WASHINGTON -- The U.S. House of Representatives goes on a week-long recess on Saturday without moving on legislation to help Puerto Rico restructure its debt, virtually guaranteeing there will be no congressional action before a $422 million debt payment on May 2nd that the island government says it cannot pay.
“On Monday there’s going to be a non-payment. I don’t think that we’ll find $422 million in the next few days that we haven’t found before,” Puerto Rico Governor Alejandro García Padilla said earlier this week in San Juan. “Although we’re working with the creditors to come up with an agreement that would help us, I don’t think there’s anything on the table that would stop that non-payment. At this point, the ball is in Congress’ court.”
Puerto Rico is going through a severe economic crisis; there have been drastic cuts in health, education and public services as the government has run out of cash. There are regular reports of school closings, hospital wings are being shut down and the island has seen its residents leave for the U.S. mainland in the biggest migration since World War II. Despite steep unemployment, the island's sales tax is the highest in the U.S. at 11.5 percent.
There are looming questions of how the island will be able to pay teachers' pensions and how it will handle running essential services. Home foreclosures are the highest in the entire country.
Puerto Rico is a U.S. territory and its residents are U.S. citizens. The island commonwealth's government says it plans to use a new law it recently passed that allows for a moratorium on debt payments if no agreement is reached to defer those debt payments. That law sets a “moratorium period” that would run through the end of January 2017. The debt would come due at the end of the moratorium, but island officials say this will give them some breathing room to renegotiate and seek help from Washington, and some payments would be made on a “case by case” basis during the suspension of payments to creditors.
This is not the first time that Puerto Rico has made an attempt to restructure its debt, arguing they should be allowed to restructure under Chapter 9 as allowed in the 50 states but not in the island since 1984.
"We are not asking for anything unreasonable, because we already had this before," said island senator Ramon Luis Nieves.
The government had passed a law last year in Puerto Rico allowing them to restructure but it was struck down by a federal court; it is currently under review in the U.S. Supreme Court.
Island officials insist the situation is critical and requires drastic steps.
“This is a crisis situation. We’ve been working on this for a year, and there is a solution, but there has to be a will. We will definitely default on the payment on Monday, but what we are doing is postponing the payment. We aren’t saying we’re not going to pay it,” said Puerto Rico Senate President Eduardo Bhatia. “We are not asking for a bailout. What we are asking for is a restructuring. We have always made our payments. We have no intention of not ever paying.”
A bill to help the island deal with its $72 billion debt has stalled in Congress over several disagreements, including a proposed federal oversight control board not accountable to the island government, and changes to the federal minimum wage for younger workers on the island.
“A bad bill is not any better than no bill at all. Puerto Rico shouldn’t be asked to give up its democracy. The members of Congress are not asking that of their own constituents and they shouldn’t ask it of Puerto Rico,” says Federico de Jesús, a former Puerto Rico government aide and principal at FDJ Solutions, a government policy consulting group. “There still is division among the legislators. They’re listening to a small group of bond holders. It’s disheartening and a real shame.”
If Congress doesn’t do anything, then the White House should, adds de Jesús. “President Obama should enact emergency measures to help the island, much in the same way he did for the immigration community with his executive action on immigration reform.”
Carlos Mercader, deputy director of the conservative advocacy group Latino Partnership for Conservative Principles, agrees, saying no one should wait for congressional action.
“Things in Congress aren’t moving, they’re getting stuck in ideological battles. The island should negotiate directly with creditors and negotiate directly with the executive branch, and with (the) Treasury (department),” Mercader said, adding, “Look at all the attention and action on Cuba. Why can’t he (President Obama) do the same thing for Puerto Rico?”
The congressional legislation has also been criticized for including measures that seem unrelated to debt relief.
“A provision in the legislation permits the transfer of 3,100 acres of federal land to Puerto Rico. I believe we need to incorporate protections to ensure that this land is not sold and used to make a ‘quick buck’ by private developers,” said Rep. Nydia Velázquez (D-N.Y.), a native of Puerto Rico.
But at a recent summit on the Puerto Rico issue in New York City, Treasury official Antonio Weiss urged a swift passage of Congressional legislation to at least set Puerto Rico on a path to some form of restructuring without the threat of lawsuits from investors.
The Center for Individual Freedom, a conservative group based in Alexandra, Va., has been running television ads opposing the congressional bill, calling it a “bailout on the backs of savers and seniors.”
Federal and island officials and legislators who support a bill in Congress to aid Puerto Rico say the ads are misleading because there is no federal money involved in working on a debt relief agreement, so it can’t be considered a “bailout.”
Bhatia tells NBC Latino that he also considers the ad blitz to be positive “because it’s giving the issue a lot of attention. More and more people want to know about it and that helps bring us to a resolution of this.”
An even bigger debt payment of $2 billion is scheduled on July 1st, and unlike the May 2nd payment, nearly half is constitutionally guaranteed, meaning payment has precedence over even payment for essential services on the island. Gov. García Padilla said the island is steeling itself for lawsuits by investors; holders of that guaranteed debt have already said they plan to take their case to court if necessary in order to ensure payment.
House Speaker Paul Ryan (R-Wisc.) said Congress is indeed focused on helping the island.
“The committee and the Treasury Department are getting very close (to a solution). The goal here is the bring order to the chaos. Legislators are working to put something together so that when we return (from our recess), we’re hoping to have something more specific to deal with,” said Ryan during a press conference in the U.S. Capitol.