WASHINGTON – A rescue package for debt-stricken Puerto Rico has cleared a major hurdle in the House and now heads to the Senate just three weeks before the island owes a $2 billion debt payment to creditors.
The House on Thursday passed legislation to create a financial control board and allow restructuring of some of Puerto Rico’s $70 billion debt. In a rare display of political unity, the bill had the support of President Barack Obama, House Speaker Paul Ryan, R-Wis., and Minority Leader Nancy Pelosi, D-Calif.
“The Puerto Rican people are our fellow Americans. They pay our taxes, they fight in our wars. We cannot allow this to happen,” Ryan said in a floor speech just before the bill passed.
The overwhelming, bipartisan 297-127 vote in favour of the bill was a victory for Ryan, who had urged his colleagues, especially reluctant conservatives in the GOP caucus, to back the bill. He participated closely in negotiations on the legislation, which was one of the first major bills he shepherded through the House since becoming speaker last fall.
After the vote, the White House urged the Senate to follow the House’s lead quickly. Earlier this week, Texas Sen. John Cornyn, the No. 2 Senate Republican, said it was likely the Senate would take up the House version of the bill if it passed the House.
“We don’t want to be in a situation where there is a huge meltdown and then the next cry is for a taxpayer bailout,” Cornyn said.
Some senators have opposed the bill, however, and a single member of the Senate can slow down proceedings. New Jersey Sen. Bob Menendez has spoken out strongly against the House bill, saying the control board would take away the rights of ordinary Puerto Ricans.
The legislation would allow the seven-member control board to oversee negotiations with creditors and the courts over reducing some debt. It does not provide any taxpayer funds to reduce that debt.
It would also require the territory to create a fiscal plan. Among other requirements, the plan would have to provide “adequate” funds for public pensions, which the government has underfunded by more than $40 billion.
Puerto Rico has already missed several payments to creditors and faces the $2 billion installment on July 1. A lengthy recession has forced businesses to close, driven up the unemployment rate and sparked an exodus of hundreds of thousands of people to the U.S. mainland. Some schools on the island lack proper electricity and some hospitals have said they can’t provide adequate drugs or care.
The island’s only active air ambulance company announced this week that it has suspended its services.
“It is regrettable we have reached this point, but it is reality,” said Pedro Pierluisi, Puerto Rico’s representative in Congress.
Puerto Rico Gov. Alejandro Garcia Padilla said that he didn’t like the plan but it is the least harmful alternative for Puerto Rico. “This will protect us from the chaos that will result from an inevitable default that looms on July 1,” he said.
Despite leadership support, the measure faced opposition from some in the ranks of both parties, as some bondholders, unions and Puerto Rican officials have lobbied against it. Some conservatives said it would cheat bondholders, while some Democrats argued the control board has colonial overtones.
Democrats and labour unions have also opposed a provision in the bill that would allow the Puerto Rican government to temporarily lower the minimum wage for some younger workers. A Democratic amendment that would have deleted that provision was rejected, 225-196.
Still, Pelosi said the bill will provide the people of Puerto Rico with the tools they need to overcome the crisis and move forward.
In a push to get the bill passed, Obama summoned House Democrats with ties to Puerto Rico to a meeting in the Oval Office on Wednesday, including supporters and opponents of the measure.
Ahead of the vote, some bondholder groups tried to pick off conservatives with the argument that the bill is unfair to creditors and tantamount to a bailout for the territory. Some conservatives strongly opposed the bill, expressing concern for the bondholders and saying it could set a precedent for financially strapped states.
“If Congress is willing to undermine a territory’s constitutionally guaranteed bonds today, there is every reason to believe it would be willing to undermine a state’s guarantee tomorrow,” said Rep. Tom McClintock, R-Calif.
Rep. Sean Duffy of Wisconsin, a Republican who sponsored the bill, fought back against the idea that the legislation is a bailout of any sort.
“The bottom line is, this bill doesn’t spend any taxpayer money bailing anybody out,” Duffy said.
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