The Puerto Rico Oversight, Management and Economic Stability Act, or PROMESA, will move to a vote on the floor of the U.S. House of Representatives after clearing the U.S. House Natural Resources Committee today in a 29-10 vote, after a three-hour markup.
“Today, we took a major step forward in our effort to help the 3.4 million American citizens in Puerto Rico, whose government is on the verge of collapse and is increasingly unable to meet its core obligations to citizens and creditors,” Resident Commissioner Pedro Pierluisi said in a statement. “PROMESA was approved by the committee with strong bipartisan support, a remarkable fact in light of the highly partisan nature of the current Congress.”
A vote in the full House of Representatives could come during the week of June 6, according to Pierluisi, who added that the calendar decision is up to House Speaker Paul Ryan. The bill could still face further amendments on the House floor and then later if it reaches the Senate. The schedule for passage through Congress and to President Obama is tight, considering the $2 billion wall of debt payments Puerto Rico is facing on July 1.
“I think that this is an issue of immediate urgency because in July, Puerto Rico will have another $2 billion in bond payments due. If this legislation doesn’t pass, there will be a chaotic unwinding that will be just pain for the people of Puerto Rico,” U.S. Treasury Secretary Jacob Lew told CNN’s Christiane Amanpour during an interview today. “And I should remind you and your viewers that the people of Puerto Rico are American citizens. It’s 3.5 million American citizens who will be plunged into chaos if this bill does not pass. And this bill is the only opportunity to fix the problem.”
Gov. Alejandro García Padilla also touted the committee’s passage as an "important step."
"There are key components in the bill that will help us address the insolvency of our island, protect essential services and make our economy grow," García Padilla said in a statement. "However, I remain concerned about the establishment of a fiscal control board with far-reaching powers. Puerto Ricans are Americans, and our democratic rights need to be protected, just like those of American citizens living on the mainland, and the oversight provisions do not meet that obligation. I urge Speaker Ryan to amend the latter as he brings PROMESA to the floor of the House as soon as possible. I appreciate the work done, but there is still more to do.”
The markup involved more than two dozen proposed amendments to the bill, less than half of which were adopted. A dozen were rejected either by being voted down or on points of order tied to the committee's scope of jurisdiction. Of the 24 Republicans on the committee who voted, 14 voted yes. Of the 16 Democrats on the committee that voted, 15 voted yes, and one voted “present.”
“We defeated every amendment designed to damage the bill or to disturb its carefully calibrated contents. The only amendments that were adopted either strengthen the bill or are simply technical in nature,” Pierluisi said.
Among the amendments accepted today was technical language presented by Chairman Rob Bishop, R-Utah, aimed at protecting existing accords such as the consensual debt restructuring agreement between the Puerto Rico Electric Power Authority and its creditors.
Bishop said the stay would allow the oversight board to get up to speed before the lawsuits hit. “If there is no stay, there would simply be a race to the courthouse,” he said.
Fleming also sought to amend language on the proposed oversight board’s responsibilities to require it to “comply with” rather than “respect” the “lawful priorities or lawful liens, as may be applicable, with first priority for bonds that carry the full faith and credit of the Puerto Rican government, in the constitution, then other laws, or agreements of a covered territory or covered territorial instrumentality.” The bolded language reflects the wording sought by Fleming.
Criticism of the amendment included arguments that it would make Congress, not the oversight board, the judge and jury on the relative priority of credits. Bishop opposed the amendment, saying it would simply make GO bonds “sacrosanct” even if they were issued above and beyond the 15% debt limit in Puerto Rico's constitution.
“We don’t know because we haven’t seen financials in two years. The board will determine that,” Bishop said. “So the amendment would give priority to creditors that may actually not deserve it.”
However, Bishop said he is willing to work on the language and wants to “explore ways we can go forward with this” before a vote on the House floor.
The committee voted down an amendment proposed by Rep. Tom McClintock, R-Calif., that would have carved out from PROMESA some $18 billion in debt issued with the full faith and credit of the Puerto Rico government. “If Congress is willing to undermine constitutionally guaranteed debt in Puerto Rico today, there is every reason to believe it will do so in states tomorrow,” he said, adding that municipal borrowing costs would be driven higher.
Bishop opposed the proposed GO carve-out on the grounds that it would “adjudicate over credits that may not have been legally issued.”
Rep. Raul Labrador, R-Idaho, was seeking an amendment to clarify that the committee’s intent is not to ensure that public pensions will not be impaired. He and other conservative voices have complained that PROMESA does not clearly establish the prioritization and protections that should be afforded to holders of Puerto Rican government bonds, and that this could result in the oversight board prioritizing Puerto Rico's more than $46 billion in pension liabilities over GO bondholders.
Labrador sought to replace a clause in PROMESA that directs the oversight board to “provide adequate funding for public pension systems” with “endeavor to provide for the payment of pensions projected to come due and payable during the period covered by the fiscal plan.” However, he withdrew the amendment, citing concerns that it could actually further cloud the priority of pension obligations in the bill, adding that he expects the committee report to provide some clarity on the issue.
“I have been assured that the committee’s report will strongly state that our intent is that what happened in Detroit with pensions will not happen in Puerto Rico,” said the Idaho Republican, the only GOP member among the five stateside Puerto Rican members of Congress. “The bond market did not react to Detroit because it was an anomaly. It would react if it happens in Puerto Rico because then it would be a pattern.”
A proposal by Rep. Tom MacArthur, R-N.J., to remove other territories from PROMESA was withdrawn with an eye on working toward an amendment on the House floor. He said that no other territory is facing a crisis on par with Puerto Rico’s and that their inclusion in the bill could have the unintended consequence of eroding their access to the capital markets and drive up their borrowing costs.
Bishop and Grijalva noted that creditors have threatened to challenge the constitutionality of PROMESA if it applies only to Puerto Rico. Bishop said he is open to working on some changes on the House floor. “This should be explored. There has to be a way so the substance of the amendment is addressed without having PROMESA thrown out,” Bishop said. “My intention is that we can get something to the floor.”
Among the amendments accepted in committee today was wording introduced by Rep. Garret Graves stating that no federal funds shall be authorized by PROMESA for the payment of any liability. “I want to make sure that I can go home to the folks I represent and tell them that their tax dollars are not being used for a bailout,” the Louisiana Republican said.
Another amendment added by the committee includes a bipartisan measures that would direct the General Accountability Office to study what led to Puerto Rico’s fiscal crisis and make recommendations to Congress to avoid such problems in the future. Members also approved amendments to expand the economic tax force proposed in PROMESA and to direct it to study the impact of non-parity in federal healthcare funding to Puerto Rico. Another bipartisan amendment gives the oversight board the authority to investigate the selling practices, representations and disclosures around bonds sold by Puerto Rico.
“We want to make sure we understand what type of representations were made to these investors. We want to make sure they were upfront,” Graves said.
Rep. Don Beyer, a Virginia Democrat, pointed to concerns from “many quarters” about potential failures of disclosure and other improper practices, adding that such an investigation would be good for Puerto Rico and investors.
A successful amendment by Rep. Jody Hice, R-Ga., gives the oversight board the ability to promote private sector competition. “There is way too much reliance on the public sector in Puerto Rico,” Hice said, pointing to PREPA as an “incredible example of why the Puerto Rico government has failed the 3.5 million American citizens on the island.”
MacArthur got in an amendment offering reflecting the sense in Congress that lawmakers in Washington and the PROMESA task force must look at economic development options for Puerto Rico.
Democratic amendments to eliminate minimum wage wording from PROMESA, provide special tax treatment, declare all of the island eligible for Small Business Administration HUBZone benefits and strike the bill's exemption from overtime rules were rejected in points of order because they are outside the House Natural Resources Committee’s jurisdiction, Bishop said.
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