Puerto Rico Bill Moves to Full House Despite Some Opposition

fleming-john-la-bl.jpg

WASHINGTON – Legislation designed to help Puerto Rico with its debt and fiscal crisis is moving to the full House after Natural Resources Committee members voted 29 to 10 to approve on Wednesday.

The House is likely to take up the bill after June 6 when it returns from its week-long Memorial Day recess, though House Minority Leader Nancy Pelosi said Wednesday that she hopes the bill will move "swiftly to the floor and … enactment." Senators have said they are waiting for House action on the bill.

Legislators are aiming to get a bill passed before Puerto Rico faces an approximately $2 billion debt payment on July 1. Puerto Rico Gov. Alejandro Garcia Padilla has said the commonwealth will default on that payment.

Committee chair Rep. Rob Bishop, R-Utah, who has spearheaded the extensive negotiations with legislators, administration officials, and other stakeholders, moved through roughly 32 amendments during the voting session, many of which were rejected.

The bill is the third version of legislation designed to help the commonwealth with its roughly $70 billion in debt and $46 billion in unfunded pension liabilities. The measure seeks to balance competing interests by creating a strong oversight board that would have the power to require balanced budgets and fiscal plans, as well as the ability to file debt restructuring petitions on behalf of the commonwealth and its entities in a federal district court as a last resort if voluntary negotiations do not succeed.

The bill's inclusion of a strong oversight board has worried Democrats and Puerto Ricans who fear it threatens local autonomy while its restructuring provisions have conservative Republicans worried about setting a dangerous precedent for financially troubled states.

The most contentious amendments offered on Wednesday came from Rep. John Fleming, R-La., who has been an active opponent of the legislation. The amendments tried to address ongoing concerns from the committee's conservative members who provided the 10 votes against the bill.

One unsuccessful amendment from Fleming would have made explicit in the bill that general obligation bonds backed by the Puerto Rican constitution have priority in any debt restructuring. The bill currently encourages the seven-member, presidentially appointed oversight board to respect the legal hierarchy that currently exists in the commonwealth but does not mandate the board do so.

Fleming said the oversight board could decide "to change the rules midstream" and ignore current law.

"The word 'respect' is a suggestion word," he said. "My fear is that we will see a repeat of the General Motors bailout where pensioners are placed before bondholders. That would increase borrowing costs for everyone."

Republicans on the committee have fought against the efforts of some Democrats and the Treasury Department to give pensions stronger standing in restructuring.

Pedro Pierluisi, Puerto Rico's non-voting member in Congress, said he opposed the amendment because he believes the board is "going to do the right thing."

Rep. Tom MacArthur, R-N.J, said he opposed the amendment because it doesn't let the control board do its job of sifting through the facts about the many creditors and debt issuances to determine a well-reasoned hierarchy.

"We cannot play judge and jury today and decide which group of bondholders stands at the front of the line," MacArthur said.

Bishop agreed, saying the oversight board needs to go over all of the commonwealth's financial information and then determine a priority for the debt.

That amendment from Fleming failed on a voice vote.

The Louisiana representative tried to introduce an amended version later in the hearing that would have inserted the words "comply with" instead of "respect" in regard to the board's task in abiding by the current legal hierarchy.

"This bill should require that those priorities be fully put in place and complied with rather than at the last minute through some shell game be moved about," Fleming said.

That revised amendment also failed.

Rep. Tom McClintock, R-Calif., introduced a similar amendment that would have exempted the roughly $18 million of general obligation bond debt from restructuring.

He argued that if Congress is willing to undermine the commonwealth's constitutional guarantee, it is more than willing to undermine a state's guarantee in the future. Including GO bonds in the bill will increase borrowing costs not just for high debt states like Illinois and California, but for every state and municipality hoping to borrow, McClintock said.

He told his colleagues voting against the amendment that they will have to admit responsibility for the increased costs.

While Fleming agreed with McClintock, others including MacArthur and Pierluisi again opposed the idea of giving more rights to GO bonds than were already in the legislation.

"This needs to fail for the same reason [the Fleming] amendment failed," MacArthur said. "I understand the intent, but we simply are not equipped to adjudicate between all the bondholders."

The amendment failed with 12 votes for it and 27 against it.

Another Fleming amendment that failed would have eliminated a moratorium on creditor litigation over Puerto Rico debt that would take effect upon enactment of the oversight board and could last until April 30, 2017 if the board and district court decide on extensions.

Members who voted against the amendment said the oversight board would not be able to do its job without the breathing room the moratorium provides.

Other amendments that proved more successful focused on better understanding the commonwealth's financial challenges and generating longer term ideas to solve them.

Reps. Don Beyer, D-Va., and Garrett Graves, R-La., introduced a successful amendment that would provide discretionary authority to the oversight board to investigate whether brokers and investment advisers either failed to disclose or misrepresented the risks of Puerto Rico securities to retail investors.

"While I'm sure most of the bonds … were brokered in good faith, there have been concerns," Beyer said. "[The amendment is] in the interest of investors but also in the interest of the Puerto Rico government seeking to return to the market."

Additional amendments that were adopted would increase the ability for an eight-member congressional task force to be created under the bill to study potential pro-growth opportunities on the island and how limited federal funds for health care may affect the commonwealth's fiscal situation.

For reprint and licensing requests for this article, click here.
Bankruptcy Puerto Rico
MORE FROM BOND BUYER