The $1.7 trillion fiscal package cleared Friday by Congress included several Democratic priorities — higher spending levels for federal agencies, tax breaks for lower-income families, and a dearth of policy riders obstructing Obama administration initiatives — but it did not address one big one: debt relief for Puerto Rico.
The U.S. territory owes $70 billion to bondholders, and payments on that debt have led to a series of cascading fiscal crises that have had San Juan begging for help from Washington. But congressional Republicans have rebuffed Democratic requests to bail out Puerto Rico’s budget or to allow it to declare bankruptcy, a process that could shortchange investors.
But congressional Democrats said Friday they have secured promises from Republican leaders to take up a relief package for Puerto Rico in the new year — a claim that helped persuade all but 18 House Democrats to support the spending bill Friday.
House Minority Leader Nancy Pelosi (D-Calif.) told colleagues in a letter Friday morning that Speaker Paul D. Ryan (R-Wis.) has “agreed to take action on restructuring legislation by March 31, 2016, and last evening, he committed to start that process with a hearing on our first day back in January.”
Ryan has not publicly confirmed that specific pledge, but on Wednesday he issued a statement of his own indicating that he is “instructing our House committees of jurisdiction to work with the Puerto Rican government to come up with a responsible solution by the end of the first quarter of next year.”
Pelosi told reporters Friday morning that Ryan intends to follow “regular order” and allow the various committees with a stake in territorial issues to weigh in, but that there is a mutual understanding that March 31 is “really a do-or-die date for them.”
“He said: On March 31, we’ll have something done,” she said.
Mounting a congressional response to the debt crisis has proven to be a complicated issue, but in general Democrats want to give Puerto Rico a structured process to work out its obligations with bondholders — much as states have the ability to declare what’s known as a Chapter 9 bankruptcy. But some Republicans are troubled at the prospect that bondholders could be shortchanged after investing under the understanding that Puerto Rico would not have access to bankruptcy or a similar structure that could subordinate their claims.
Puerto Rico’s leaders have threatened to close schools and curtail emergency services on the island unless Washington takes action to protect it from its creditors, which include large institutional investors and hedge funds.
In a statement Friday, Puerto Rico Gov. Alejandro Garcia-Padilla (D) slammed Congress for failing to include any provision in the year-end spending bill and pledged to “hold Speaker Ryan to his public declaration that Congress will reach a solution by the end of March, which must include broad, comprehensive restructuring authority and an economic growth plan.”
“This fiscal crisis will soon become a humanitarian crisis under the American flag and the Commonwealth will be dragged into massive, costly litigation, which will prevent the Commonwealth from providing essential services to its citizens,” he said. “By not acting now, Congress has opted for the U.S. Commonwealth to default on its obligations and unfold into chaos. Once again Wall Street has demonstrated its control over Congress; Wall Street rules Congress. That power is clearly factored into the fundamental analysis of hedge funds and vulture funds that control our democracy. Wall Street won this round but common sense, due process and fairness will prevail.”
While the wheels might start moving soon on the House side, there has been little apparent movement in the Senate. Senate Majority Leader Mitch McConnell (R-Ky.) said Friday, “We haven’t been discussing that issue over here yet.”
Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) came to the Senate floor Friday to accuse Democrats of making “misrepresentations, false claims and statements that effectively impugn Republicans’ motives as we are working to address the Puerto Rican challenges.”
Suggesting that the failure to grant Puerto Rico access to bankruptcy is a bow to Wall Street hedge funds is “total bull,” Hatch said. “They should tell that to the retiree who … would wake up to the news that their nest egg had suddenly taken a hit. Of course, those middle-class investors, the millions that aren’t wealthy venture capitalists, would likely not be aware that their modest portfolio took that hit because some senators had lumped them into some vaguely defined category of rich fat cats who don’t deserve the protections of the law.”
But a top Democrat, Sen. Charles E. Schumer (D-N.Y.), said he was hopeful an accord could be reached in the coming months: “I think there is, among some of the Republicans, a desire to do a real bill. Among some of the other Republicans there’s this view that all of the bondholders have to be paid first, then you’ll never get a deal. And I think Paul Ryan is sympathetic to the broader general bankruptcy provisions, and I hope he is. … It’s the most logical, obvious thing to do.”