The high-stakes effort on Capitol Hill to help Puerto Rico solve its public debt crisis faces mounting odds as House Republican leaders struggle to manage political pressure from both the right and the left.
Those leaders hoped to have a rescue package out of the House Natural Resources Committee on Thursday, ready for floor action as soon as next week. But a committee markup was abruptly canceled late Wednesday, with panel chairman Rep. Rob Bishop (R-Utah) blaming Treasury Department officials for demanding further changes.
“It is unfair to all Members to force a vote with provisions still being negotiated,” Bishop said in a statement Wednesday evening.
But while Treasury Department officials and Democratic lawmakers are pushing to streamline the debt-restructuring process set out in the bill, there is an emerging group of conservative Republicans determined to oppose any bill holding the potential for a court-ordered restructuring that could result in a “cramdown” of the $72 billion the island owes bondholders.
With a major payment deadline only weeks away, Bishop’s approach has the backing of House Speaker Paul D. Ryan (R-Wis.), whose press office issued a fact sheet Wednesday responding to conservative critics’ claims that it would represent a “bailout” of the fiscally troubled U.S. territory. The bill does not in fact authorize any federal funds for Puerto Rico.
Ryan told reporters Thursday that GOP members are “coming around” to the view that the bill under consideration is the best option. “You have to understand a lot of members are just coming up to speed on this,” he said.
“A bailout is getting the taxpayer involved,” Ryan continued. “Our whole entire purpose of this is to prevent the taxpayer from getting involved and not having a taxpayer bailout.”
Still, Ryan is facing a dynamic virtually identical to the right-wing revolts that bedeviled his predecessor, John A. Boehner, on more prominent issues such as passing annual spending bills and increasing the federal debt limit. The conservative opposition has compelled Ryan and Bishop to negotiate closely with Democrats, giving them leverage to demand significant changes.
“He’s got to thread a needle that has a very, very small hole,” said Rep. Raul Grijalva (D-Ariz.), the ranking Democrat on the Natural Resources Committee. “I suspect that there’s not a majority of the majority on that side to pass it … unless you make the bill even worse than it is now. And then you don’t have a majority. If it’s going to pass, it’s going to be bipartisan and an overwhelming number of Democrats have to vote for it, period.”
Democrats oppose several provisions embedded in the bill, including language that would permit a lowering of the minimum wage for young workers to $4.25 an hour and a section that would allow the transfer of a portion of the Vieques National Wildlife Refuge to the territorial government. Even more troubling, they say, is the requirement that five of seven members of a federal oversight board created under the bill would have to assent to filing a restructuring petition in court — a threshold they say is unrealistic.
“This is the heart of the matter: Will the restructuring work?” House Minority Leader Nancy Pelosi (D-Calif.) said Wednesday. “That’s the test we have to put it to. … We are not there yet.” Key Democratic senators registered similar concerns.
Conservative Republicans, meanwhile, are pushing in the opposite direction — to make it more difficult, not less, for Puerto Rican borrowers to access a court-managed restructuring, akin to bankruptcy.
Some lawmakers have come under pressure from interest groups seeking to block restructuring efforts. The Center for Individual Freedom, an Alexandria-based group, has run more than $225,000 worth of radio ads in Bishop’s district targeting the Puerto Rico legislation. The group has taken out ads worth more than $2 million overall over the past few weeks.
“The only thing I’m talking about to people in Utah now is Puerto Rico,” Bishop told reporters Wednesday. “Who’d have thought that the most pressing issue in the First District of Utah was Puerto Rico?”
The former Florida congressman Connie Mack is lobbying his former colleagues on behalf of bondholders. In a recent email to clients, he signed off with the phrase, “Freedom Matters, Connie.”
Some of the big hedge funds with large holdings of Puerto Rico bonds, as well as two insurance companies that would be on the hook in the event of a restructuring, have been lobbying hard to make sure that Puerto Rico is forced to come up with the money to pay bondholders, especially those who purchased the most secure bonds issued by the commonwealth and backed by dedicated streams of tax revenue.
The draft bill was revised this week to give creditors a vote on Puerto Rican borrowers’ restructuring proposals, a change meant to increase the likelihood of a voluntary agreements. But the involuntary restructuring provisions remain.
Bishop on Wednesday pitched his bill to members of the Republican Study Committee, an influential group of House conservatives that includes most GOP House members. But it was not immediately clear if the group, which had criticized previous versions of the bill, would offer its blessing.
Rep. Bill Flores (R-Texas), the group’s chairman, said Wednesday there are lingering concerns that the bill would pave the way for bankruptcy under a different name. But he did not rule out keeping the involuntary restructuring process, known as Title III, in the legislation: “Let’s make sure we put all the pieces in place to have a consensual restructuring, and then that way I don’t have to worry about Title III of the bill. It can stay there.”
But other Republicans — including several members of the Natural Resources Committee — have staked out more strident positions. During a Wednesday morning hearing on the bill, Rep. John Fleming (R-La.) dueled with Treasury Department official Antonio Weiss and creditor attorney Susheel Kirpalani by suggesting that a judge could ultimately reshuffle creditor priorities.
“That looks a lot like bankruptcy restructuring,” Fleming said. “It’s also said that this is not a bailout. … Technically that’s true, but there are still going to be cash flow problems. How are we going to solve the cash flow problems?”
“It’s the first step,” Kirpalani said. “A necessary step.”
Said Fleming, “What is the next step? What is the other shoe to drop? There will have to be a cash bailout. … This is a framework of bankruptcy, whatever you want to call it, and ultimately it will require a bailout.”
Weiss said failing to pass the rescue bill would make a cash bailout more likely, not less likely. Other experts who testified sought to address other concerns, saying the bill would have a minimal impact on the broader municipal bond market and, as a constitutional matter, would not pave the way for fiscally distressed states to seek bankruptcy powers.
But those views carried little weight with some Republicans on the panel. Rep. Tom McClintock (R-Calif.) insisted the bill would open the door to state bankruptcies.
Lenders, he said, will “naturally recognize that if Puerto Rico can get de facto bankruptcy protection from the loans to which it had pledged its full faith and credit, well, so too can Illinois, California and New York. … Taxpayers in every state will end up paying through the nose.”
Bishop said Wednesday afternoon — before the markup was cancelled — that he remained confident the bill would ultimately win a majority from both parties. “This is a situation which cries out for a bipartisan agreement, and I think the basis is already there,” he said. “Everyone’s now throwing up little details of little things that they want, and it’s silly.”
Grijalva, at the hearing, asked Weiss who wins if Congress fails to pass the bill.
“My answer is simple: No one wins,” Weiss said. “Everyone loses. The people of Puerto Rico lose. The creditors ultimately lose. … The alternative to this legislation, which is not a bailout, will in fact become a bailout over time.”
Steven Mufson contributed to this report.