Issa: Puerto Rico Could Resolve Debt Restructuring Problems Today Through Statehood

Puerto Rican officials from across the political spectrum joined forces yesterday to urge the U.S. Congress  to provide the government of Puerto Rico with the same authorization enjoyed by states to restructure debt under Chapter 9 of the federal bankruptcy code.

In a Congressional hearing before a House judiciary subcommittee, Members of Congress considered a proposal to amend federal bankruptcy law governing municipalities to include the U.S. territory, which faces a debt burden close to $73 billion. The hearing comes on the heels of a a federal court ruling that a local debt restructuring law was unconstitutional.

Congressman Darrell Issa (R-CA) brought up the issue of Puerto Rico’s status at the hearing when he suggested that Puerto Ricans have two possible options to solve debt restructuring problems “by their own vote today” – through either statehood or independence.   Issa noted that as an independent country, Puerto Rico would no longer be covered under U.S. law, and as a State, Puerto Rico would be automatically included in Chapter 9.

Legislation pending before the Judiciary Committee would essentially make Puerto Rico a State for purposes of Chapter 9 of the bankruptcy code by redefining “State” in the statute to include the U.S. territory of Puerto Rico.

Puerto Rican Resident Commissioner Pedro Pierluisi, the author of the proposed legislation, noted that Puerto Rican “public corporations, like our electric power authority and our highway authority, are subject to U.S. labor, environmental and other laws – as they should be because Puerto Rico is an integral part of this nation.”  He further argued, “[h]ow is it fair…that these same entities should not have access to the legal mechanism that Congress has put in place to authorize such entities, if they become insolvent, to adjust their debts in an orderly fashion?”

Judiciary Committee Chairman Bob Goodlatte (R-VA) recognized that Chapter 9 of the Bankruptcy code could provide “predictability, transparency, and stability to a Puerto Rican municipal bankruptcy.  It also could serve as a framework within which parties could come to the negotiating table and reach a consensual restructuring.” He added, however, that bondholders purchased Puerto Rican bonds when Chapter 9 was not an option and cautioned against applying the law retroactively.

Hearing witness John Pottow, a law professor at the University of Michigan, addressed the concern over retroactivity by noting that Congress has authority under the constitution’s Bankruptcy Clause to adjust debts and has used this authority in the past by enacting laws that apply to pre-existing debts.

Resident Commissioner Pierluisi dedicated his opening testimony to listing the broad support for the proposal, including endorsements from academics, individual practitioners, the National Bankruptcy Conference, local trade associations in Puerto Rico and stakeholders within the investment community.  Pierluisi further noted that the opposition to the bill is centralized in a small number of investment firms.

Watch the hearing on video.  (Issa comments on status begin at 1:19)

Witnesses at the hearing included the following individuals:

7 Comments

Luis Arroyo

I support Pierluisi on statehood but find his bill for chapter 9 under commonwealth disturbing. As Issa stated, PR can have chapter 9 thru statehood or any law it chooses under independence.

Pushing for chapter 9 under “commonwealth” makes Pierluisi the greatest friend for the enemy of statehood. Pierluisi is effectively pushing for “Enhanced Commonwealth” by consequence. Even if its not his intent. PR has no chapter 9 because it sells bonds triple tax free and its a territory. territory cannot have advantages states cannot have such as triple tax free bonds, no income or corporate federal taxes AND chapter 9.

Dennis Myers

Pierluisi is just being practical and working to help PR in any way he can. The Statehood act is stalled in committee and we probably will never see action on it.

Leroy E. Williams

I agree with Bob Goodlatte (R.Va) and with Luis Arroyo. I am a bond holder of PUERTO RICO ELECT PWR AU and PR ACUEDUCT SEWER AUTH bonds. These entities did not present in their prospectus that bankruptcy was a risk. The management of both entities are faulted with mismanagement by individuals selected by arrangements rather than their expertise in these industries. Why are we still using oil to product power when we have so much sun and wind?

Rafi Nieves

Puerto Rico likes to live off US funding with no compromise on their part. It’s like a little cancer that loves to eat away us money.
It is time that they pay the piper and start paying back some of that money with us taxes.
Option have all those people living in those nice houses pay property taxes to the US since PR is now and for the longest time been a US territory. The US needs to take full control of how US money is used by PR
Note: I AM A PUERTORICAN living in the states and a US taxpayer and so far it has not killed me. All of PR politicians are as crooked as Al Capone. The only difference is that most of them are attorneys and use the law in their favor for their on benefit. They really don’t care for puertoricans well being. Enough venting for now.
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Orlando Llenza

The majority of voters selected statehood yet lobbying by the PPD convinced those in The White House and Congress to ask for another vote knowing that the PPD would never legislate for a plebiscite. Like the song says: ” I don’t want her you can have her, she is too fat for me”. Don’t be fooled, neither The White House or Congress will force another vote on statehood.

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