Senate Proposal Calls for U.S. Control in Puerto Rico

Two bills to resolve the financial problems of Puerto Rico were introduced by Republicans in the U.S. Congress yesterday.

The legislative proposals were introduced after Senate Republicans blocked a move by Senator Charles Schumer (D-NY) to grant the territory the authority of a State to enable insolvent instrumentalities to restructure debts under Federal Bankruptcy Code Chapter 9. Sen. Richard Blumenthal (D-CT) introduced the bill with Schumer and 13 other Democrats. It mirrored a bill introduced by Puerto Rico’s lone representative in the Federal government who has a seat in the House of Representatives, Pedro Pierluisi (D). Schumer, the expected Senate Democratic Leader in the next Congress, and Blumenthal were joined in speaking in favor of the bill by Finance Committee Senior Democrat Ron Wyden (D-OR), Senators Kirsten Gillibrand (D-NY), and Robert Menendez D-NJ). Finance Committee Chairman Orrin Hatch (R-UT) spoke in opposition.

Hatch was the lead sponsor of the new bill introduced yesterday in the Senate that demonstrates the extent of the gap between Democrats and Republicans on how to respond to Puerto Rico’s financial problems.  Joining him in sponsoring the bill were the chairs of the two other Senate committees that have jurisdiction over various proposals that have been considered, Lisa Murkowski (R-AK) of Energy and Natural Resources, which has jurisdiction over the governance of territories, and Chuck Grassley (R-IA), which has jurisdiction over the Bankruptcy Code.

The Hatch/Murkowski/Grassley legislation would —
* Impose Federal control over Puerto Rico’s finances until years after the affairs are put in order — which many Puerto Rican leaders would oppose. Among other powers, the Federal Authority it would establish would be able to issue bonds backed by territorial revenue.
* Transfer to the territory $3 billion from the 2010 Federal healthcare reform often called Obamacare — which Democrats would oppose.
* Change requirements for government pension systems throughout the country — in ways Democrats would also oppose.
* Temporarily cut Social Security taxes cut in half for residents of all five U.S. territories.
* Recognize that Puerto Ricans can petition for statehood.
* Have studies done of Puerto Rico’s treatment in Federal health programs and public pension systems.

The bill is a sharp break from ideas that had been suggested by the Obama administration, which include: new provisions of the Federal Bankruptcy Code to enable territories to restructure debt whether the issuing entities are insolvent or not; a Federal fiscal oversight mechanism for Puerto Rico that would not have actual control over the territorial government; funding for Puerto Rico’s Medicaid program equal to that of the States; coverage of low-income Puerto Rican workers with one child or two children in the Child Tax Credit payments program, and not just those with three or more children, as in the States; and eligibility of low-income Puerto Ricans for the Earned Income Tax Credit payment program.

It remains unclear where the potential for negotiation between the two parties and their proposals exist.

Representative Sean Duffy (R-WI) sponsored the other bill introduced yesterday. It would institute Federal control over the territory’s finances and extend Chapter 9 authority if Puerto Rico’s Legislative Assembly and governor agree. It would also recognize the right of Puerto Ricans to determine whether the islands will remain a territory or become a State or a nation.

Upon introduction of the Puerto Rico Financial Stability and Debt Restructuring Choice Act , Rep. Duffy explained:  “This bill empowers the Government of Puerto Rico with the choice to partner with the Federal Government and put the island on a path towards balanced budgets and a return to fiscal security. If Congress does not act, it would have a devastating effect on the people of Puerto Rico and countless Americans throughout the states who stand to lose billions in the bond markets.”

He continued, “This is a multi-pronged approach and a long-term solution. It cannot happen without adoption of legislation by the Puerto Rico Legislative Assembly which must be signed by the Governor. We know bailouts do not change spending habits. We need all sides to be fully committed to changing the way Puerto Rico manages its budgets, tax collection and finances.”

The bills were introduced after the Obama Administration’s point person on the Puerto Rico fiscal situation, Counselor to the Secretary of the Treasury Antonio Weiss, made a strong appeal for the Administration’s suggestions.

Weiss also said that the Obama Administration would not sit idly by if a Federal law to assist Puerto Rico is not enacted. He did not say what that could be but emphasized that the Federal Executive branch’s powers to help are very limited.

The Obama Administration, Democrats in the Congress, Puerto Ricans, and Latino groups are pressing to have Puerto Rico assistance provisions added to a bill to fund most Federal programs for most of the fiscal year that ends September 30th. At a minimum, they want some authority for the territory to have debt restructured through the Bankruptcy Code. Current funding for most Federal programs expires tomorrow but is expected to be extended into next week. Congressional leaders hope to have agreement on a bill by Monday.

Governor Alejandro Garcia Padilla and some other leaders from Puerto Rico yesterday began a last minute lobbying blitz for the Obama plan. Pierluisi is also continuing his efforts, although in the case of bankruptcy legislation, for Chapter 9 authority instead of authority for the Government of Puerto Rico to restructure its debt as well as that of its instrumentalities. The territorial constitution requires that debt of the Government of Puerto Rico itself be paid before any other expenditure of the Government.

House Democratic Leader Nancy Pelosi (D-CA) has made provisions for Puerto Rico a priority in the spending bill talks with Republicans. There are, however, many competing ideas for policy riders to be attached to the bill, and there has been no indication that Republican leaders will agree to Democratic Puerto Rico proposals.

Representative Luis Gutierrez (D-IL) yesterday called on other members of the Congress to not vote for an appropriations bill for the year that does not include Puerto Rico assistance provisions but the votes of only a relatively small number of Democrats are likely to be needed to pass the legislation.

2 Comments

Chris

I personally am somewhat leery about the idea of a federal fiscal control board but unfortunately given the inability (or refusal?) of the present PDP administration to reign in their big government, big spending crusade there is no other alternative.

Jeff

The GOP treats Puerto Rico, like the “red headed stepchild”. They want to look as if they are helping (because of the amount of voting Puerto Ricans living in the states), but have no intention of taking the steps needed. Those steps would effect the financial gains of it’s contributors.

The leg has gangrene and has to be amputated. The patient cant afford it, so the doctor only removes a toe. Is that helping?

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