WASHINGTON – Puerto Rico Gov. Alejandro García Padilla, who will soon decide whether the commonwealth will default on a debt service payment, and Pedro Pierluisi, the territory's representative in Congress, will headline a Senate committee hearing on Tuesday to address the commonwealth's fiscal and debt crisis, as well as possible fixes.
The Senate Judiciary Committee is holding the hearing "to help committee members and the public identify and gain a better understanding of the root cause of Puerto Rico's fiscal problems," according to committee chair Sen. Chuck Grassley, R-Iowa.
The hearing is the same day Moody's Investors Service expects Puerto Rico's Government Development Bank to default on debt service payments for $355 million of notes. Moody's said $273.3 million of the $355 million is backed by the commonwealth's general obligation guarantee, with the remaining $81.4 million not backed with the same GO protections. Puerto Rico is more likely to default on the non-GO portion of the debt, Moody's said, but given the island's severe liquidity challenges, the commonwealth could default on the entire payment.
García Padilla said in a Monday press conference that he will decide either Monday afternoon or on Tuesday morning whether the commonwealth will make the GDB bond payment.
"There are creditors of the Government Development Bank that continue to negotiate with the bank today," García Padilla said. He added the timing of his decision will depend on the status of those negotiations as they move forward.
Pierluisi and García Padilla have repeatedly said Congress should extend Chapter 9 bankruptcy protections to Puerto Rico's public authorities to help with situations like the payments due Dec. 1.
Pierluisi introduced a Puerto Rico bankruptcy bill in the House earlier this year and Sens. Richard Blumenthal, D-Conn., and Chuck Schumer, D-N.Y., introduced a companion bill in the Senate in July. Both bills have remained stagnant since being referred to their chamber's respective judiciary committee and Republicans have made it clear they do not intend to pursue the legislation.
In addition to Chapter 9 protections, Pierluisi and other Puerto Rico officials have asked the federal government to address issues like insufficient Medicaid support on the island and the absence of an Earned Income Tax Credit for people living in Puerto Rico.
Pierluisi and García Padilla are scheduled to speak in the first of two panels Tuesday. The second panel will feature Richard Ravitch, a public finance veteran who has previously advocated for Chapter 9 bankruptcy in Puerto Rico that would apply to the entire commonwealth. Ravitch's panel will also include: Carlos Col-n de Armas, a professor of finance at the University of Puerto Rico; Alex Pollack, a resident fellow at the DC-based American Enterprise Institute; Stephen Spencer, managing director at Houlihan Lokey in Minneapolis; and Richard Carri-n, executive chairman of Banco Popular in San Juan.
Tuesday's hearing will be the third by a Senate committee on Puerto Rico's fiscal issues. In previous hearings, lawmakers asked the García Padilla administration to provide Congress with audited financial statements for fiscal 2014, which the governor said may take at least another few months.
In the last hearing, held by the Senate Committee on Natural Resources, a Treasury Department official and other witnesses discussed Treasury's four-part proposal urging Congress to give Puerto Rico territory-wide Chapter 9 protections as well as federal funding to bring the commonwealth's accounting and financial disclosure reporting into the 21st Century. The plan would also expand Medicaid funding for the island's residents and have Puerto Rico officials agree to increased federal government oversight.
