Pretty soon after House Republicans released a draft plan for helping Puerto Rico fix its fiscal crisis, those who’d been waiting for the plan already saw ways to fix the fix.
The plan issued by the House Natural Resources Committee this week is a draft bill and will be tweaked before it goes to hearings for possible vote in two weeks.
Critics say there’s much that needs change in the plan.
“It’s universally disliked by bondholders and people in Puerto Rico from all sides of the aisle,” said Federico de Jesus, principal at FDJ Solutions in Washington, D.C.
“And it’s a very offensive bill,” de Jesus said. “It does have some restructuring (of the island’s debt) but it’s very protracted.”
The bill offered by the committee sets up a federal oversight board of five appointed members and allows Puerto Rico to restructure its about $70 billion debt in some cases.
But the powers given to the board over the governor, Legislature and courts and over the island’s laws and budgets are causing some to chafe.
De Jesus said usurping that authority would “render the elections in Puerto Rico meaningless” because the decisions of officeholders elected by the commonwealth’s residents could be overridden by appointed board members.
“The oversight board would not be accountable to Congress or the government or Puerto Rican people,” de Jesus said.
The board’s members would establish their own budget and set their own salaries without limits, procurement, labor laws of Puerto Rico would not apply and the board would have immunity from any actions taken against it, he said.
Beyond the board, the proposal allows for the elimination of the federal minimum wage for workers under 26 years old, eliminates the right to strike and new federal overtime rules would not apply.
“The Republican Congress is always talking about small government and the need to get government off our back and is critical of unelected bureaucrats,” he said. The proposal is “a far cry” from protecting people’s liberties from government that the GOP espouses, he said.
Rep. Rob Bishop, the chairman of the House Natural Resources Committee that released the plan, said in a statement Tuesday work continues on the bill and that “perfecting this legislation” will happen with input from stakeholders.
Puerto Rico’s economic and fiscal crisis, brought on by its approximately $70 billion-dollar debt, has created a mass exodus of residents from the island in search of work they can’t amid 12 percent unemployment.
Their relocation is worsening the island’s problems as those who flee take with them their human capital and any money they might spend in Puerto Rico.
Last December, House Speaker Paul Ryan had assigned the committee to come up with a rescue plan as part of a deal worked out with Democrats to keep government funded through September. Democrats had wanted language in the spending bill to help Puerto Rico with its debt.
Puerto Rico’s Gov. Alejandro García Padilla has asked Congress to provide the island the authority to file Chapter 9 bankruptcy to restructure its debt. But there is opposition to that plan from bondholders who would lose money.
“The House (members) bent their backs as much as possible to avoid giving Puerto Rico bankruptcy, because (they) wanted to avoid letting Puerto Rico be in control of the process of negotiating its debts,” said David Ferreira, owner of Ferreira Strategies LLC.
He called that decision a “patronizing, colonialist mentality” suggesting Puerto Rico is incapable of renegotiating its debt and fixing its own economy.
That said, Ferreira was heartened to see Republicans had tried to propose a solution. Although he still was examining the proposal, Ferreira said it appeared Congress might be able to get something done for the island.
The proposal also drew criticism from a group representing bondholders.
The group, Main Street Bondholders, referred to the proposal as “Super Chapter 9," because the group said it would allow the island to walk away from all debts.
The proposal would give Puerto Rico the authority to restructure all of its debt, including constitutionally backed general obligation debts, going beyond the general restructuring authority extended under Chapter 9. Under Chapter 9, Puerto Rico's municipalities and public corporations could declare bankruptcy. Chapter 9 has been used by municipalities such as Detroit.
The proposal also would prohibit bondholders to sue to get their money for 18 months.
“This is Congress giving Puerto Rico legal standing to pick winners and losers at its discretion over the next year and a half and, if enacted, regular bondholders will have resoundingly lost,” the group said in a statement.
The bill may need Democrats to pass and some Democratic lawmakers already were expressing opposition to the bill as it is now drafted.
De Jesus said even if the proposal is fixed, time is running out for Puerto Rico. The island faces a May 1 deadline for about $500 million payment to owners of Government Development Bank bonds. Then on July 1, it must make a payment on $1.9 billion in general obligation bonds.
“I don’t see the Senate approving this (proposal) even if it comes though the House by May 1,” which could mean a massive default by Puerto Rico, he said.