WASHINGTON, DC -- With Puerto Rico’s energy company facing a $9 billion interest debt and other payment deadlines on the horizon, Senate Democrats moved on Wednesday to change a bankruptcy law to allow the U.S. commonwealth to restructure its debt.
The Senate bill, whose lead cosponsors are Sen. Richard Blumenthal, D-Conn., and Sen. Chuck Schumer, D-New York, would allow Puerto Rico’s public agencies to file Chapter 9 bankruptcy to avoid defaulting on debt. U.S. municipalities such as Detroit, whose states authorize them to, have the ability to come up with plans for paying off what it owes through Ch. 9.
Blumenthal said Congress needs to change the law “to avoid disaster, to prevent Puerto Rico from going over a fiscal cliff that’s entirely preventable.”
Some might say it is already at the precipice or heading into the abyss. Puerto Rico Gov. Alejandro García Padilla has said if he can’t make the island’s economy grow it will head into a “death spiral.”
But Congress is due to head out on its summer recess in about two weeks, leaving little time for movement on the bill before it returns in the fall.
At this point, the Blumenthal-Schumer bill has only Democratic sponsors. A similar bill in the House sponsored by Rep. Pedro Pierluisi, Puerto Rico’s resident commissioner in Congress who does not have a vote, got a committee hearing, where it was entangled in the issue of Puerto Rico statehood.
There has been resistance to allowing Puerto Rico to go the Chapter 9 route. Some have favored allowing creditors to work out payment deals on their own or to appoint a council to decide how debt might be repaid and who gets paid.
Hedge fund companies have been among the major investors and some have been opposing attempts to provide Puerto Rico the Ch. 9 remedy that might allow it to put off some of its debt payments.
“We are five months away from the next turning point and I think better to act now than wait until the crisis has real-life ramifications for the people of Puerto Rico,” Blumenthal said.
“This set of fiscal issues has been building for a while and bankruptcy is a last resort and so undoubtedly there was an effort to deal with it without considering this,” he said.
Pierluisi acknowledged the bill would not resolve all of Puerto Rico’s fiscal problems, but said it will allow a U.S. jurisdiction to help itself, at no cost to federal taxpayers.
“Because Puerto Rico is a territory and not a state, the 3.5 million American citizens that live in Puerto Rico cannot elect senators to protect and promote their interests. Instead we must rely on the goodwill of senators who were not elected by the island residents and are not directly responsible to them.”
Puerto Rico’s fiscal problems have become a 2016 presidential issue, particularly because of the number of Puerto Ricans who live in Florida.
Schumer raised the election ramifications in the news conference, saying it might interest some Republicans in the Senate now, “for one reason or another.” Sen. Marco Rubio is from Florida and is seeking to be the GOP’s presidential nominee.
“If Puerto Rico can’t restructure its debt and the island falls apart at the seams, then Puerto Rico’s going to be asking us for an emergency bailout which will cost billions and billions of dollars,” Schumer said.
“You want to save some money? Allow this to happen. Furthermore, the municipal bond market can be affected,” he said.
“Our Republican colleagues should remember the old saying, a sticth in time saves nine,” Schumer said, adding that he hoped the bill to be bipartisan.
Asked for a timeline on the bill, Blumenthal said the sooner the better.
“In the coming weeks we will urge our Republican colleagues to get on board … and get this bill across the finish line,” Schumer said.