The U.S. House of Representatives approved a bill laying out a framework to address Puerto Rico’s debt crisis with a powerful oversight board Thursday, after removing a provision that would have allowed the U.S. Virgin Islands to seek protection from creditors the same way.
Delegate Stacey Plaskett and Gov. Kenneth Mapp both sought to exclude the USVI and other territories and both hailed the House amending and passing the revised version of the PROMESA bill in statements Thursday.
Puerto Rico is facing a serious debt crisis and missed a $422 million debt payment in May. A provision of federal law, little-noticed when enacted in 1984, removed federal bankruptcy law’s protections from Puerto Rico. A much larger $2 billion payment is due in July and the territory is not expected to be able to pay in full and also keep basic government services running. (See Related Links below)
The PROMESA bill came about as a way to address Puerto Rico’s crisis. If enacted into law by Congress and signed by President Barack Obama, it would create a powerful oversight board with broad authority to restructure Puerto Rico’s debt and affect the budgetary decisions of the Puerto Rico government. The board’s seven members would be chosen by Obama or his successor, from lists provided by majority and minority leaders in Congress.
While it gives Puerto Rico bankruptcy protections, the Republican-sponsored bill lacks provisions sought by Obama, Plaskett and other Democrats to directly spend federal dollars in the territories, such as on road and infrastructure spending and changes to Medicare reimbursement rules.
Until earlier this week, the bill also applied to the U.S. Virgin Islands and other insular territories to also seek bankruptcy protections through a similar oversight board. But only if “the Legislature adopts a resolution, signed by the governor, requesting the establishment” of an oversight board.
Mapp and Plaskett strongly opposed the measure to allow the V.I. to seek bankruptcy protection, arguing it would make it harder and more expensive for the territory to borrow.
The “inclusion of the territory could mean much higher costs to Virgin Islanders as we attempt to seek bonds for needed projects in the territory,” Plaskett said in a statement earlier this week.
“The ability to declare bankruptcy translates to our bonds being less secure, which in turn can lead the market to charge the Virgin Islands a higher interest rate to borrow for projects such as roads, infrastructure or other needs,” Plaskett said.
Both Mapp and Plaskett hailed the removal of the V.I. from the legislation on Thursday.
Government House issued a statement Thursday evening saying, “Mapp expressed concern that this provision could have a negative effect on the territory’s ability to access the capital markets, potentially increase its cost of borrowing, and possibly subject the territory to a federal oversight board that could override territorial budgets, statutes and policies, including pension obligations.”
According to Government House, the Mapp administration “led the opposition to the provision, working with … Plaskett and Congressional allies, including Congressman Tom MacArthur of New Jersey.” MacArthur is a Republican, representing New Jersey’s third district.
“The original language including the small territories in the oversight board provisions was neither requested nor supported by me or any of the other territorial governors,” Mapp said. “Nor did Treasury fully consider the potential impact of the original language on our respective abilities to access the U.S. capital markets. I am grateful that the Treasury and Justice Departments were persuaded by our legal arguments that there was no constitutional impediment to remove the offending language.”
According to Government House, the U.S. Department of Treasury and the U.S. Department of Justice originally opposed Mapp’s position, preferring to include the territory “based on stated concerns under the Uniformity Clause and the uniformity requirements of the Bankruptcy Clause of the U.S. Constitution.” But the administration claims they ultimately came around after reviewing its legal memorandum addressing those concerns.
Plaskett hailed the change to the bill, thanking Congress and the Obama administration “for understanding the importance of the financial autonomy of the Virgin Islands and the other U.S. territories, as well as the potentially negative impacts the bill could have on our overall economic development.”
She said the bill “offers the ability for the island to restructure 100 percent of its debt, while the only other option would force Puerto Rico to litigate with creditors and their lawyers in court.”
Though seeing it as necessary to forestall disaster in Puerto Rico, Plaskett is not entirely happy with the bill.
“Despite improvements to the Oversight Board and pension provisions, I believe that PROMESA still remains flawed. The proposed Oversight Board’s powers are overly broad, depriving the government of Puerto Rico of more authority than is necessary to achieve fiscal stability and economic growth,” she said.
Plaskett said she believes the best solution would be “legislation which includes the recommendations of the White House. Legislation which focus more on better equipping Puerto Rico and the other territories with the mechanisms to grow their own economies rather than imposing Orwellian oversight boards.”
The House of Representatives adopted the amendment language by a voice vote as part of a manager’s amendment offered by House Natural Resources Committee Chairman Rob Bishop (R-Utah), according to Government House. The PROMESA bill now goes to the U.S. Senate.