Senate Republicans Introduce Bill for Puerto Rico Relief

The New York TimesBy MARY WILLIAMS WALSH

From left, Senators Orrin G. Hatch, Chuck Grassley and Richard Blumenthal at a hearing earlier this month on Puerto Rico's fiscal problems. Credit Pablo Martinez Monsivais/Associated Press Continue reading the main storyShare This Page Email Share Tweet Save More Continue reading the main story

From left, Senators Orrin G. Hatch, Chuck Grassley and Richard Blumenthal at a hearing earlier this month on Puerto Rico’s fiscal problems. Credit Pablo Martinez Monsivais/Associated Press

Under pressure to help Puerto Rico avoid a bond default on Jan. 1, Senate Republicans introduced a bill on Wednesday to extend several forms of assistance to the island.

But the measure stopped well short of embracing proposals from the Obama administration, which include giving Puerto Rico access to bankruptcy court.

The senators acted as Antonio Weiss, a counselor to Treasury Secretary Jacob J. Lew, warned that without congressional action, Puerto Rico risked “another lost decade.”

The Republicans’ measure would include up to $3 billion in cash relief, a payroll tax break for residents of the island and a new independent authority that could borrow for Puerto Rico — but with no taxpayer guarantee.

“Consistent with the views of Congress and the administration that there will be no ‘bailout’ ” of Puerto Rico, said a bill summary, “the full faith and credit of the United States is not pledged for the payment of debt obligations issued by the authority.”

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The bill also called for Puerto Rico — and all the states — to disclose, for the first time, the true financial condition of their pension systems for government workers. Currently, governments use actuarial numbers, which can significantly understate a pension plan’s cost. Shifting to fair-value numbers could help with coming negotiations in which Puerto Rico has said it plans to divert money from its bondholders and use it to pay pensions.

The proposed new disclosures would also make it easier to identify other states whose pension systems are so distressed that they may have to try similar negotiations in the future.

To get the $3 billion, the bill proposed tapping a $12 billion public-health fund created under the Affordable Care Act, for research and preventive medicine programs nationwide. The bill summary said the money was as yet “unobligated,” and could be “repurposed” with federal supervision to help tide Puerto Rico through an alarming cash squeeze this winter.

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To give Puerto Rican workers a tax break, the bill would reduce by 50 percent the Social Security taxes now withheld from their paychecks.

And in an echo of the control board that Congress imposed on the District of Columbia in the 1990s, the Republicans’ bill would designate a “chief financial officer” for Puerto Rico to advise the island’s governor on drafting and sticking to an annual budget.

The designee would remain in place even if the government changes hands in next year’s election, giving Puerto Rico a better chance of seeing through its five-year economic recovery plan no matter who is elected. The five-year plan was announced in September.

The legislation was introduced by the Republican chairmen of three Senate committees with jurisdiction over Puerto Rico’s affairs: Senator Orrin Hatch of Utah, whose Finance Committee has jurisdiction over tax policy; Senator Charles Grassley of Iowa, whose Judiciary Committee is responsible for bankruptcy law; and Senator Lisa Murkowski of Alaska, whose Committee on Energy and Natural Resources has jurisdiction over matters involving America’s territories.

Each of those committees has recently held a hearing on Puerto Rico’s travails, taking expert testimony on the severity of the island’s debt crisis and what might be done to restore stability and economic growth. In each of the hearings, Republicans said they wanted to help, but were troubled by a lack of information about the Puerto Rican government’s spending practices.

“Despite repeated attempts by Congress to clarify how the interplay between federal tax, health care and pension policies affect the territory’s economy, we have been unable to receive audited financial statements from Puerto Rico or adequate information from federal health officials,” Mr. Hatch said in a statement. “Federal taxpayers and the Puerto Rican people deserve better.”

He and the other senators said they had decided to go ahead with a bill based on the limited information they already had. They said it would take time to solve Puerto Rico’s problems, and in the meantime they hoped to get more financial information.

Lawmakers from both parties have been working toward a Jan. 1 deadline, when Puerto Rico owes bond payments of as much as $902 million, according to the Center for a New Economy, a nonpartisan research institute in San Juan. So far, the island has been struggling to stay current on most of its obligations. But officials say they are running out of cash and it is not clear that Puerto Rico will have enough money to pay what it owes on Jan. 1.

About $332 million of that bond payment is for general-obligation bonds, which are constitutionally guaranteed in Puerto Rico. It would be unprecedented, and unlawful, for Puerto Rico to skip such a payment outside of bankruptcy — yet Puerto Rico is barred from using Chapter 9 bankruptcy.

The Obama administration has expressed doubt that Puerto Rico could successfully restructure without being able to impair all of its bonds, including those with constitutional protection. But Republican lawmakers suspect that if Puerto Rico were to get the tools to legally impair its general-obligation debt, it would not be long before fiscally troubled states, like Illinois, came calling for the same thing.

On the details of how to revive Puerto Rico’s failing pension system, or changing the way doctors on the island are paid by federal programs like Medicare, the bill proposes only further study.

The legislation was introduced during end-of-the-session drama in Washington, as the governor of Puerto Rico came to Washington to make one last plea for help.

Speaking at the Peterson Institute for International Economics, Mr. Weiss, the Treasury official, said that the National Economic Council and the Treasury had already “convened a broad, administration-wide effort” among federal agencies “to develop the most effective policy response to the crisis.”

“But,” he added, “it has become clear that resolving Puerto Rico’s crisis requires congressional action.”

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