It has as many delegates at the Republican convention as New Hampshire or Maine, and more than five other states or the District of Columbia. And on Sunday, Republicans in Puerto Rico will cast their votes in the GOP primary.
The island territory — which like the District has only nonvoting representation in Congress — has a population of 3.5 million and a $72 billion tower of debt that Congress, the Treasury and bondholders are trying to figure out how to handle. Now a growing number of Zika virus cases could add to health-care costs and hurt tourism, a vital source of revenue.
Marco Rubio will fly to the island Saturday night to woo voters in Levittown outside San Juan. He is hoping that doing so will not only boost his prospects in Puerto Rico, but also in Florida, home to about 1 million people who have fled Puerto Rico’s sinking economy to seek better lives on the U.S. mainland.
Rubio, who has received substantial contributions from hedge fund managers who often invest in troubled bonds, also is likely to carry a tough message that the island must get its fiscal house in order before it gets debt relief.
At the same time, Congress is striving to meet a March 31 target date set by House Speaker Paul D. Ryan (R-Wis.) for wrapping up legislation that would provide relief. The Treasury and Congress seem to be coming together on the creation of a financial control board that would set spending limits for Puerto Rico. But there are still important differences over the board’s reach and what power, if any, some other authority might have to compel the most reluctant bondholders to accept restructuring deals that would cut the value of their investments.
With $2 billion in debt payments due this summer, “that’s the real deadline. If we can’t make it, what kind of chaos will we fall into?” said Miguel A. Soto-Class, president of the San Juan-based Center for a New Economy.
Both the Obama administration and congressional Republicans seem to have moved away from the idea of legislation that would allow Puerto Rico, like other jurisdictions, to file for protection under Chapter 9 of the bankruptcy code. But the territory and its representatives have been urging Congress to adopt a mechanism that could bring along any possible holdouts to a widely accepted deal in order to avoid drawn-out, highly litigated debt restructuring.
Many creditors blame the Puerto Rican government for the financial crisis, and Rubio echoed those sentiments in a Feb. 25 GOP debate.
“This year alone, with all the problems they’re having, they barely cut their budget from one year to the next,” Rubio said when asked about the prospects for a Chapter 9 remedy. “So, I think the leadership on the island has to show their willingness to get their house in order and put in place measures [to] allow the economy there to grow again.”
He added that “the leaders in charge there now are doing a terrible job.”
Puerto Rico Gov. Alejandro García Padilla hit back on Twitter, saying that Rubio’s comments “confirm he works for the vultures that fund his campaign.” Rubio has received money from Paul Singer of Elliott Management, Peter Copses of Apollo Global Management and his wife, and Joshua Friedman of Canyon Capital, according to OpenSecrets.org.
The GOP primary offers Rubio a chance to win 23 delegates in a presidential race where he has won just one of 15 contests. He lags far behind front-runner Donald Trump and Sen. Ted Cruz (R-Tex.), neither of whom campaigned in Puerto Rico.
Trump is known in the territory for lending his name to the Trump International Golf Club, which last year filed for bankruptcy; he did not invest in the resort.
Luis Fortuño, the previous governor of Puerto Rico and now a Washington-based lawyer at the firm Steptoe & Johnson, is a former Jeb Bush supporter now backing Rubio. Fortuño, who is in Puerto Rico preparing for the candidate’s visit, said Congress is looking at a package of three items: a financial control board, a restructuring mechanism and measures to boost the commonwealth’s economy without a financial cost to the federal government. Those measures could include adjustments to Medicaid reimbursement and an expansion of the earned-income tax credit.
Island officials said this week that they favor a financial control board that would set overall spending caps and allow local legislators to use the money as they see fit.
Many creditors say that no restructuring mechanism is needed, citing a tentative deal restructuring the Puerto Rico Electric Power Authority’s debt as an example of what a private approach can achieve.
The chairman of the House Natural Resources Committee, Rob Bishop (R-Utah), echoed that view in a Feb. 25 hearing, saying, “We must do all we can to facilitate the development of consensual agreements between all creditors and debtors.”
But Soto-Class said the “haircut” reducing the amount of Puerto Rico’s debt was too small, and he worried that it would be a “dangerous precedent” for insufficient debt relief and insufficient reform.
Fortuño said the restructuring mechanism could force minority bondholders to agree to deals accepted by a super-majority of creditors.
“I don’t think there’s consensus,” he said. “I think there has to be some way to solve this by a consensual process, but as someone told me, the hammer has to be stored somewhere. If it needs to be used, it will be used. But if they don’t have to, they won’t use it.”