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Bill to be Introduced for Puerto Rico debt crisis

Sharon Edmondson, Washington Legislative Team Member | March 28, 2016

A bill to be introduced this week will allow Puerto Rico some access to bankruptcy-like debt restructuring, but only as a last resort after mediation between creditors and investors.

The bill, written by Rep. Rob Bishop (R-Utah), will not grant a bankruptcy-like debt restructuring, but will allow restructuring after the board is able to work with government agencies to streamline services and re-balance ledgers. The board will also seek audited statements from all parts of the government and consult with the governor and legislature on their fiscal plan and budget - or enact a fiscal plan and budget if elected officials don't. Other areas, like the island's more than $40 billion in pension obligations, will also be examined.

Bishop's bill draws from the Treasury Department's prescription for Puerto Rico, written last fall, without fully adopting it. Bishop's bill also provides mechanisms to fix Puerto Rico's ailing energy infrastructure. It is unknown if the bill will have enough support from Republicans.

Since the bill avoids expanding existing municipal bankruptcy law, it may meet House conservatives' standards: a solution that's neither a bailout nor an expansion of bankruptcy that could open the door for states to ask for similar treatment in the future. The Republican Study Committee has said it opposes 'forcible' restructuring, especially an expansion of Chapter 9 municipal bankruptcy access to the island.

The bill has been negotiated between House leadership, as described by House Majority Leader Kevin McCarthy (R-Ca.) and Minority Whip Steny Hoyer (D-Md.) on the House floor last week. The Treasury Department played an active role in negotiations as well, indicating a potentially speedy path to the Oval Office- so long as rank and file House members, as well as the Senate, like what they see.

Senate Democrats, led by Sen. Robert Menendez (D-N.J.) have sought to give Puerto Rican pensioners preference over bondholders, while Senate Finance Committee Chair Orrin Hatch (R-Utah) wants to maintain preferential treatment for general obligation debt that makes up much of the $73 billion Puerto Rico owes.

Though Senators Menendez and Hatch have been lead voices on Puerto Rico in the Senate, it's unlikely the Senate Finance Committee will have jurisdiction over this bill, given that territories fall under the jurisdiction of the Senate Energy and Natural Resources Committee. Sen. Lisa Murkowski (R-Alaska), chair of that panel, cosponsored a bill written by Hatch to create a financial oversight and management board for the commonwealth, cut taxes and provide up to $3 billion in aid.

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