House panel to consider PROMESA amendments Oct. 22

An effort to amend the 2016 federal law that established an oversight board for restructuring Puerto Rico’s overwhelming debt burden by insulating essential services from austerity cuts is facing some almost insurmountable political obstacles.

House Natural Resources Committee Chairman Raul Grijalva, D-Ariz., outlined his legislative objectives Sunday during a fact-finding tour of the island.

Grijalva’s proposal to insulate certain essential services would address complaints by residents and elected officials of the territory that the Puerto Rico Financial Oversight and Management Board has been too aggressive in its protection of bondholders.

The Oversight Board is trying to complete the Title III federal debt restructuring sometime next year.

Rep. Rob Bishop of Utah , who serves as ranking Republican on the House Natural Resources Committee, noted that passage of the original Puerto Rico Oversight, Management, and Economic Stability Act in 2016 was “a very difficult process.”

“There had to be a lot of compromises with a lot of different people and then get the Senate and the House to be in agreement,” he said. “It was actually amazing. Not only did we have a majority with both Republicans and Democrats here, but the Senate made no amendments to it.”

Bishop added, “To replicate that is going to be extremely difficult, if not impossible.”

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No timetable has been set for when Grijalva’s bill might be approved in committee or reach the House floor.

Grijalva, however, does plan to hold a news conference in Washington on Friday to discuss the slow pace of reconstruction in Puerto Rico from the devastation caused by Hurricane Maria in 2017.

Meanwhile, the Oversight Board intends to submit a plan of adjustment for the island's central government debt by the end of this month, outlining the level of repayment for as much as $19 billion of bonds that have been in default since 2017.

On another front, 11 hedge funds holding Puerto Rico debt are pursuing a lawsuit seeking federal compensation for losses suffered through the commonwealth’s debt restructuring.

That lawsuit will move forward in mid-January in the U.S. Court of Claims in Washington after the U.S. Supreme Court is expected to rule on the constitutionality of the appointment of the Oversight Board’s members without the advice and consent of the U.S. Senate. The Supreme Court will hear oral arguments in that case on Oct. 15.

The hedge funds, led by Altair Global Credit Opportunities Fund, contend the Oversight Board acted as an agent of the federal government when it ordered Puerto Rico’s Legislature to effectively end payment of bonds issued for the commonwealth’s Employee Retirement System.

The draft legislation proposed by Grijalva would include protections for the commonwealth’s pensioners, according to Resident Commissioner Jennifer Gonzalez-Colon, who said she supports that measure.

Gonzalez-Colon, Puerto Rico’s representative in the House, caucuses with Republicans and is a voting member of the House Natural Resources Committee who isn’t eligible to vote on the floor of the House.

Gonzalez-Colon told The Bond Buyer Wednesday, “There are some provisions I am comfortable with” in the discussion draft, but she emphasized there’s a need for a bipartisan working group to finalize the text.

“I think the bill should be of bigger scope and not just random items,” she said.

Grijalva’s discussion draft includes the creation of a reconstruction coordinator to oversee the spending of federal aid, a public audit of the commonwealth’s debt and the use of federal funding for the Oversight Board to replace funding by the territorial government.

Grijalva said Wednesday his proposed bill remains in discussion draft form and will be considered by the Natural Resources Committee on Oct. 22.

An official version of the bill is expected to be made public a day or two prior to the hearing.

Gonzalez-Colon and other Republicans on the committee interviewed Wednesday doubt the bill will advance far unless there are changes made to the discussion draft that build bipartisan support.

Gonzalez-Colon does support some parts of the discussion draft.

In July, she joined with Sen. Rick Scott of Florida and Rep. Sean Duffy of Wisconsin in requesting President Trump to appoint a similar reconstruction coordinator to oversee the spending of federal aid that has been appropriated since the devastation caused by Hurricane Maria in 2017.

Federal disaster coordinators also shepherded earlier federal reconstruction efforts in the wake of Hurricane Katrina in Louisiana and Superstorm Sandy in New York and New Jersey.

Gonzalez-Colon said she’s also supported federal funding for the Oversight Board “from the beginning.”

“You are using a lot of local taxpayers money, millions of dollars, for federal oversight,” she said. “Who’s paying that at the end are the people of Puerto Rico.”

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