Bills
| 3.23.22

The Updated Plan to Help Puerto Rico Resolve its $72 Billion Debt Crisis (S. 2328)

Do you support or oppose this bill?

What is S. 2328?

(Updated April 28, 2019)

This bill was enacted on June 30, 2016

Update June 28, 2016: This bill was co-opted through the amendment process from its original form to serve as the legislative vehicle for a bill to help Puerto Rico resolve its debt crisis known as PROMESA. Originally, it reauthorized funding for the National Sea Grant College program (like this bill). When the House approved its version of PROMESA, it also amended this bill by transferring the text of PROMESA to it so as a result this bill is considered to have passed the House as well.

This bill seeks to assist Puerto Rico handle the U.S. territory's $72 billion debt crisis by creating an Independent Oversight Board to approve and execute fiscal plans. The bill would create a process for the Commonwealth to further restructure its debt with creditors if necessary. It also contains regulatory reforms aimed at boosting Puerto Rico’s economic growth.

The seven member Independent Oversight Board would be composed of financial and management experts appointed by the President and nominated by congressional leadership. The Speaker of the House and Senate Majority Leader would each have two of their suggestions on the board, whereas the minority leaders of the House and Senate would each have one recommendation selected.

While the Oversight Board would be considered an entity within the government of Puerto Rico, it wouldn’t be subject to the control of the Governor or Legislative Assembly. The board would make use of the government’s audited financial statements to assist in the preparation of fiscal plans and budgets. It would also work with government agencies and public corporations to improve operational efficiencies and accountability, optimize revenues over expenses, and make public services more reliable for constituents.

If it becomes necessary for Puerto Rico to further restructure its debt, three conditions must be met before any restructuring can take place:

  • Required audited financial statements must be provided;

  • A fiscal plan and budget must be in place that constitutionally protects the hierarchy of creditors and pensions;

  • There must be mediation among the various debtors and creditors.

To be approved, a debt restructuring proposal must be agreed to by a two-thirds vote from Puerto Rico’s creditors, who would voluntarily restructure the Commonwealth’s debt. If an agreement on additional restructuring can’t be reached, the Oversight Board would be able to file a petition in U.S. district court for supervised restructuring that would be distinct from a Chapter Nine bankruptcy.

A Revitalization Coordinator would be established under the Oversight Board to vet proposed infrastructure projects and work with federal agencies when necessary to accelerate mandatory reviews. The coordinator would make recommendations to the board about a project that could be given access to expedited permitting and regulatory processes if the proposal addresses several factors:

  • Economic support provided by the project;

  • The project’s access to private capital for financing;

  • Whether the project addresses a flaw in Puerto Rico’s infrastructure.

To encourage hiring, Puerto Rico would have the ability to adjust its minimum wage from $7.25 per hour to $4.25 per hour for workers up to age 25 for a five-year period, as the current minimum is seen as too high to compete with neighboring islands. The Commonwealth would also be exempt from the Dept. of Labor’s proposed increase in the pay threshold that’s exempt from overtime requirements.

Argument in favor

This bill offers the best path forward in resolving Puerto Rico’s debt crisis without a bailout or financial market turmoil. It provides Puerto Rico with a process to collaboratively restructure its debt with creditors, and enacts reforms to boost the economy.

Argument opposed

The Oversight Board this bill creates would have too much control over Puerto Rico’s finances, and if it sides with creditors in negotiations then the Puerto Rican government may not receive as much debt relief as it needs. This is a bailout by another name.

Impact

People who live and work in Puerto Rico; members of the Independent Oversight Board; Puerto Rico’s creditors; and the Puerto Rican government.

Cost of S. 2328

A CBO cost estimate is unavailable.

Additional Info

Of Note: Puerto Rico’s debt crisis began with an over-reliance on issuing tax-advantaged municipal bonds to finance government spending. When its economy declined and tax revenues fell, the condition of Puerto Rico’s public finances worsened as its population declined and more citizens required government assistance. These circumstances have aggravated Puerto Rico’s overall economic woes, as the island faces a 12 percent unemployment rate and a 45 percent poverty rate.

As it stands, Puerto Rico owes creditors around $70 billion in debt — a total that is nearly 70 percent of the Commonwealth’s entire economy — a substantial increase from 2000, when its total debt was only $24 billion. Most of the bonds issued by the government and other public institutions has been downgraded by credit rating agencies to junk status, with only $1.7 billion of its total debt still considered investment grade.

There’s a significant payment deadline looming that Puerto Rico must meet to cover its obligations, as there’s another $2 billion to be paid on July 1 after Puerto Rico defaulted on a $422 million due on May 1. The Commonwealth recently enacted legislation allowing it to delay debt payments and has its released its own proposal for restructuring debt, but investors and members of Congress worry that bond markets would be thrown into turmoil if it proceeds.


In-Depth: Sponsoring Rep. Sean Duffy (R-WI) introduced this bill to put Puerto Rico on a reasonable path to resolving its debt crisis while balancing the needs of creditors owed money by the Commonwealth’s government:

“Years of disastrous policies have completely wrecked Puerto Rico’s economy. As a result, the island and its millions of American citizens face a humanitarian crisis. That’s why we must allow for a responsible restructuring for Puerto Rico’s debt, and do it without using Wisconsin taxpayer dollars for a bailout.”

While the House initially set an end of March deadline for passing a solution for Puerto Rico’s debt crisis, negotiations over the nature of that solution have been protracted and contentious. Early proposals sought to give Puerto Rico access to Chapter 9 bankruptcy like states and cities have, which eventually led to this bill’s predecessor being introduced.

Following several delays and continued negotiations, House Republicans reached a deal with the Obama administration over a few key sticking points that stopped the earlier version of PROMESA. Specifically, this revised bill created a firewall between how constitutionally protected creditors and pensions would be treated in fiscal plans and also gives Puerto Rico the ability to choose to lower its own minimum wage but only for new hires, not for existing employees. Those provisions had proven to be a barrier to gaining Democratic support.



Media:

Summary by Eric Revell
(Photo Credit: Flickr user James Willamor)