House passes bill to help Puerto Rico avoid default

The House of Representatives, in a rare moment of bipartisanship, passed a bill Thursday to help Puerto Rico restructure its massive, $70 billion debt load and hopefully avoid defaulting on any more of its debt payments.

The bill establishes a seven-person advisory board that will be in charge of negotiating with the island's creditors, who lobbied hard against any kind of federal intervention out of fears the Puerto Rico would not pay its full debt. The Obama administration, led by Treasury Secretary Jacob Lew, has pushed hard to give the U.S. commonwealth some kind of relief, arguing that it has already cut back government services and needed some assistance.

The bill, which passed 297-127 after a strong push by House Speaker Paul Ryan, R-Wis., did not include any direct financial assistance, allaying fears from many Republicans about a possible bailout. Instead, it allows the oversight board to negotiate with creditors and avoid a lengthy, and costly, battle in court.

Ryan argued on the House floor Thursday that Puerto Rico needed congressional assistance because, unlike every U.S. state, Puerto Rico is not legally allowed to file for bankruptcy to restructure its debt. Ryan said a failure to act would lead to a more difficult decision over bailing out the impoverished island.

"This bill won't add a single dollar to the deficit," Ryan said. "This bill actually prevents a bailout. That's the whole point. The best chance creditors have to get what they're owed is this bill."

The bill would also create a federal task force to look at ways that Puerto Rico can get out of the economic spiral that it's been in for decades.

Part of the reason for the collapse was Congress' decision in 1996 to end a tax break that led U.S. pharmaceutical and petrochemical companies to establish subsidiaries in Puerto Rico. After the tax break ended, companies started leaving the island.

Puerto Rico's government then started making up for the revenue shortfall by taking advantage of its unique "triple-tax-free" status. Purchasers of Puerto Rican government bonds do not pay federal, state or local taxes, which led investors to snatch them up anytime the island offered them. The bonds became so popular that they're now part of many American portfolios, whether they know it or not. Morningstar, an investment research firm based in Chicago, estimated in 2013 that 180 mutual funds in the U.S. and elsewhere have at least 5% of their portfolios in Puerto Rican bonds.

The Puerto Rican government started relying on those bonds so heavily that its debt quickly outpaced the island's ability to pay them off, resulting in more than $72 billion in debt last year. Gov. Alejandro García Padila came into office vowing to bring that down, closing schools, hospitals and other government services. But by this year, he said there was nothing more his government could do and began pleading for the ability to file for Chapter 9 bankruptcy protections.

House Minority Leader Nancy Pelosi, D-Calif., said that economic disaster is why a new federal task force is needed to figure out ways to help the island recover economically and pay off its debts.

"I would hope that the task force would afford us the opportunity to see other ways that we can help the economic growth of Puerto Rico, to the citizens, our fellow citizens in Puerto Rico," she said on the House floor on Thursday.

The House action was commended Thursday by U.S. Secretary of the Treasury Jack Lew, who said that "while it is not perfect, it will stem the crisis.

"Time is of the essence," Lew added. "On July 1, Puerto Rico will face nearly $2 billion worth of payments that it does not have the money to make and in the absence of this bill, Puerto Rico faces a chaotic unwinding. Only continued bipartisan Congressional action can prevent Puerto Rico’s crisis from getting worse.  I urge the Senate to take up the bill without delay and send it to the President’s desk.”

The bill now moves to the Senate, where leaders have said they want to find a solution before Puerto Rico's next big payment comes due on July 1.

Alan Gomez

House passes bill to help Puerto Rico avoid default

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