WASHINGTON — The Natural Resources Committee has indefinitely delayed the vote on the Puerto Rico bill that was planned for Thursday as its members, Treasury Department officials and other stakeholders continue to try to address the concerns raised about the measure and revise provisions so they can get enough votes to pass it.
Rep. Raul Grijalva, D-Ariz., the top Democrat on the committee, told reporters Wednesday night that the vote has been delayed.
"It's still a round hole and a square peg right now," he said. "[Given] the gravity of the situation for Puerto Rico, if more time is needed we should take advantage of that," he added. "Both sides have moved to give more time to see if we can come up with a truly bipartisan solution."
Pedro Pierluisi, Puerto Rico's non-voting member of Congress told reporters, "On the Republican side, some still do not support having any kind of debt restructuring. The question is whether in the coming days the bill can be refined to make sure the restricting mechanism works as well as a clear cut majority of the [Republicans] supports the bill as drafted."
Pierluisi added, "I'd say it's more about Treasury giving the blessing on the debt restructuring mechanism. I'm saying Treasury and the experts must assure me that the debt restructuring mechanism works. The only way I can support the board is if the debt restructuring mechanism works."
Pierluisi and Grijalva made their remarks after committee members met just after 5:00 pm to give opening statements for the vote, which had been planned for 10:00 AM on Thursday. All but one member present put his or her statement in the record rather than reading it.
The delayed vote was not a total surprise given that it became clear during the hearing that committee lawmakers and those who testified, including Antonio Weiss, a counselor to Treasury Secretary Jack Lew, were still critiquing the bill and asking for changes in to it.
The bill would create an oversight board that would have the power to require Puerto Rico to balance its budgets, address pension liabilities, and file restructuring petitions on behalf of the commonwealth and its entities.
John Miller, managing director and co-head of fixed income for Nuveen Asset Management who testified at the hearing, sought to debunk the notion that the legislation would hurt the overall municipal bond market, saying it would have "a calming effect."
Conversely, the absence of a bill for the commonwealth struggling with roughly $70 billion in debt and $46 billion in unfunded pension liabilities could hurt the market, he said.
Susheel Kirpalani, a partner with Quinn Emanuel Urquahart & Sullivan in New York who represents senior COFINA bondholders, said his clients support the legislation, despite the restructuring provisions that have drawn criticism and concerns it is Chapter 9 bankruptcy under another name.
"[The bill] has the right framework and critically, it will actually encourage voluntary restructuring with creditors," Kirpalani, who has experience with municipal bankruptcies in Jefferson County, Ala and Detroit, said. "I have a lot of experience with Chapter 9, this is no Chapter 9. The difference here is the control board and that difference makes it absolutely immune from being considered Chapter 9."
The board formulates the restructuring plan and negotiates with creditors instead of leaving decision-making authority with the local government, he added.
Andrew Kent, a Fordham Law School professor with constitutional expertise, addressed other concerns about the bill's constitutionality and possible violations of the Uniformity Clause in the U.S. Constitution's bankruptcy section. That clause tasks Congress with creating uniform laws on the subject of bankruptcies throughout the United States.
The bill is instead drawing its authority from Congress' power under the Constitution's Territorial Clause, which gives Congress the ability to legislate for the territories. Kent vouched for that way of implementing the bill and said past concerns about the Uniformity Clause would not apply in this case.
While the witnesses showed support for larger aspects of the bill, Weiss seemed to set the tone for the hearing when he said that there has been "significant progress in designing the elements of the bill" but "more work is required to ensure a responsible solution to the escalating crisis in Puerto Rico."
Weiss said those discussions were scheduled to take place immediately after the hearing and would include Treasury officials along with House Natural Resources Committee chair Rob Bishop, R-Utah, and his staff. Bishop and his staff have taken the lead on holding hearings and facilitating negotiations over a solution for Puerto Rico.
"The time to act is now," Weiss said. "We are past every deadline."
Resident Commissioner Pedro Pierluisi, Puerto Rico's representative in Congress, while still wary of certain portions of the bill related to restructuring, said he wants to make sure the final bill achieves its intended purpose of addressing the current crisis and helping to lay the foundation for a brighter future for Puerto Rico.
"Trust me, there are provisions in this bill that I dislike, and there are items not in the bill—like equity under Medicaid and refundable tax credits—that I believe should have been included," Pierluisi said. "It is easy to object to a bad provision in the bill, or to the exclusion of a good provision from the bill, and therefore to say "no" to the entire bill. But I respect those on both sides of the aisle who are looking at the bill holistically and working hard to get to 'yes.'"
As both Republicans and Democrats work toward resolving concerns about the bill before the scheduled vote, they will have to tackle several provisions on restructuring as well as provisions meant to spur economic growth where disagreement was apparent.
Under a collective action clause added to the bill, the majority of creditors in number and two thirds of creditors in dollar amount of a particular class voting can bind hold-outs to a restructuring plan. The two thirds agreement was meant to balance creditor interests who did not want to be unfairly bound in restructuring discussions while freeing Puerto Rico and its authorities from needing to secure too large a percentage to move forward with restructuring.
But Weiss said that collective action clause "imposes an unworkable, mandatory process that will only delay the ability to reach a solution."
He added that a temporary moratorium on litigation over the debt of Puerto Rico and its authorities that the bill contains to give breathing room for restructuring may be too limited. The moratorium would apply retroactively to actions begun on or before Dec. 18, 2015 and would continue until the earlier of Feb. 15, 2017, or the date that the first restructuring case is filed.
"A stay must … allow for a transition without interruption from voluntary negotiations to a period of restructuring, if needed," Weiss said. "There is a risk the stay may terminate prior to the commencement of a restructuring, resulting in a chaotic race to the courthouse."
Rep. Nydia Velazquez, D-N.Y., also criticized a part of the bill that would require at least five votes of the seven-member, presidentially appointed oversight board to support the filing of a bankruptcy petition on behalf of a the commonwealth or one of its authorities, saying it is too high of a hurdle to meet.
Eleven Senate Democrats, in a joint release from Senate Minority Leader Harry Reid, D-Nev., also said they have "concerns about whether the debt restructuring process provided for in the bill is workable."
But criticism of the restructuring provisions was not reserved to Democrats, as several Republican legislators drew comparisons between the bill's plan for resolving debt and Chapter 9 bankruptcy. Reps. John Fleming, R-LA, and Tom McClintock, R-CA, argued that even though voluntary restructuring is a necessary precursor to debt solutions through a court under the bill, creditors can ultimately be forced to accept debtor terms.
"I would suggest to you that this is a framework of bankruptcy and it will result in a bailout," Fleming said.
McClintock added that the bill could have a wider effect, asking "If we rewrite these laws for Puerto Rico, why wouldn't we also rewrite them for states?" The bill would likely cause interest rates on municipal issuance to rise and lead to taxpayers having to shoulder the higher cost of those payments, he added.
"This introduces a very dangerous precedent into borrowing," McClintock said.
A final contentious "bucket" for more discussion as some legislators called it contained the miscellaneous sections of the bill that try to add economic growth incentives like a lowered minimum wage the territory's government could opt into.
The minimum wage portion that is included was almost unanimously panned during the hearing. It would eliminate the federal minimum wage for temporary workers up to 25 years old, instead instituting a wage of $4.25 an hour.
The bill leaves out past suggestions from Treasury to improve Puerto Rico's treatment under federal Medicaid and tax provisions, which Democrats, Weiss and Pierluisi urged the committee to include in the final version.
Several Democratic legislators, including Pierluisi and Velazquez, said the only thing the proposal would do is speed migration off the island to the mainland.
Simon Johnson, a professor of global economics and management at MIT, testified he would "be very concerned about the bill" if the governor opted into the minimum wage provision.
