Puerto Rico Governor Pedro Pierluisi signed into law late Tuesday a bill that would slash the U.S. territory's debt by half, but has also sparked protests and led to fiery exchanges between lawmakers and a federal control board that oversees the U.S. territory’s finances.
The law aims to end a bankruptcy-like process that began after Puerto Rico announced in 2015 that it could not pay its more than $70 billion public debt accumulated during decades of excessive borrowing, mismanagement and corruption. In May 2017, the government filed for the biggest municipal bankruptcy ever in the U.S.
The law would allow Puerto Rico to cut its debt by more than $30 billion, issue new debt worth $10 billion and award some $7 billion in cash to bondholders who have not been paid for nearly five years. Critics say Puerto Rico’s government does not have the finances to adhere to the proposed debt service and warned of upcoming austerity measures.
However, the law, following a bill squeaked by in a 14-13 vote in the Senate and later 34-12 in the House, is still in limbo because it does not have the control board’s support, although Puerto Rico Gov. Pedro Pierluisi is in favor of it.
“Despite great obstacles, today we have taken a big step forward to end the bankruptcy and leave the fiscal control board," Gov. Pierluisi said in a written statement.
One of the biggest points of contention between Puerto Rico’s government and the board was a proposed cut to some public pensions. The government refused to approve a bill that contained any kind of public pension cuts, while the board sought to cut pensions higher than $1,500 a month by 8.5%, a move that would affect some 40,000 retirees.
Some lawmakers also demanded zero cuts to the University of Puerto Rico, the island’s largest public university, and to the island’s 78 municipalities.
"That is why we do not give up in our struggles to defend the pensions of our retirees, to provide the funds that our University needs and to guarantee that our municipalities can serve their people," Pierluisi said in his statement after signing the bill into law.
Two organizations that represent mayors across Puerto Rico warned in a statement that some city and town services still might be cut as a result of the law.
“Municipalities already have made great sacrifices and budgetary adjustments to maintain its services, some with a reduction in hours and others with layoffs,” officials said.
The control board issued a brief statement late Tuesday saying only that it would carefully evaluate the measure, though it has said previously that it would not approve of the law.
The impasse between the board and legislators threatens to erase nearly five years of negotiations with bondholders as part of a bankruptcy-like process that has generated nearly $1 billion in earnings for the attorneys involved. It also could expose Puerto Rico to litigations that were temporarily suspended as part of the process and force the government to pay bondholders.
Both sides are expected to go into mediation after the federal judge in the case, Laura Taylor Swain, warned Monday that she would not push back the Nov. 8 confirmation hearing on the plan, adding that “my patience is wearing thin.”
Puerto Rico Sen. José Antonio Vargas Vidot had said it was best to skip the bill and go straight into mediation.
“The judge’s patience is running out, and so is the people’s,” he said.
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