After months of debate, a House committee agreed on a plan to create a seven-member board that would oversee Puerto Rico’s finances and manage its debt negotiations.
The bill, approved Wednesday on a bipartisan vote by the House Natural Resources Committee, now goes to the full chamber, which is expected to consider it after the Memorial Day recess.
The pact drew mixed reactions from lawmakers and creditors, and it is expected to face resistance on the House floor. Skeptics say it may set a precedent for troubled states and cities to sidestep their obligations. Supporters say it’s an imperfect but necessary step in addressing Puerto Rico’s $73 billion debt.
Senate Majority Leader Mitch McConnell has said the Senate will consider whatever bill passes the House.
Puerto Rico Muni Debt Oversight Board
The bill’s central provision calls for establishing an oversight board, whose members would be appointed by the president from a list submitted by the U.S. House speaker. The board would be charged with ensuring Puerto Rico’s lawmakers approve balanced budgets. Additionally, should negotiations with creditors fail, the board would be tasked with filing debt restructuring petitions in federal court on behalf of Puerto Rico.
Only when Puerto Rico is able to balance its budget for four consecutive years and borrow at reasonable interest rates would the board dissolve.
Muni Debt Agreement Reached After Negotiations
The pact was several months in the making. Late last year, House Speaker Paul Ryan asked House committee members to come up with a plan by the end of March. Ultimately, negotiators on the bill included Ryan, Treasury Secretary Jack Lew and House Democratic leader Nancy Pelosi.
Lawmakers hoped to act before July 1, when Puerto Rico’s obligations totaling more than $2 billion are due.
Backers of the bill noted no taxpayer dollars would go toward a bailout. Further, supporters say the bill is unlikely to set a precedent for states to follow as Congress is using the territories clause of the Constitution.
“This creates a clear firewall and ring-fences Puerto Rico from the broader muni market,” one analyst told the Wall Street Journal. Plus, states and municipalities would be reticent to relinquish control to Washington, as with Puerto Rico.
The bill, known as the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), also includes a provision that imposes a temporary moratorium on lawsuits over Puerto Rico’s debt.