WASHINGTON – Congress postponed action on Puerto Rico's debt crisis to next year as the island's governor blasted U.S. legislators as pawns of Wall Street.
The House and Senate voted on Friday to pass a $1.1 trillion omnibus spending bill without adding provisions such as bankruptcy authority that were put forward by Democrats to help the territory deal with its $70 billion of debt. The approved bill, signed by President Obama Friday afternoon, only included two smaller measures related to Medicare funding on the island and a provision allowing the Treasury Department to use some of its budget to give technical assistance to the island's government.
"Once again Wall Street has demonstrated its control over Congress; Wall Street rules Congress," said Puerto Rico Gov. Alejandro García Padilla, referring to funds that hold Puerto Rico's debt and might suffer bigger losses under bankruptcy. "That power is clearly factored into the fundamental analysis of hedge funds and vulture funds that control our democracy."
He added the final omnibus bill shows Congress has "opted for the U.S. commonwealth to default on its obligations and unfold into chaos."
The bill separately freezes funding for the Internal Revenue Service at the 2015 level of $10.9 billion, $1.7 billion below President Obama's request for the agency. The IRS funding includes $290 million solely for taxpayer services and to improve fraud detection and prevention as well as cybersecurity. The omnibus also provides $1.6 billion to the Securities and Exchange Commission, $177 million below the president's request.
Negotiations between Democrats and Republicans to include something more substantial for Puerto Rico, like extending Chapter 9 bankruptcy to the commonwealth's public authorities, continued until Friday's votes.
Republicans in both houses have almost uniformly opposed a Chapter 9 solution for the commonwealth, saying the island's problems are too complex to be fixed solely through restructuring. Sen. Chuck Grassley, R-Iowa, one of the most notable opponents because of his role as chair of the Senate Judiciary Committee, which has jurisdiction over bankruptcy legislation, was the main obstacle to including bankruptcy for Puerto Rico in the omnibus, sources said.
While the omnibus negotiations didn't yield many tangible solutions for Puerto Rico, it did spur legislative leaders to focus their attention on what can be done for the commonwealth once Congress reconvenes in 2016.
House Speaker Paul Ryan, R-Wis., said on Wednesday he is instructing all House committees that have jurisdiction over Puerto Rico to work with commonwealth officials to come up with a "responsible solution" to the fiscal and debt crises by the end of March. He has also promised to hold a hearing on Puerto Rico on Jan. 5, according to House Minority Leader Nancy Pelosi, D-Calif.
"While we could not agree to include precedent-setting changes to bankruptcy law in this omnibus spending bill, I understand that many members on both sides of the aisle remain committed to addressing the challenges facing the territory," Ryan said on Wednesday.
The breakdown in negotiations over the omnibus also prompted Pelosi to introduce a bill on Friday that would give Puerto Rico a short-term stay of legal actions by certain creditors while Congress considers debt restructuring legislation. She tried to bring the bill, whose moratorium on legal action would last until March 31 to line up with Ryan's timeline for action, to an immediate vote on Friday but didn't get the required unanimous consent from other representatives.
Pelosi's bill joins a number of others that have been proposed to help Puerto Rico.
Two Democratic bills, one in the House and one in the Senate, would extend Chapter 9 bankruptcy to the commonwealth's authorities, but they have remained stagnant in committee because of Republican opposition.
The chairs of the Senate committees that have jurisdiction over any legislation to help Puerto Rico, Grassley, Finance Committee chair Sen. Orrin Hatch, R-Utah, and Natural Resources Committee chair Lisa Murkowski, R-Alaska, also released a bill. It wouldn't include bankruptcy, but would create a financial oversight authority for the commonwealth that would have the power to borrow. It would also make $3 billion of unallocated Affordable Care Act funding available to help Puerto Rico stabilize its budget and debt in the short-term.
Rep. Sean Duffy, R-Wis., has also released a bill that would provide public authorities in Puerto Rico with Chapter 9 bankruptcy protection in exchange for the commonwealth's acceptance of oversight from a presidentially-appointed five-member Financial Stability Council.
Democrats are expected to oppose the three Republican senators' bill because it does not include bankruptcy and uses Affordable Care Act money, while Duffy's bankruptcy bill is unlikely to gain traction with his anti-bankruptcy colleagues in both houses.
While legislators were debating over the omnibus provisions in Washington, the Puerto Rico Electric Power Authority and its creditors continued to efforts to negotiate a restructuring agreement. As of June 30 PREPA had $9.4 billion in outstanding debt, of which $8.6 billion was bond debt.
On Thursday, PREPA and a portion of its bondholders, lines of credit holders, and the Government Development Bank for Puerto Rico agreed to extend a restructuring agreement's deadlines to the end of Friday from the end of Thursday.
Bloomberg News reported PREPA had reached a tentative deal with its bond insurers, which would mean the authority would have deals with all four of its creditor classes. Puerto Rico's government would have to approve energy legislation and the Energy Commission would ultimately have to pass rate increases before the measures would be carried through.
The Caribbean Business web site reported that the parties were preparing to extend the deadline to Dec. 29, with any final deal contingent on Puerto Rico's legislature first passing substantial energy sector reforms.
A PREPA press statement indicated that the GDB, lines of credit holders, and the Ad Hoc Group of Bondholders were giving the authority until the end of Friday to get the legislature to approve energy legislation.
"The agreement extends a number of the termination events set forth in the [restructuring support agreement] to December 18, 2015, including the date for reaching agreement with the Authority's monoline bond insurers on the recovery plan," PREPA said.
Puerto Rico's legislature was not in session Friday. García Padilla would have to call for a special session for the legislature to meet before its currently scheduled next meeting on Jan. 11. On Thursday, sources in legislature in the governor's own party said they did not think this would happen.