U.S. House of Representatives Speaker Paul Ryan late this afternoon said that he was “instructing” House committees to “work with the Puerto Rican government to come up with a responsible solution” to “Puerto Rico’s fiscal crisis” by March 31st.
As first reported in the Hill, Ryan made it clear that this would not include broad authority for the territorial government to seek to restructure its debt — which would be a grant of authority beyond that of states— through the Federal Bankruptcy Code, saying, “we could not agree to precedent-setting changes to bankruptcy law.” Bankruptcy Code Chapter 9 provides for States to enable their instrumentalities — but not States themselves — to restructure debt in Federal Bankruptcy Court. Puerto Rico and the District of Columbia are treated as States in other provisions of the Bankruptcy Code but not in Chapter 9.
Puerto Rico’s resident commissioner in the House, Pedro Pierluisi (New Progressive Party/D), had sponsored legislation to extend Chapter 9 authority to the territory, and sixteen U.S. senators led by Richard Blumenthal (D-CT) and Charles Schumer (D-NY) had introduced a companion bill but Puerto Rico Governor Alejandro Garcia Padilla (Popular Democratic Party) and the Obama Treasury Department pressed the Congress to authorize debts of Puerto Rico’s territorial government as a whole to be revised in Federal Bankruptcy Court.
Democrats sought to have some bankruptcy authority for Puerto Rico added to omnibus legislation to provide funding for most government programs for the rest of the Federal fiscal year that ends September 30, 2016 and to extend provisions of the Internal Revenue Code. Three Senate committee chairs had proposed different legislation to aid Puerto Rico, and Representative Sean Duffy (R) from Ryan’s home State of Wisconsin had proposed a combination of Chapter 9 authority and a Federal Financial Stability Council that would advise the territory on fiscal decisions and could withhold Federal funding if the insular government did not comply.
In the course of negotiations, Democratic Whip Steny Hoyer emphasized, “I think there’s a real crisis with respect to Puerto Rico, its government and its people. I think we ought to address that crisis. I am very strongly for extending bankruptcy authority to Puerto Rico.”
Senate Minority Leader Harry Reid (D-NV) added, “I think that we as a country should …make sure we protect our territories. And we can point a lot of fingers at a lot of people and a lot of institutions why Puerto Rico is in such dire financial straits, but the fact is, they are. And I believe they should be given some relief. I believe the easiest thing to do would be to treat a territory so that they can file bankruptcy. And that’s what I’ve been advocating for. There are other, more complicated ways of doing this. But I would hope that, before it’s all through, here, that they can just file bankruptcy.”
Ryan’s directive was the result of a compromise on the bill with House Democratic Leader Nancy Pelosi (CA) reached late yesterday. Democratic votes are expected to be needed to pass the spending bill in the House tomorrow. Pelosi made provisions for Puerto Rico a top demand in the talks regarding the bill that primarily focused on proposed policy riders. The compromise on Puerto Rico was one of the last reached in the talks, underscoring Pelosi’s insistence on addressing the territory’s fiscal situation and Ryan’s recognition of its seriousness and the interest of some Republicans as well as Democrats. In his statement, Ryan declared that “Puerto Rico’s fiscal crisis is a problem that is not going away anytime soon” and recognized that “many Members on both sides of the aisle remain committed to addressing the fiscal challenges facing the territory.”
Weeks of talks in the Senate on what to do produced no real result and fell apart late yesterday morning as Judiciary Committee Chairman Chuck Grassley (R-IA) continued to refuse to extend Federal Bankruptcy Code authority to government in Puerto Rico.
What was added to the bill for Puerto Rico, however, would provide relatively little help. The legislation would have Medicare pay for inpatient treatment at Puerto Rico hospitals on the same basis as in the States, which would increase payments an estimated $618 million over 10 years. It would also extend to Puerto Rico healthcare providers funding for electronic medical records granted in the States, which would give them some $268 million over a decade. The bill, additionally, clarified that the Department of the Treasury could provide the Government of Puerto Rico with technical assistance in “economic forecasting, budgeting, cash management and spending controls, information technology upgrades, multi-year fiscal planning, revenue and expenditure projections, improving tax collections, and grant management.”
In the official explanatory statement accompanying the bill, the Department of Health and Human Services was, further, asked to report to the Congress’ appropriations committees on “the unique costs associated with delivering [health] care in the territories,” referring to Puerto Rico as well as the other four U.S. territories. Puerto Rico is treated less well than the States in Medicaid and ‘Obamacare’s’ health insurance subsidies for uninsured middle-income workers as well as in Medicare. The far less than equal funding in Medicaid — $1.5 billion-$3 billion a year — in particular, is a significant contributor to the Government of Puerto Rico’s fiscal problems.
The legislation would also extend from January 1, 2015 through December 31, 2016 grants to the government of Puerto Rico and the U.S. Virgin Islands of $2.75 per proof gallon of the tax on rum distilled in the territory and in foreign countries and the eligibility of income from Puerto Rico of domestic — vs. foreign — subsidiaries of companies in the States for the nine percent domestic production deduction. The additional grants of taxes on rum was estimated by the staff of the Congress’s Joint Committee on Taxation today to be worth $336 million to the two territories over the two years, and the production deduction $234 million to companies manufacturing in Puerto Rico. The Government of Puerto Rico should receive about three-fifths of the $336 million in grants.