U.S. House Unveils Retooled Promesa for Puerto Rico
SAN JUAN — Following several setbacks, the U.S. House Natural Resources Committee finally released its new version of the Puerto Rico Oversight, Management & Economic Stability Act (Promesa), Congress’ latest effort to “bring lawful order to chaos” on the island, reads a summary of the bill released late Wednesday.
In doing so, the committee says it is not providing access to Chapter 9 of the U.S. Bankruptcy Code, there is no threat of contagion to the rest of the municipal bond market and no precedent is being established for other troubled U.S. states.
The bill, now dubbed HR 5278, would go to markup hearing as soon as next week, although a key obstacle remains. As previously reported by Caribbean Business, House Speaker Paul Ryan (R-Wis.) would not present Promesa for markup unless he believes the Hastert Rule threshold could be met in a floor vote. The Hastert Rule is an unofficial guideline that mandates votes by a majority of the Republican majority to pass legislation once it goes to the floor.
If it clears the committee vote, it would go to the House floor, where it remains to be seen if there is enough support for its passage. The Senate still awaits for the lower chamber to act on the matter.
Officials have stressed Puerto Rico is running out of time, warning it would default again in the summer, when roughly $1.5 billion in debt payments hit the commonwealth on July 1.
Acknowledging that progress has been made with respect to debt-restructuring tools, Gov. Alejandro García Padilla stated the fiscal oversight entity still fails to respect the island’s self-governance. The governor urged for changing the bill to this effect and promptly approve it.
U.S. Treasury Secretary Jacob Lew said the bill marks a step on the right direction, but lamented that economic-development tools and healthcare funding parity were not included.
Resident Commissioner Pedro Pierluisi tweeted on Thursday that the heart of the bill — fiscal oversight and debt restructuring — now meets his “stringent criteria.”
While changes have been introduced to its original version, strong fiscal oversight — a seven-member board within the local government structure — still remains. It would have “exclusive control” to ensure fiscal plans are implemented and followed through, balance budgets and enact reforms, if the commonwealth fails to do so. If Puerto Rico decides to issue debt, it would need to do so under the board’s approval.
Oversight would end after Puerto Rico regains access to capital markets, and achieves balanced budgets for four consecutive years.
As for debt restructuring, Promesa would seek to promote voluntary agreements between the commonwealth and its creditors while honoring existing ones if the board agrees to it. The bill’s language includes collective action, whereby a two-thirds majority within a creditor group could agree to a debt-restructuring plan. Creditors would be divided respecting their priority as provided by the Puerto Rico Constitution, according to the summary.
Only if voluntary negotiations stall, audited statements are delivered and a fiscal plan is in place, a commonwealth entity could be authorized to enter into a court-ordered restructuring. Five members of the board would need to consent to this action.
The new bill would shield the Puerto Rico government from creditor lawsuits, although it is not to encourage otherwise avoidable defaults, reads the document. A court could provide relief to creditors that are able to prove irreparable damage, and the board could decide whether the commonwealth can at least pay interest during the legal stay period.
Meanwhile, the commonwealth government would not be able to make budgetary transfers between public entities until the board is established.
The oversight entity could force the sale of public assets, consolidate agencies and reduce government workforce, according to the summary. Members and employees would be exempted from liability in carrying out their functions. Conflict-of-interest rules and financial disclosures requirements would remain in place.
The commonwealth government would need to provide a funding source for the board’s operations, while members would only be reimbursed for expenses.
The board keeps its broad powers to request information from the commonwealth, with criminal penalties for those who fail to follow its orders or knowingly provide false information.
It could go after audited financial statements at all government levels, and invalidate any legislation and administrative actions that run counter to Promesa. Puerto Rico lawmakers would have to submit cost estimates for bills they approve, and let board members know if they want to change the use of funds that require legislative approval.
After years of sustained economic decline, many observers have called for tools that help the island jumpstart its economy.
Under Promesa, Puerto Rico’s governor, with the board’s consent, would be able to lower the minimum wage to those younger than 25, and pay less than the States’ $7.25 an hour. It would waive the island’s exempt employees from the 113% increase to the threshold that determines federal overtime-pay rules.
The Natural Resources Committee is also proposing a “bipartisan, bicameral Congressional Task Force” that would examine how federal laws affect Puerto Rico’s economic growth. This group would need to deliver a report on its findings and recommended changes by the end of the year.
Moreover, the new bill calls on the U.S. GAO, short for Government Accountability Office, to conduct another study on the contracting activity of the federal Small Business Administration with HUBZone. This program grants preferred treatment to local small and midsize businesses when contracting with the federal government.
Language remains from the legislation’s original version to allow for expedited permitting of infrastructure projects that are deemed critical by the board, and the creation of a “revitalization coordinator.”
A “firewall” would be created between pensioners and creditors in the island’s fiscal plans, according to the summary. Moreover, the board would conduct a study on the commonwealth’s pension liabilities, which government officials have pegged at $40 billion.