WASHINGTON — A bipartisan deal to help Puerto Rico manage its crippling finances cleared its first hurdle Wednesday with approval from a Republican-led House committee.
The bill to create a financial control board and restructure some of the U.S. territory’s $70 billion debt has support from House Republican and Democratic leaders, as well as the Obama administration. But some bondholders, unions and island officials have opposed it.
The House Natural Resources Committee approved the legislation 29-10.
“We have a constitutional, political and moral imperative to act,” said committee chairman Rob Bishop, the Utah Republican who has led negotiations on the bill. The legislation now moves to the House floor.
The legislation won support from Pedro Pierluisi, Puerto Rico’s representative in Congress, who said people on the island fear for their finances and their future.
“Accepting a board is personally painful, but it is also the right and necessary thing to do,” Pierluisi said.
The island’s governor, Alejandro Garcia Padilla, has been less enthusiastic, arguing that the seven-member board would be too powerful and could undermine the territorial government.
Bishop introduced the bill May 18 after weeks of negotiations that involved House Speaker Paul Ryan, House Democratic Leader Nancy Pelosi and Treasury Secretary Jacob Lew. Pelosi has endorsed the legislation, and Lew called it a “fair, but tough bipartisan compromise.”
Ryan, R-Wis., has worked to unite his fractured caucus behind the bill, arguing that the legislation would avoid an eventual taxpayer bailout.
The Senate hasn’t yet acted. Senate Majority Leader Mitch McConnell, R-Ky., has said the chamber is waiting for the House to move first.
Puerto Rico, which has struggled to overcome a lengthy recession, has missed several payments to creditors and faces a $2 billion installment on July 1. Two government agencies have been under a state of emergency, and the economic crisis has forced businesses to close, driven up the employment rate and sparked an exodus of hundreds of thousands of people to the U.S. mainland. Schools lack electricity and some hospitals have said they can’t provide adequate drugs or care.
But like U.S. states, Puerto Rico cannot declare bankruptcy. The legislation would allow the control board to oversee negotiations with creditors and the courts over reducing some debt.
It would also require the territory to create a fiscal plan. Among other requirements, the plan would have to provide “adequate” funds for public pensions, which the government has underfunded by more than $40 billion.
During negotiations, the Obama administration pushed to ensure that pensions are protected in the bill, while creditors worried they would take a back seat to the pension obligations. Bishop says the control board is designed to ensure all are paid.
While some bondholders have backed the legislation, others have lobbied forcefully against it.
“If passed, this bill will serve as a landmark moment in American municipal finance — the moment when Congress made clear that it will not hesitate to rewrite rules and override contracts so that bondholders are forced to foot the bill for the pension systems that negligent governments have bled dry and refused outright to fund,” the Main Street Bondholders Coalition said in a statement released before the committee vote.
Republicans who voted against the bill echoed the concerns of some bondholders, saying the legislation could set a precedent for financially ailing states. Rep. Tom McClintock of California, a Republican on the committee, offered an amendment that would have exempted some bonds from the bill.
“If Congress is willing to undermine a commonwealth’s constitutionally guaranteed bonds today, there is every reason to believe it would be willing to undermine state guarantees tomorrow,” McClintock said.
The amendment was rejected, 27-12.
The legislation survived several other attempts to try and derail the deal, including additional amendments by Republicans that would have explicitly protected certain bondholders and allowed bondholder lawsuits to continue. Bishop said the board would decide which bonds have priority for repayment.
Most Democrats on the committee supported the bill, though they tried to remove a provision that would allow the governor of Puerto Rico to cut the minimum wage temporarily for some younger workers. Unions have also lobbied against the legislation for that reason.
Pierluisi, who is running to be the island’s governor, said Tuesday that he doesn’t think the island would ever decide to trigger the minimum wage provision.
“It’s not worth discarding the bill over this misguided but ultimately meaningless authority,” Pierluisi said.
Presidential candidate Bernie Sanders said this week that the board would neglect the needs of ordinary Puerto Ricans.
“We must stop treating Puerto Rico like a colony and start treating the American citizens of Puerto Rico with the respect and dignity that they deserve,” he said.
