WASHINGTON – The House Committee on Natural Resources is moving forward with a bill to help Puerto Rico that loosens provisions regarding the oversight board and adding a new title for creditors but still keeps the temporary moratorium on debt litigation from an earlier version that drew criticism.
Rep. Sean Duffy, R-Wis., introduced the bill late Tuesday. It will be the subject of a Natural Resources Committee hearing on Wednesday and is expected to be voted on by the committee on Thursday.
The bill, which 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.
Puerto Rico is currently struggling with roughly $70 billion in debt and about $46 billion in unfunded pension liabilities. Last week, its government passed legislation that would impose a moratorium on debt payments ahead of looming deadlines in early May and July.
House Speaker Paul Ryan applauded the bill, saying, “Congress has a Constitutional and financial responsibility to bring order to the chaos that is unfolding in the U.S. territory — chaos that could soon wreak havoc on the American bond market.”
The main changes in the bill are in the board’s makeup, its power to unilaterally impose regulations on the commonwealth, and the required steps for an entity to undergo restructuring.
Despite the changes, the board would still only be able to file restructuring petitions on behalf of the commonwealth and its public authorities after the debtors tried to reach an agreement with their creditors through voluntary debt restructuring proposals and have provided the board with up-to-date financial statements.
Resident Commissioner Pedro Pierluisi, Puerto Rico’s representative in Congress, had criticized the previous draft of the bill but seemed more amenable to the revised version.
“Between the release of the first version of the bill and the release of the introduced version of the bill today, there have been intensive bipartisan discussions, with the goal of reaching principled compromises,” Pierluisi said in a statement. “As a result of this dialogue, the oversight board section of the bill has been dramatically improved in terms of substance and clarity.”
However, he said he still cannot formally commit to supporting the bill, saying it may be further modified before the Thursday’s markup.
Ryan said the bill “holds the right people accountable for the crisis” and shrinks the size of government while getting Puerto Rico on a path to fiscal health.
“Just as important for the long-term, this bill protects American taxpayers from bailing out Puerto Rico,” he added.
Rep. Rob Bishop, who chairs the Natural Resources Committee, said in a statement that the bill is Puerto Rico’s “best shot to mitigate its financial collapse and future calls for a bailout, which would be untenable.”
“If we get this right, we have an opportunity to put the people of Puerto Rico on a path to economic opportunity,” Duffy said in a statement. “However, if we do nothing, the American people will be on the hook.”
The bill proposes seven instead of five presidentially appointed members of the oversight board. It also broadens the number of people who would be recommending potential members. The president would now choose two individuals from those recommended by the House speaker, two from the Senate majority leader, one from the House minority leader, and one from the Senate minority leader. At least one of the two individuals chosen from the speaker’s list must have a primary residence or place of business in Puerto Rico. The earlier proposed process, which would have only had recommendations from leaders in the majority, was seen as too partisan.
The bill also eliminates a provision from the earlier version that gave the oversight board power to unilaterally implement recommendations and binding regulations. Pierluisi said the earlier provisions were “clearly inappropriate and anti-democratic.”
Rep. Nydia Velazquez, D-N.Y., cautioned against a new portion in the bill that would require five board members to vote for a restructuring petition before one could move forward.
“Given that four Board members will be appointed by Republicans, there is significant reason to believe that restructuring authority will never be granted,” Velazquez said. “This concern is compounded by section 601, a new provision, which adds a collective action clause to the bill. This clause requires two-thirds of creditors to voluntarily agree to restructure their debt, a hurdle that is not realistically achievable.”
Some controversial provisions of the bill mostly stayed the same, including a temporary moratorium imposed on litigation over the debt of Puerto and its authorities.
The temporary moratorium against litigation over the debt of Puerto Rico and its authorities 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.
The bill adds a collective action clause that whereby a majority of creditors in a given class would be provided a vote on debt restructuring.
It also retains provisions giving the board power to approve a fiscal plan and budget for the commonwealth if Puerto Rico’s government cannot create one that is acceptable. Pierluisi said on Tuesday that the board’s power over budgets and the fiscal plan are only a last resort and otherwise give Puerto Rico’s elected leaders ample time to submit acceptable proposals.
As long as the oversight board remains in operation, the territory cannot, without board approval, issue debt or guarantee, exchange, modify, repurchase, redeem, or enter into similar transactions with respect to its debt.
Several other portions of the bill seek to put steps in place to assess the commonwealth’s fiscal health and lay groundwork for economic growth.
If the oversight board finds that a territory’s pension system is “materially underfunded,” it can require an independent actuary to evaluate the fiscal and economic impacts of its cash flows. The bill details what the analysis is to cover.
The bill also allows the governor, subject to the approval of the board, to designate a period of up to five years when employers in Puerto Rico must pay employees under the age of 25 as of the date of enactment a wage of at least $4.25 an hour.
Critics have said implementing a minimum wage below that of the one in the states will cause Puerto Rico’s population to further decline as people move to the mainland U.S. for higher paying jobs.
The bill would help revitalize Puerto Rico’s infrastructure by expediting permitting for “critical projects.” The governor would appoint a “Revitalization Coordinator” from nominees put forth by the oversight board who would help with this process.
