That legislation is now stuck in the House Natural Resources Committee, whose staff has labored to craft a bill that can be tolerated by territorial officials, the Treasury Department, various bondholders and Republican lawmakers wary of any congressional intervention in private transactions.
McCarthy on Tuesday said the holdup was “because Treasury was still negotiating” over the bill’s terms, but Treasury Secretary Jack Lew said in a Univision interview Friday that the legislation is “not yet in a form that works.”
“They have to put in place restructuring that actually works,” Lew said. “Our test is pretty simple: Does it work or doesn’t it work? And there are a lot of voices that Congress is hearing from. And they’re not all voices that represent the 3.5 million Americans who live in Puerto Rico.”
Among the loudest voices are a subset of bondholders who own the island’s general obligation debt, payments on which are prioritized under the territorial constitution. Groups allied with those bondholders have characterized the rescue bill as a “bailout,” even though House Speaker Paul D. Ryan (R-Wis.) has vowed not to spend taxpayer dollars to meet Puerto Rico’s debt obligations.
“There will not be a bailout,” McCarthy said Tuesday. “Is any money coming from the taxpayers? No.”
Outstanding issues, according to people familiar with the negotiations, involve the process for accessing a court-enforced restructuring — a bankruptcy-like process that some bondholders are fiercely resisting — as well as the makeup and powers of a new fiscal oversight board that would help keep government finances in check.
Negotiators are trying to craft a bill that would give Puerto Rico a clear path out of its crisis, as the Treasury Department and the island’s advocates are seeking, but would also impose sufficient fiscal discipline to convince wary Republicans that more interventions would not follow.
The island’s legislature has announced its intention to skip $2 billion in payments on July 1, including more than $800 million to general obligation bondholders, and a default is almost certain to spark litigation that could linger for years in the absence of congressional action.
Advocates for the island say that litigation, and the uncertainty it would create, would only exacerbate an economic crisis that has accelerated the migration of Puerto Ricans to the mainland U.S. and snuffed out the growth necessary for the island to meet its fiscal obligations. That, rescue proponents warn, could ultimately necessitate direct federal aid to Puerto Rico — an actual bailout.
McCarthy said he recognized the risks of Congress not acting but offer no guarantees that there would be action before July 1: “We’ll get it done as soon as possible. The most important thing to do here is to get it done right.”
The Senate, meanwhile, has been content to let House leaders take the lead on the Puerto Rico issue, though key senators have expressed reservations about the approach they have taken. “We know it needs to be dealt with and we’re in discussions with them about what ought to be done,” Senate Majority Leader Mitch McConnell (R-Ky.) told reporters Tuesday.