiations with creditors.

Republican committee staffers say the restructuring should be seen as a last resort for the island, while Puerto Rican officials and those from the administration argue it should be central to any plan. 

There are other major unresolved questions about a proposal. An earlier draft had placeholder text in several areas, including a provision that would impose a stay on all lawsuits against Puerto Rico by its creditors. The committee said such a stay is “highly complex and sensitive” and will likely need “additional refinement” before it is finished, according to a summary of the bill.

Lawmakers involved in the negotiations are trying to strike a difficult balancing act in producing a bill that does not lose significant support from either the right or the left. As such, they are trying to draft a bill that places new fiscal requirements on Puerto Rico while also giving the island the ability to restructure some of its debt if necessary.

House Natural Resources Chairman Rob Bishop (R-Utah) has been adamant that he wants bipartisan input on the legislation. But a big question is whether a compromise package can be found that appeals to both parties.

House Minority Leader Nancy Pelosi (D-Calif.) praised the “good faith” from Republicans on working on the matter but said the current product is “far from what Democrats can support.”

However, she also vowed to continue working with Republicans, with a goal of passing “bipartisan, consensus legislation.”

After an initial discussion draft was released earlier this month, Puerto Rican officials aired significant criticisms. In particular, they were incensed by the push to establish an outside control board that would help monitor and steer the island’s finances.

Puerto Rico Gov. Alejandro García Padilla (D) called the oversight plan “the assassination of Puerto Rican democracy” and said he would go so far as to challenge it in court.

Republican staff working on the proposal are confident it will survive legal scrutiny, noting the District of Columbia faced similar oversight in the 1990s.

Puerto Rico’s voice in Congress, Del. Pedro Pierluisi (D), also raised concerns about the oversight board. While supportive of the concept, he said the current proposal hands “anti-democratic powers” to Puerto Rico overseers. He has requested more than 50 changes to the bill. 

Conservative groups are tracking the development of the bill closely.

Heritage Action, the political arm of the conservative Heritage Foundation, said Tuesday that Congress should not authorize any form of “bailout” for the island, including “coercive debt restructuring.”

“Conservatives must ensure the bill would not set any bad precedents by retroactively changing the terms of contracts or reversing payment prioritizations,” said Michael Needham, the group’s CEO.

The discussion draft does include some provisions aimed at winning over conservatives. For example, the bill would exempt Puerto Rico from paying the federal minimum wage to young temporary workers. Groups like Heritage had argued that letting Puerto Rico pay a lower minimum wage could help its finances and more accurately reflect the economic necessities on the island.

The bill would also bar public employees in Puerto Rico from going on strike. 

The Republican Study Committee, which represents dozens of House Republicans, has also said it would oppose any bill that would include “forced restructuring.”