Democratic senators introduce US territory debt-relief bill
SAN JUAN – U.S. Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) led the introduction of legislation along with other Democratic lawmakers Wednesday that would give U.S. territories “the option to terminate their non-pension debt obligations” if they meet certain eligibility criteria.
The U.S. Territorial Relief Act of 2018 would make $15 billion in federal funds available to Puerto Rican residents and other creditors if the government chooses to terminate its debt load within three years of the bill’s enactment.
Referring to the disaster response and reconstruction in Puerto Rico and the U.S. Virgin Islands since hurricanes Irma and Maria struck, the lawmakers said the territories’ respective public debts have hindered progress. They also pointed to the islands’ economic downturns and population declines, as well as to having “limited or no access to many federal programs like Medicaid, Supplemental Security Income, and the Earned Income Tax Credit.”
Puerto Rico’s public debt, for example, is of more than $7o billion, and the government’s fiscal plan projects a 19.4% population decline by 2022.
“Few investors are willing to put money into rebuilding if the debt overhang means that the islands have no realistic chance to recover. Congress’s previous attempt to address the Puerto Rican debt crisis-PROMESA-was enacted before the hurricanes, so it was not designed to account for the recent devastation,” the senators’ joint release said of the Puerto Rico Oversight, Management, and Economic Stability Act.
The bill includes three main provisions. Title I, “Territorial Relief,” provides the option to terminate the territories’ public, unsecured debt if the local population decreases 5% over 10 years; received major federal disaster assistance; and per capita debt exceeds $15,000. “It also provides protection for secured creditors and creates a judicial process for creditors to contest the extent and perfection of their security interests,” according to the release.
The territory’s governor and legislature must approve the debt relief. The option cannot be used more than once every seven years.
Title II, which establishes the Puerto Rico Debt Restructuring Compensation Fund, provides federal funds to compensate unsecured creditors, with a special master designated to allocate $7.5 billion to Puerto Rican creditors “that did business solely” on the island, and $7.5 billion to eligible stateside creditors whose debt was terminated and “pledge to waive the manager’s fee for any compensation received.”
Hedge funds and their investors, bond insurers, and many large financial firms “with consolidated assets greater than $2 billion, and repo or swaps investors from the distribution” are among those ineligible.
Under Title III, the measure would also create the Audit Commission, “made up of experts from Puerto Rico, to perform a comprehensive audit of the causes and sources of Puerto Rico’s debt and to issue periodic reports.”
“In sum, the bill balances the need for immediate relief for the territories with protections for property interests, due process, and safeguards against abuse,” seven law professors said in a letter supporting the legislation. Warren and Sanders also received a letter, about the bill’s constitutionality, from Harvard Prof. Laurence Tribe.
Warren says in the release that disaster “funding and the other resources in struggling territories’ budgets must not go to Wall Street vulture funds who snapped up their debt,” adding that Congress “should pass this legislation right away – our fellow U.S. citizens are counting on us.”
Former presidential candidate Sanders added: “Greedy Wall Street vulture funds must not be allowed to reap huge profits off the suffering and misery of the Puerto Rican people for a second longer. It is time to end Wall Street’s stranglehold on Puerto Rico’s future, return control of the island to the people of Puerto Rico and give the territory the debt relief it so desperately needs to rebuild with dignity.”
Sens. Kirsten Gillibrand (D-N.Y.), Edward J. Markey (D-Mass.), and Kamala Harris (D-Calif.) are cosponsors. Rep. Nydia M. Velázquez (D-N.Y.) said she will be introducing the companion legislation in the House of Representatives.
The lawmakers said the U.S. Territorial Relief Act builds on the Puerto Rico and Virgin Islands Equitable Rebuild Act they introduced in November to “protect” the federal funding provided to the territories from “Wall Street vulture funds.”
The new legislation is endorsed by AFL-CIO, AFSCME, American Federation of Teachers, the Hispanic Federation, LatinoJustice, Amor Para Puerto Rico, National Low Income Housing Coalition, Alliance for Puerto Rico-Massachusetts, CREDO, Grassroots Global Justice, Hedgeclippers, Inquilinos Boricuas en Accion, Latinos for Healthcare Equity, National Hispanic Medical Association, New York Communities for Change, Progressive Change Campaign Committee, Public Justice Center, United Way of Central Massachusetts, Worcester Youth Center, AIDS United, and Puerto Rico Community Network for Clinical Research on AIDS.