Democratic Senators to Introduce New Puerto Rico Legislation
SAN JUAN — A group of Democratic senators, led by Bob Menéndez (D-N.J.), announced Monday that new legislation will be introduced to provide Puerto Rico with a comprehensive legislative package to address its fiscal and economic crisis, according to a statement released by the New Jersey senator’s office.
For Menéndez, “time is running short” for the island as it seeks to avert a debt cliff this summer amid more than $2.5 billion in scheduled debt payments. The new measures — the Puerto Rico Stability and Recovery acts — were expected to be filed later Monday.
“Congress has to act immediately to fix the federal funding shortfalls and give Puerto Rico the tools it needs to fully restructure its debt. That’s why I’m introducing a comprehensive legislative package that provides critical healthcare funding, individual tax incentives to encourage work in the formal economy, and a mechanism for territory-wide restructuring of the island’s debts,” the senator stated.
Meanwhile, the Alejandro García Padilla administration and U.S. Treasury officials continue to lobby Capitol Hill for a broad, tailored debt-restructuring regime; increased federal funding in healthcare; and economic development incentive tools.
Treasury says debt-restructuring authority should be enacted under the U.S. Constitution’s territorial clause, adding that strong fiscal oversight that respects Puerto Rico’s self-governance is also needed. The Barack Obama administration is recommending a two-pronged restructuring process, with an initial mediation phase, facilitated by short-term financing and a stay on litigation. If no deal were successfully reached with a majority of creditors, the process would move to court. If a deal is reached, the proposed structure would allow binding holdouts.
Uncertainty over Capitol Hill action on the Puerto Rico fiscal crisis continues to loom large as the García Padilla administration scrambles to secure enough support among Republicans in Congress to achieve the tools it says it needs to tackle its crisis, particularly over access to a broad debt-restructuring regime.
“Democratic legislation in the U.S. Senate is likely to generate bold headlines about territorial bankruptcy, but the vastly creditor hostile provisions of the proposed legislation are dead-on-arrival in the GOP-controlled Congress,” said Daniel Hanson, an analyst at Washington, D.C.-based Height Securities.
Expectations have run high on House Speaker Paul Ryan’s (R-Wis.) self-imposed deadline, with a few GOP members, including Natural Resources Committee Chairman Rob Bishop (R-Utah) and Rep. Jim Sensenbrenner (R-Wis.), both of whom recently visited the island, reaffirming Ryan’s call for action. However, as Sensenbrenner said last week, GOP-backed legislation to tackle the Puerto Rico issue is still “a work in progress,” while it is still unclear what exactly Congress would do at the end of the day.
‘Puerto Rico Stability & Recovery Package’
Including many of the elements under the U.S. Treasury’s proposal, the new package being proposed seeks to provide broad restructuring authority, covering all of its debt, which stands at roughly $70 billion, without including the more than $40 billion in unfunded pension liabilities. A nine-member “Financial Stability & Reform Board” would also be established, along with a chief financial officer (CFO) position to be named by Puerto Rico’s governor.
These would be “carefully calibrated to provide much needed transparency, oversight, and technical assistance to the restructuring and budgeting processes in the island,” the statement reads.
Additionally, under this plan, the Puerto Rico governor would develop a five-year fiscal plan, subject to the board’s approval, and serving as the guiding financial benchmark for the island’s debt restructuring and budgeting processes.
In order to trigger the restructuring mechanisms, both the Puerto Rico Legislature and the governor would need to approve a measure through which the commonwealth opts in to the process while establishing the proposed fiscal board. If consented to by the local government, debt-restructuring tools include a 12-month stay on litigation against Puerto Rico, during which time it is expected to negotiate with its creditors.
The objective is to have a court eventually pass judgment over a restructuring plan to be submitted by the governor that can be made binding on all creditors if a judge confirms “that such proposal complies with the fiscal plan, treats pensions as senior secured debt, and if feasible, does not unduly impair general obligation bonds (government-issued debt).”
The proposed legislation also includes better treatment and increased funding under federal healthcare programs, and such economic-development incentive tools as extending the earned income and child tax credits to all eligible families in Puerto Rico.
Sens. Sherrod Brown (D-Ohio), Maria Cantwell (D-Wash.) and Richard Blumenthal (D-Conn.) have joined Menéndez in working the comprehensive legislative package.
“When combined, the legislative package would help the island avert a complete financial collapse, stabilize its financial standing in an orderly and legal fashion, and provide for equitable tax credit treatment and health care equity for the 3.5 million U.S. citizens residing in Puerto Rico,” the statement reads.
An outline of the legislative package may be found here.