Bipartisan effort to restructure Puerto Rico's debt faces first House vote

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House Republicans are attempting to hold together a rare bipartisan deal to help Puerto Rico manage its crippling finances as a committee begins considering the legislation Wednesday.

The bill to create a financial control board and restructure some of the U.S. territory's $70 billion debt has support from House Republican and Democratic leaders, as well as the Obama administration. But some bondholders, unions and island officials have opposed it.

"We have a constitutional, political and moral imperative to act," said House Natural Resources Committee Chairman Rob Bishop, the Utah Republican who has led negotiations on the bill. The panel began considering the legislation Tuesday evening, and a final committee vote is expected as soon as Wednesday.

The legislation won new support from Pedro Pierluisi, Puerto Rico's representative in Congress, who said people on the island fear for their finances and their future.

"Accepting a board is personally painful, but it is also the right and necessary thing to do," Pierluisi said.

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The island's governor, Alejandro Garcia Padilla, has been less enthusiastic, arguing that the seven-member board would be too powerful.

Bishop introduced the bill May 18 after weeks of negotiations that involved House Speaker Paul Ryan, House Democratic Leader Nancy Pelosi and Treasury Secretary Jacob Lew. Pelosi has endorsed the legislation, and Lew called it a "fair, but tough bipartisan compromise."

Ryan, R-Wis., has worked to align his fractured caucus behind the bill, arguing that the legislation would avoid an eventual taxpayer bailout.

The Senate hasn't yet acted. Senate Majority Leader Mitch McConnell, R-Kentucky, has said the chamber is waiting for the House to move first.

Puerto Rico, which has struggled to overcome a lengthy recession, has missed several payments to creditors and faces a $2 billion installment — the largest yet — on July 1. Two government agencies have been under a state of emergency, and the economic crisis has forced businesses to close, driven up the employment rate and sparked an exodus of hundreds of thousands of people to the U.S. mainland. Schools lack proper electricity and some hospitals have said they can't provide adequate care.

But like U.S. states, Puerto Rico cannot declare bankruptcy. The legislation would allow the control board to oversee negotiations with creditors and the courts over reducing some debt.

It would also require the territory to create a fiscal plan. Among other requirements, the plan would have to provide "adequate" funds for public pensions, which the government has underfunded by more than $40 billion.

During negotiations, the Obama administration pushed to ensure that pensions are a priority in the bill, while creditors worried they would take a back seat to pension obligations. Bishop says the control board is designed to ensure all are paid.

While some bondholders have backed the legislation, others have lobbied forcefully against it.

"If passed, this bill will serve as a landmark moment in American municipal finance — the moment when Congress made clear that it will not hesitate to rewrite rules and override contracts so that bondholders are forced to foot the bill for the pension systems that negligent governments have bled dry and refused outright to fund," read a release from a group called the Main Street Bondholders Coalition.

Some conservatives have wavered on the bill, echoing the concerns of bondholders and voicing concern that the legislation could set a precedent for financially ailing states. Some Democrats, including presidential candidate Bernie Sanders, have said they worry the board would neglect the needs of Puerto Ricans.

"We must stop treating Puerto Rico like a colony and start treating the American citizens of Puerto Rico with the respect and dignity that they deserve," Sanders wrote.

Sanders also criticized a provision in the bill that would allow the governor of Puerto Rico to cut the minimum wage temporarily for some younger workers. Unions have also lobbied against the legislation for that reason.

Pierluisi said Tuesday that he doesn't think the island would ever decide to trigger the minimum wage provision.

"It's not worth discarding the bill over this misguided but ultimately meaningless authority," Pierluisi said.

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