U.S. lawmakers on Thursday began coalescing around revised bipartisan legislation to help address Puerto Rico’s unpayable debt burden that now threatens a full-blown humanitarian crisis.
Released close to midnight on Thursday, the House Natural Resources Committee’s revised bill includes a strong oversight board to direct how and when the island pays its bills and leaves many provisions of earlier proposals in place.
Puerto Rico has already defaulted on some of its roughly $70 billion in debt while trying to cope with a 45 percent poverty rate among its 3.5 million U.S. citizens.
The bill also keeps language that would allow Puerto Rico to cut repayments to creditors without their consent, known as a ‘cramdown.’
“Tonight, we introduced legislation to responsibly address the crisis in Puerto Rico. The revised bill incorporates technical refinements and input from all stakeholders. Any future changes will be done in public committee meetings,” HNRC Chairman Rob Bishop said in a statement.
While both Republican and Democratic leaders of the U.S. House of Representatives welcomed the bill after several delays, it remains to be seen what kind of welcome more conservative Republican lawmakers give the legislation.
In the early drafts of the bill, Senator Orin Hatch of Utah, the chairman of the powerful Senate Finance Committee, said he was not satisfied with the legislation, meaning a potential hurdle for passing the bill remains in place.
A vote by the U.S. House of Representatives on the bill is now expected to take place in the first week of June, ahead of a looming $1.9 billion debt payment due on July 1.
In recent months, the debt crisis has threatened a deepening humanitarian crisis as hospitals close wards, social services decline, and emigration saps more economic activity.
“After long bipartisan negotiations, we believe we have achieved a restructuring process that can work,” U.S. House Democratic Leader Nancy Pelosi said in a statement on Thursday.
House Speaker Paul Ryan, who faces opposition to the bill from within his own Republican ranks, highlighted the bipartisan effort as he will need Democrat votes to get it passed.
“Right now, the stability of the U.S. territory is in danger, as the Puerto Rican government continues to default on major loan payments. We have insisted that our response meet basic principles, and first among them is protecting taxpayers from a bailout,” Ryan said in a statement.
The bill, formally known as the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), seeks to return the island to solvency, rebuild a base for economic growth, and maintain its ability to access capital markets in the future.
Puerto Rico’s governor, Alejandro Garcia Padilla, said he was encouraged by the bill but chafed at the oversight board, which he believes undermine the island’s self-governance.
Choosing the members of the oversight board has been a sticking point in the talks leading up to the introduction of the bill.
“We will do our part to act expeditiously in providing President Obama with a list of qualified candidates for appointment to the oversight board,” Pelosi said.
U.S. Treasury Secretary Jack Lew said on Thursday he was pleased the bill includes “restructuring tools for Puerto Rico that are comprehensive and workable” but expressed disappointment that proposals to promote economic growth were left out of what he called a “tough bipartisan compromise.”
One conservative political lobby group affiliated with the Heritage Foundation panned the new legislation as not doing enough to address economic reforms.
“It also has failed to remain neutral in the tussle among creditors, designing a brand-new restructuring process instead of relying on negotiation and current law,” Dan Holler, a spokesman for Heritage Action said in a statement.
Puerto Rico’s creditors have lobbied Congress with different views and one main concern over the bill was whether or not it would create new precedents for treating investors, potentially setting up future legal fights in the U.S. mainland that are far away from the island’s current crisis.
“The bill, which creates a control board and allows for bankruptcy, is highly controversial and does not definitively protect any creditors. We believe the legislation is more positive for both GO and COFINA creditors than the legislation previously under review,” wrote Heights Securities analyst Daniel Hanson.
GO, or General Obligation bonds are backed by the full faith and credit of the island and are senior to all debt, while COFINA debt is backed by sales tax revenues.
“But the lack of clarity in the drafting of the bill, especially around conflicting portions within the bill and especially with respect to pension liabilities, means that we are still heart burned over the looming restructuring fight,” he said.