WASHINGTON - Treasury Secretary Jack Lew's recommendation Tuesday to grant Puerto Rico municipalities and public entities access to Chapter 9 bankruptcy protection failed to convince Sen. Orrin Hatch, R-Utah, that the administration has the clear plan that's needed before Congress can act to help the territory.
While Hatch, the chairman of the Senate Finance Committee, "appreciates the Treasury Department's timely response, there is still no clear path forward as to how the Obama Administration will alleviate Puerto Rico's current debt stresses," a spokesperson for the senator said. "Simply advocating access to bankruptcy law does nothing to address the substantial, structural challenges that have plagued Puerto Rico for decades."
Lew's recommendation came in a letter responding to one Hatch sent July 17 asking the Treasury secretary to explain the Obama administration's positions on Puerto Rico.
"Puerto Rico needs an orderly process to address its liabilities" Lew wrote in response to Hatch. "Without our collective action, I am deeply concerned that a protracted and disorderly restructuring process will cause long-term damage to the health, safety, and financial well-being of the families living and working in Puerto Rico. For that reason, a central element of any federal response should include a tested legal bankruptcy regime that enables Puerto Rico to manage its financial challenges in an orderly way."
He added that a move by Congress to extend bankruptcy protections to the commonwealth "involves no federal financial assistance and is in no way a federal bailout," a response to concern raised by some politicians and interest groups that the federal government could be put on the hook for the island's approximately $72 billion in public debt that Gov. Alejandro García Padilla has said cannot be paid without restructuring.
Lew joins presidential candidates Hillary Clinton and Jeb Bush, among other politicians, in pushing for bankruptcy powers on the island. The White House has also said it supports congressional action on the issue.
Republicans in Congress have been reluctant to move forward without more planning outside of bankruptcy.
The Treasury secretary left several of Hatch's July 17 questions unanswered while focusing on the bankruptcy provisions, such as those asking whether the administration has considered appointing a special mediator or arbiter to work with the territory or whether the administration would consider exempting Puerto Rico from the federal minimum wage.
The Utah senator has said he is open to considering bankruptcy as an option, but his communications director, Julia Lawless, said Hatch felt Lew's response gave no indication of a good way forward for the troubled island.
She added Hatch plans to "continue the conversation" with the Treasury Department to create "responsible alternatives to help bring relief to the people of Puerto Rico."
Pedro Pierluisi, Puerto Rico's non-voting member of Congress who authored a bill pending in the House that would extend Chapter 9 as Lew and other have proposed, said in a statement he "welcomed" Lew's "well-reasoned defense" of his bill, HR 870, and its companion in the Senate, S. 1774.
Pierluisi's bill has been sitting in a House Judiciary subcommittee since March. The Senate bill has not moved from its Senate Judiciary subcommittee since it was introduced earlier this month.
In addition to bankruptcy, Lew also said that a "sustainable economic path" for the island should include a "long-term comprehensive plan that addresses the island's fiscal challenges," something Senate Judiciary Committee chair Chuck Grassley, R-Iowa, has said he would like to see before moving forward with a bankruptcy bill.
Gov. García Padilla recently established a working group that has said it hopes to have a five-year fiscal plan for the island by the start of September. The governor's office said in a statement that Lew's letter "validates" the plan the working group is creating.
