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Days Before Deadline, Senate to Consider Puerto Rico Bill

By on June 27, 2016

WASHINGTON – Treasury Secretary Jacob Lew is warning of widespread consequences, from layoffs of police officers to a hospital closure, if the Senate fails to act before Friday on a rescue package for debt-stricken Puerto Rico.

The U.S. territory is in a decade-long recession, and the island owes a $2 billion debt payment to creditors on July 1. The House already passed legislation to create a new control board and restructure some of the U.S. territory’s $70 billion debt.

In a letter to Senate Majority Leader Mitch McConnell on Monday, Lew said the crisis in Puerto Rico “will ratchet up to an even higher level” if the Senate doesn’t pass the House bill in the next four days. He said that if the island defaults on the July 1 payment, the government may be forced to shut down public transit, close a hospital or send police officers home.

“We know for certain that it is the 3.5 million American citizens who live in Puerto Rico who will be further harmed,” Lew said.

McConnell, R-Ky., has said the Senate will consider the House bill this week, but he will need support from both parties to surmount a certain 60-vote threshold to advance legislation. Votes could come as soon as Wednesday.

A look at the legislation and the politics:


The House bill would create a seven-member control board to oversee the island’s financial recovery, similar to a board that oversaw the District of Columbia two decades ago. The board could negotiate with creditors and the courts over reducing some debt, but the bill does not provide any taxpayer funds to reduce that debt.

The legislation is needed because Puerto Rico, like all U.S. states and territories, cannot declare bankruptcy under federal law. Mainland municipalities and their utilities can, while municipalities and utilities in Puerto Rico cannot.

The House is out of session until July 5, so the Senate will have to pass the House bill unchanged for it to head to the president’s desk for his signature before the Friday deadline.


The legislation enjoys rare bipartisan support from the White House and Republican leaders in Congress. House Speaker Paul Ryan, R-Wis., helped negotiate the House bill.

“The Puerto Rican people are our fellow Americans. They pay our taxes, they fight in our wars. We cannot allow this to happen,” Ryan said on the House floor just before the chamber overwhelmingly passed the bill 297-127 on June 9.

House Minority Leader Nancy Pelosi, D-Calif., also supports the bill, despite a provision opposed by Democrats that would allow the Puerto Rican government to temporarily lower the minimum wage for some younger workers.

The governor of Puerto Rico is backing the bill, even though he says the control board would have too much power over the territorial government.

“What’s the alternative right now?” Gov. Alejandro Garcia Padilla said in Washington last week. “We need the bill yesterday.”


Senate Democratic Leader Harry Reid of Nevada is so far withholding his support from the bill, partially over the minimum wage provision.

“At the very minimum we need some amendments,” Reid said last week.

Democratic Sen. Bob Menendez of New Jersey and Sen. Bernie Sanders, I-Vt., are both strongly opposed to the bill, saying the control board would be too favorable to creditors and ignore ordinary Puerto Ricans.

Some creditors have lobbied conservatives to oppose the measure, arguing that the bill is unfair to banks and tantamount to a bailout for the territory.

While scheduling a procedural vote on the bill, McConnell indicated on the Senate floor late Monday that no amendments will be allowed.


McConnell has said for weeks that the Senate would take up the bill, but has pushed consideration until the 11th hour. The Senate is expected to start voting on the bill toward the middle or end of the week.

That puts Reid and Senate Democrats in a tough spot – if they push debate past the Friday deadline, then they could be blamed for any repercussions in the territory.

Lew said that if the island defaults on the debt payments and creditor lawsuits are successful, a judge could order the island to pay creditors over health, education and public safety services. The bill would put a stay on such lawsuits.

“Doing nothing now to end the debt crisis will result in a chaotic, disorderly unwinding with widespread consequences,” Lew wrote to McConnell.

Treasury Secretary Jacob Lew speaks at a news conference at the Treasury Department in Washington, Wednesday, June 22, 2016, on the annual Social Security and Medicare Boards of Trustees report. (AP Photo/Andrew Harnik)

U.S. Treasury Secretary Jacob Lew (AP Photo/Andrew Harnik)

The full text of Lew’s letter to McConnell follows:

June 27, 2016

The Honorable Mitch McConnell

Majority Leader

United States Senate

Washington, DC  20510

Dear Mr. Leader:

Puerto Rico is in crisis, and its only hope for recovery and growth is legislation that authorizes the tools necessary for better fiscal management and a sustainable level of debt.  Early in June, the House passed a compromise bill, with an overwhelming bipartisan vote, that will give Puerto Rico the tools to recover without any federal spending.  The Senate should take up the matter immediately.  Delay will only jeopardize the ability of Congress to conclude its work before July 1, a critical deadline Puerto Rico’s leadership has publicly highlighted for months.

On July 1—only four days from now—the crisis in Puerto Rico will ratchet up to an even higher level.  Puerto Rico has $2 billion in debt payments coming due that day, including payments on constitutionally prioritized debt on which Puerto Rico has not previously defaulted.  In the event of default, and if creditor lawsuits are successful, a judge could immediately order Puerto Rico to pay creditors over essential services such as health, education, and public safety.  This could force Puerto Rico to lay off police officers, shut down public transit, or close a hospital. Even a retroactive stay on litigation passed by Congress a few days later would not reverse such a court order.  This is one of many reasons Congress must act before July 1.  Creditors are hoping to gain the protection of legal judgments as quickly as possible, and this could impair Puerto Rico’s chances of getting on a path to stability and eventual growth.

The people of Puerto Rico are already suffering, as I saw firsthand on my most recent visit there.  About 80 percent of businesses have closed in the Plaza de Diego, once the heart of San Juan’s business district. Doctors at the island’s only neonatal intensive care unit described how they can order dialysis treatment for premature newborns only if they pay cash-on-demand daily for lifesaving drugs. While we do not know the full ramifications if Congress fails to act before the end of the month, we know for certain that it is the 3.5 million American citizens who live in Puerto Rico who will be further harmed.

Congress must do more in the future to address long-term economic growth and Medicaid inequalities in Puerto Rico, but doing nothing now to end the debt crisis will result in a chaotic, disorderly unwinding with widespread consequences.  Some well-funded creditors are working hard to delay legislative action this week, even if it comes at the expense of the Puerto Rican people.  I urge Republicans and Democrats to come together in the Senate as you have before to help our fellow citizens, and get a bipartisan bill to the President’s desk before July 1.


Jacob J. Lew

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