If Puerto Rico’s Government Declares Bankruptcy, Should It Get the Same Protections as States and Cities? (H.R. 870)
Do you support or oppose this bill?
What is H.R. 870?
(Updated February 12, 2020)
This bill would allow Puerto Rico to receive the same treatment that states and cities would under Chapter 9 of the bankruptcy code.
By doing so, Congress would negate a 1984 change to the bankruptcy code that excluded Puerto Rico from a provision allowing states or their municipalities to enter Chapter 9 bankruptcy. That change has left Puerto Rico without any practical options to deal with its debt crisis after a federal court ruled that the commonwealth’s law allowing its cities and public entities to declare bankruptcy was unconstitutional.
This legislation would take effect immediately after enactment, and apply to all debts past, present, or future. It also includes a severability clause — meaning that if any portion of the bill by itself is found to be unconstitutional, the rest of the legislation would not be affected.
Argument in favor
Let’s be clear — this is not a bailout, and doesn’t authorize a bailout. All this bill does is allow Puerto Rico to use the same bankruptcy process available to states and cities.
Argument opposed
Allowing Puerto Rico to go through Chapter 9 bankruptcy will lead to it not repaying its creditors in-full, which will have a broader economic impact on investment and pension funds.
Impact
People who own mutual funds or bonds involving Puerto Rican bonds — particularly those of its public corporations, Congress, and the Puerto Rican government.
Cost of H.R. 870
A CBO cost estimate is unavailable.
Additional Info
In-Depth: The sponsor of this legislation, Rep. Pedro Pierluisi (D-PR), has emphasized the broad support
that this legislation enjoys — including endorsements by the editorial
boards of Bloomberg, the New York Times, the Washington Post.
Additionally, the Fitch Ratings
agency said extending Chapter 9 bankruptcy protections to Puerto Rico
would be a “positive and important development” for the commonwealth
and its creditors.
Of Note: Puerto Rico’s governor Alejandro Garcia Padilla has said
that the commonwealth’s $72 billion debt burden is “not payable” and
could trigger a “death spiral” that drives its economy into a severe
recession. Bankruptcy would assist Puerto Rico in restructuring its debt
to a more sustainable level, but without Congress allowing it to pursue
bankruptcy it would be forced to default.
On August 3, 2015 Puerto Rico defaulted for the first time in its history after managing to pay only $628,000 of a scheduled debt payment of $58 million. Its inability to pay the full amount resulted from a failure of the commonwealth's legislature to appropriate the necessary funds, and "reflects the serious concerns about the commonwealth's liquidity."
There have been several notable Chapter 9 bankruptcies over the years — including by Detroit and Stockton, California — but Puerto Rico’s bonds have been valued at about eight times those issued by Detroit.
Media:
- Sponsoring Rep. Pedro Pierluisi (D-PR) Press Release
- List of Endorsements for the Puerto Rico Chapter 9 Uniformity Act of 2015
- Bond Buyer
- The Hill
- Yahoo! News
- Hot Air
- Bloomberg (In Favor)
- Fitch Ratings (In Favor)
- Huffington Post (In Favor)
Summary by Eric Revell
(Photo Credit: Flickr user vxla)
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