Legislation to help Puerto Rico restructure its $ 72 billion in debt was introduced in the House of Representatives on Tuesday, as members sought to address the island’s financial crisis quickly without setting a precedent that troubled states might try to follow.
The text of the bill showed numerous revisions written in by hand, suggesting that lawmakers had engaged in last-minute efforts to balance competing interests. For months, Democrats have been calling on Congress to help Puerto Rico, warning of a humanitarian crisis, while many Republicans have expressed discomfort over any measure that might be seen as a taxpayer bailout.
The bill, which would give Puerto Rico certain powers that are normally available only in bankruptcy, is scheduled to be the subject of a hearing before the House Natural Resources Committee on Wednesday and receive final amendments on Thursday before being sent for debate on the floor of the House next week.
The House speaker, Paul D. Ryan, praised the Natural Resources Committee for taking the lead in drafting the bill, which he said “would prevent a taxpayer bailout for the territory.”
“Congress has a constitutional and financial responsibility to bring order to the chaos that is unfolding in the U.S. territory — chaos that could soon wreak havoc on the American bond market,” Mr. Ryan said. Without naming names, he said the bill “holds the right people accountable for the crisis.”
Mr. Ryan had instructed the Republican majority in the House to work on a rescue package at the committee level, in consultation with Democrats. The Natural Resources Committee chairman, Rob Bishop of Utah, did so by allowing Puerto Rico’s nonvoting member of Congress, Pedro R. Pierluisi, to take the top Democratic seat on the committee for hearings and deliberations.
Representative Sean P. Duffy, a Wisconsin Republican who supported earlier efforts to give Puerto Rico direct access to Chapter 9 municipal bankruptcy, introduced the bill on Tuesday. In particular, it would give the island the power to unilaterally discharge debt and to force creditors to accept settlements for less money than they were seeking.
The bill also contains provisions meant to reassure Puerto Rico residents that Congress does not want to sideline their elected government during the coming debt negotiations. A previous draft of the bill would have created an oversight board with significant power over Puerto Rico’s economic affairs, such as raising taxes if necessary and repealing certain laws.
That approach, which was part of a draft issued last month, created an uproar on the island. Puerto Rico’s governor, Alejandro García Padilla, called federal oversight “shameful and degrading” because it would deprive Puerto Rico of its own elected government.
In a conference call with journalists on Tuesday, Mr. García Padilla said he believed members of Congress had taken such complaints seriously and acted in good faith to tailor the oversight board to Puerto Rico’s situation.
“If the board is able to impose taxes and reduce services and to fire people from their jobs, it would not only be undemocratic but it would also be unfair,” he said, adding that he had not yet had a chance to read the bill and did not want to evaluate it until he knew what was in the details.
Mr. Pierluisi had expressed reservations about the first draft of the bill, saying it had modeled its oversight board too closely after the one Congress established for the District of Columbia when it needed financial assistance in the 1990s. That board is now considered a success for the District, but it was “not sufficiently tailored or calibrated for Puerto Rico’s specific situation,” Mr. Pierluisi said.
In a statement on Tuesday, he said, “The oversight board section of the bill has been dramatically improved in terms of substance and clarity.” He added that he was not yet ready to comment on the provisions of the bill that were adopted from the bankruptcy code and set the framework for Puerto Rico to reduce its debt to an affordable level.
Mr. Pierluisi, a Democrat and a member of Puerto Rico’s pro-statehood party, is running for governor this year; Governor García Padilla, who favors the island’s continued status as a United States territory, is not seeking a second term.
The new bill also contains a provision that would ultimately let Puerto Rico impose the terms of a broad debt settlement even on holdout creditors. Normally, such legal powers are available only in bankruptcy. But Puerto Rico and its supporters in Congress and in the Obama administration have argued that without the power to force settlements on resistant creditors, the island is likely to be hounded by dissidents for years, much the way Argentina has been.
Opponents of the bill said on Tuesday that it was essentially Chapter 9 bankruptcy by another name. Matthew Kandrach, vice president of the 60 Plus Association, said the bill “draws on nearly every provision of Chapter 9 of the U.S. Bankruptcy Code, and gives a federally appointed ‘Oversight Board’ the authority to apply them retroactively.” Large numbers of investors bought Puerto Rico’s bonds while they were still rated investment grade and when the island was officially excluded from taking shelter in bankruptcy.
The draft bill would also halt most creditors’ lawsuits against Puerto Rico, another provision that is normally available only in bankruptcy.
Puerto Rico has major bond payments coming due in just a few weeks, and its government risks running out of cash. If it simply stops making debt payments, it is likely to be sued by one creditor group after another, creating a tangle of lawsuits that could take years to unravel.
In the meantime, Puerto Rico would be a pariah in the bond market, unable to borrow affordably. Because it is not a sovereign nation, it cannot seek help from such lenders of last resort as the International Monetary Fund. But lawmakers have also been worried about setting a dangerous precedent by giving Puerto Rico extraordinary tools to wipe out debt, fearing it would not be long before troubled states like Illinois came to Washington seeking the same thing.
To some in Puerto Rico the process has seemed too slow. Last week, lawmakers in on the island passed their own law, authorizing the governor to unilaterally halt debt payments.
And earlier this week Puerto Rico’s top financial officials issued a new proposal for restructuring the debt. That proposal failed to attract much support from Puerto Rico’s many creditors — a signal that the island would not be able to resolve its problems without the tools that Congress is trying to provide.