House Turns Attention to Puerto Rico Debt Crisis

By NICK TIMIRAOS

A pedestrian walks through a street in Old San Juan in July. Joe Raedle/Getty Images

A pedestrian walks through a street in Old San Juan in July. Joe Raedle/Getty Images

The White House and congressional Democrats fell short in their bid to include a debt relief mechanism for Puerto Rico in the $1.1 trillion federal spending bill that Congress will vote on this week. But their effort produced the most concrete sign yet that lawmakers will eventually take up legislation addressing the island’s debt crisis.

House Speaker Paul Ryan (R., Wis.) said Wednesday he had instructed the relevant House committees to work with Puerto Rico’s government to “come up with a responsible solution” by the end of March. “Puerto Rico’s fiscal crisis is a problem that is not going away any time soon,” he said.

Democrats were upset the Puerto Rico issue wasn’t addressed in the spending bill following talks between Republican and Democratic lawmakers and the Treasury Department over creating a restructuring mechanism for the island’s $72 billion in debt. As a territory, Puerto Rico’s municipalities don’t have access to chapter 9 of the U.S. bankruptcy code, unlike those in the 50 states.

Mr. Ryan’s statement is notable because the House of Representatives has so far shown less urgency in advancing legislation than the Senate, where three Republican committee leaders introduced a bill last week.

The Obama administration has proposed creating a mechanism for U.S. territories that would allow them to restructure debts incurred both by the central government and public corporations. Officials say the alternative in Puerto Rico will be messy and protracted legal disputes with myriad creditor groups over 18 different classes of debt that will exacerbate the island’s nine-year-long economic recession.

An Obama administration official said, “Puerto Rico needs a tested, orderly framework to resolve competing claims and anything short is insufficient.”

Many creditors, including mutual-fund firms, hedge funds and bond guarantors, strongly oppose the step, and Republicans have objected to what they say are unfair and retroactive legal changes.

A spokesman for House Minority Leader Nancy Pelosi (D., Calif.) said the instructions from Mr. Ryan meant that House committees would “pass restructuring legislation” before the March deadline. Mr. Ryan didn’t say that the legislation would deliver any particular solution.

Puerto Rico has been in recession since 2006 and is losing population, making it harder to generate the growth and revenue that’s needed to service its debts. “There is real risk of another lost decade, this one more damaging than the last,” said Antonio Weiss, a top Treasury official, in a speech last week.

Puerto Rico is unable to borrow in the capital markets and Gov. Alejandro García Padilla has said he will allow the island to default on payments before enforcing deep cuts in public services. The island has debt payments totaling around $950 million due Jan. 1.

The federal spending bill did include some assistance for Puerto Rico. It boosted hospital reimbursement rates under Medicare to eliminate payment disparities with the 50 states that could shore up a troubled health-care system.

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