A new draft of legislation to rescue Puerto Rico from the jaws of a debt crisis was released by the House Committee on Natural Resources on Tuesday evening, as the territory’s governor warned that his government did not have enough money to pay for fuel for school buses or police patrol cars, or for therapists for schoolchildren with special needs.
The revised bill includes a provision for a vote by two-thirds of creditors on any particular debt restructuring proposal — a major change that was designed as a concession to conservative Republicans and would give Puerto Rico’s creditors leverage to insist on voluntary settlements.
The threshold is low enough to give a newly created oversight board the power to impose restructuring deals on reluctant creditors, but it it is high enough to potentially bog down restructuring talks.
If the oversight board fails to get the support of two-thirds of creditors, it can turn to a judicial procedure to enforce a settlement.
Rep. Rob Bishop (R-Utah), the committee’s chairman, said in a news release that the bill offers “tools to redirect Puerto Rico from a path of destitution towards a path of prosperity.”
“This is the constitutionally-sound solution that will provide real, long-lasting reform to the Commonwealth while respecting the rights of all parties and creditors,” he said. “It is the island’s best shot to mitigate its financial collapse and future calls for a bailout, which would be untenable.”
House Speaker Paul D. Ryan (R-Wis.) endorsed the bill shortly after its release Tuesday, saying it “protects American taxpayers from bailing out Puerto Rico.” But it was not clear in the hours after the bill’s release whether it would ultimately win the endorsement of the Republican Study Committee (RSC), the influential group of House conservatives that includes most GOP members.
The group’s chairman, Rep. Bill Flores (R-Tex.), said in an interview Tuesday that he had not reviewed the final text of the latest draft but said there appeared to be improvements. “In a perfect world, I’d like to see there can’t be an involuntary cram-down,” he said. “But if we can find a way where there’s a good likelihood of having a consensual restructuring, maybe I can find happiness on this.”
The RSC balked at the previous version of the legislation, casting doubt on whether any Puerto Rico bill could garner the support of a majority of House Republicans — a key threshold for Ryan, who has vowed to abide by the wishes of his party conference. Outside activist groups, notably Heritage Action for America, also have pressured Republicans to reject strong restructuring provisions and require more sweeping economic reforms.
But the bill probably will need Democratic support to pass, and House Minority Leader Nancy Pelosi (Calif.) and other key Democrats have been engaged with the bill’s Republican drafters to address concerns about the powers of the control board created under the legislation.
Those changes included increasing the size of the control board, and changing its political composition and limiting its non-fiscal powers — modifications made, in the words of a Republican committee summary, “to address concerns that it was too colonialist.”
Gov. Alejandro Javier García Padilla, in Washington with a broad delegation of legislators and business people from Puerto Rico, stressed the need for haste. He said that “we are in a humanitarian crisis” and that about 10,000 children have not been able to attend school because of a lack of fuel for buses.
García Padilla said that Puerto Rico’s government owes close to $2 billion to private suppliers of goods and services and that the arrears will climb to $2.2 billion by June 30, when the territory expects to default on its general obligation bonds, considered the safest type of bonds for investors.
The governor called the new version “a step in the right direction.” Earlier, he sharply criticized the first draft of legislation to help Puerto Rico restructure its crushing debt of about $72 billion; that draft created a five-person appointed board to root out waste and corruption, set the island’s budget on a sustainable track and restructure the territory’s debts.
García Padilla said that the board’s structure would be “turning Puerto Rico back to 1900 . . . after the invasion and Spanish American war.” He said “it will make no sense” because it would create a financial control board with the power to impose taxes, fire people from jobs and curtail services without regard to democratically elected officials in Puerto Rico.
But he said the new version of the legislation “incorporates some of our comments with respect to a more balanced calibration of the Board’s powers.”
Some of the investors in Puerto Rican bonds oppose the creation of any bankruptcy-like procedure that could impose a final settlement on a minority of holdout creditors.
A group called the Center for Individual Freedom has spent about $200,000 on television ads in the Washington market, according to the Sunlight Foundation. The ads urge people to “tell Congress” to “stop the Washington bailout of Puerto Rico” — even though the House draft of legislation does not provide any money for Puerto Rico. The Alexandria, Va.-based 501(c)(4) group says on its website that its “mission [is] to protect and defend individual freedoms and individual rights guaranteed by the U.S. Constitution.”
On Monday, Puerto Rico’s government sweetened a January offer to pay creditors, offering to boost its debt-service payments to $1.85 billion a year, up from $1.7 billion a year in the earlier offer. Those payments would equal about 15 percent of projected government revenue in 2021, a level higher than in virtually all mainland U.S. states.
The government also said that an earlier proposal for a “growth bond” that would depend on a certain level of economic growth in Puerto Rico would be replaced with a “capital appreciation bond” that would require payments regardless of economic growth.
But investors would still end up taking deep reductions in the overall payments they are owed.
Last week, Puerto Rico declared a debt moratorium, allowing the governor to temporarily halt debt payments by government and public corporations or impose a stay on bondholder litigation. The moratorium would block a $422 million debt-service payment by the Government Development Bank on May 1, forcing a default.
The credit rating agency Moody’s said in a statement Tuesday that the moratorium “signals the culmination of the US territory’s liquidity crisis and the complexity of negotiating restructuring agreements with holders of the Commonwealth’s debt.”
Steven Mufson covers the White House. Since joining The Post, he has covered economics, China, foreign policy and energy.
Mike DeBonis covers Congress and national politics for The Washington Post. He previously covered D.C. politics and government from 2007 to 2015.
