The House has approved a bipartisan bill to help Puerto Rico tackle its $70 billion debt crisis, just weeks before a July deadline for the island’s next debt payment.
Supporters of the bill say it is not a bailout, NPR’s Greg Allen tells our Newscast unit:
“The plan includes no federal money for the U.S. territory,” Greg says. “It creates a seven-member financial control board, appointed by the president from a list put together by Congress.
“The oversight board will have to approve Puerto Rico’s annual budget and it will be able to restructure the island’s debt payments.”
The bill, which still needs to be approved by the Senate, was supported by President Obama, House Speaker Paul Ryan and Minority Leader Nancy Pelosi. Ryan worked closely on negotiations for the bill and urged conservative Republicans to support it, The Associated Press reports.
On July 1, Puerto Rico faces a debt payment of $2 billion, including $800 million to general obligation bondholders. (General obligation bond repayments are guaranteed by Puerto Rico’s Constitution — but a Puerto Rican law passed in April allows the government to freeze payments.)
Puerto Rico has already defaulted on debt payments, and is expected to miss the July 1 deadline without congressional action.
This debt crisis — and any actions to address it — have been brewing for a long time.
Puerto Rico’s economy has been struggling for 25 years, as Greg and Marisa Peñaloza explained last May. The economic decline on the island has driven many to move to the mainland, creating what Greg and Marisa call a “debilitating economic spiral.”
“Decades of recession and slow economic growth forced a succession of governments to take out loans to cover budget deficits,” they write.
Meanwhile, as Greg reported last summer, Puerto Rico lacks a key tool for tackling debt, one that’s available to U.S. states but not to the island: “The territory is prohibited from using bankruptcy to help it restructure debts,” he says.
The resulting crisis has cut deeply into everyday life in Puerto Rico, the AP reports:
“Some schools on the island lack proper electricity and some hospitals have said they can’t provide adequate drugs or care.
“The island’s only active air ambulance company announced this week that it has suspended its services.”
Various proposals to make some form of bankruptcy available to Puerto Rico were floated late last year, but they never made it into law.
There was opposition to the current House bill — from bondholders who lobbied conservatives “with the argument that the bill is unfair to creditors,” the AP says, to Democrats who objected to a provision allowing Puerto Rico to lower the minimum wage. It ultimately passed the House 297-127.
It now heads to the Senate, where, Greg reports, some Democrats have raised concerns about the composition of the financial control board.