Senate Democrats said Monday they’ve crafted a legislative package that offers Puerto Rico a “real path to solvency,” as the U.S. territory struggles to tread water amid a sea of red ink.
The plan would allow Puerto Rico to restructure all of its $72 billion debt and establish a nine-member fiscal reform board to ensure that island leaders stick to their budgets.
It would also tweak the law so that Puerto Rico gets more Medicaid funding — unlike the states, its program is capped — and ensure that residents who would qualify for earned income and child tax credits on the mainland would also qualify on the island.
Analysts say Puerto Rico’s woes are the result of years of over-borrowing and spending and the steady exit of young, working-age residents who could help turn around the island’s fortunes.
Puerto Rico is already taking drastic steps to avoid a default, including withholding tax refunds and selling off pension assets to fund its operations without slashing health care, education and other services.
“For the 3.5 million American citizens living on the island of Puerto Rico, time is running short,” said Sen. Bob Menendez, New Jersey Democrat leading the effort. “Congress has to act immediately to fix the federal funding shortfalls and give Puerto Rico the tools it needs to fully restructure its debt.”
The Democrats’ announcement preempts House Republicans who are crafting their own solution ahead of a March 31 deadline set by House Speaker Paul D. Ryan, Wisconsin Republican.
The Natural Resources Committee has said it will unveil legislation by that date and hold a markup in April. So far, it has signaled any solution should include an oversight authority, audits of the island’s financial statements and voluntary debt restructuring to put the territory on the path to fiscal responsibility and restore market confidence.
Congress is under intense pressure to help bail the U.S. territory out — though lawmakers are wary of setting a bad precedent or leaving taxpayers on the hook.
Last year, congressional Republicans said they do not want to rewrite the rules midstream by extending to Chapter 9 bankruptcy protection to the island from its bondholders.
The Senate Democrats, though, said Monday that Chapter 9 would only apply to a third of Puerto Rico’s debt load, and that the island should be able to restructure it all.
The Obama administration, meanwhile, insists something must be done.
A Treasury official told the Natural Resources Committee last month that any attempt to restructure the island’s debts should be routed through the territorial clause of the Constitution, a route that could be more palatable to congressional Republicans who do not want to extend Chapter 9 bankruptcy protection.
That restructuring should be paired with a federal oversight panel — some lawmakers call it a “control board” — that would allow local leaders to tax, spend and govern as they see fit, yet force them to live up to their fiscal obligations, according to the administration.