Puerto Rico may be forced to shut down public transit, close hospital, Lew warns

Treasury Secretary Jacob Lew is warning that if the Senate doesn't pass the Puerto Rico relief bill sent by the House, and the island defaults on the July 1 payment, the government may be forced to shut down public transit, close a hospital or send police officers home.

"We know for certain that it is the 3.5 million American citizens who live in Puerto Rico who will be further harmed," Lew said.

The U.S. territory is in a decade-long recession, and the island owes a $2 billion debt payment to creditors on July 1. The House already passed legislation to create a new control board and restructure some of the U.S. territory's $70 billion debt.

In a letter to Senate Majority Leader Mitch McConnell on Monday, Lew said the crisis in Puerto Rico "will ratchet up to an even higher level"

McConnell, R-Ky., has said the Senate will consider the House bill this week, but he will need support from both parties to surmount a certain 60-vote threshold to advance legislation. Votes could come as soon as Wednesday.

The Puerto Rican government has said it cannot pay $2 billion in debt that comes due on July 1, meaning that it must trust that Washington will approve the law preventing its creditors from filing more lawsuits against it prior to that date.

"We don't have all of what we need to pay. OK, perhaps it won't be there, but we would have to close many public agencies, lay off public employees and cut services, and that's not going to happen," said Melba Acosta, the president of the Development Bank of Puerto Rico, the financial arm of the island's government, on Monday.

Acosta was the first speaker at a meeting with the Bonitas del Patio association representing the 60,000 Puerto Ricans who hold the island's bonds.

The group is meeting for the first time in San Juan to learn how the island government's planned U.S.-backed debt restructuring will affect them, with Washington close to approving the so-called "Promesa" bill that would provide a legal framework whereby the U.S. commonwealth may declare bankruptcy to prevent lawsuits by its creditors.

Along the lines defended by the San Juan government in recent weeks, Acosta insisted on Monday that the U.S. Senate must urgently approve the Promesa bill before July 1, when some $2 billion in new portions of debt come due.

That debt includes $700 million in General Obligation bonds, payment of which is prioritized by the island's constitution above any other public expenditures, including basic public services, which the government says it is not ready to relinquish.

Acosta said in remarks to EFE that the government can try to pay the interest on the debt, particularly on the GO's, a figure exceeding $300 million.

"Promesa provides us with a halt to the lawsuits, an enormous help while the debt is restructured because that will help us avoid being in the courts spending even more resources," she said after insisting that the approval of the project, in any case, "will not change the island's fiscal - only its legal - reality."

While the Senate is debating the bill, Acosta continues to head the talks with creditors, who are being asked to accept a five-year moratorium on the repayment of principle, although interest will still be paid, with the aim of giving the government "oxygen" to reinvest in economic rejuvenation.

A look at the legislation:

WHAT THE BILL WOULD DO

The House bill would create a seven-member control board to oversee the island's financial recovery, similar to a board that oversaw the District of Columbia two decades ago. The board could negotiate with creditors and the courts over reducing some debt, but the bill does not provide any taxpayer funds to reduce that debt.

The legislation is needed because Puerto Rico, like all U.S. states and territories, cannot declare bankruptcy under federal law. Mainland municipalities and their utilities can, while municipalities and utilities in Puerto Rico cannot.

The House is out of session until July 5, so the Senate will have to pass the House bill unchanged for it to head to the president's desk for his signature before the Friday deadline.

WHO SUPPPORTS IT

The legislation enjoys rare bipartisan support from the White House and Republican leaders in Congress. House Speaker Paul Ryan, R-Wis., helped negotiate the House bill.

"The Puerto Rican people are our fellow Americans. They pay our taxes, they fight in our wars. We cannot allow this to happen," Ryan said on the House floor just before the chamber overwhelmingly passed the bill 297-127 on June 9.

House Minority Leader Nancy Pelosi, D-Calif., also supports the bill, despite a provision opposed by Democrats that would allow the Puerto Rican government to temporarily lower the minimum wage for some younger workers.

The governor of Puerto Rico is backing the bill, even though he says the control board would have too much power over the territorial government.

"What's the alternative right now?" Gov. Alejandro Garcia Padilla said in Washington last week. "We need the bill yesterday."

WHO DOESN'T

Senate Democratic Leader Harry Reid of Nevada is so far withholding his support from the bill, partially over the minimum wage provision.

"At the very minimum we need some amendments," Reid said last week.

Democratic Sen. Bob Menendez of New Jersey and Sen. Bernie Sanders, I-Vt., are both strongly opposed to the bill, saying the control board would be too favorable to creditors and ignore ordinary Puerto Ricans.

Some creditors have lobbied conservatives to oppose the measure, arguing that the bill is unfair to banks and tantamount to a bailout for the territory.

While scheduling a procedural vote on the bill, McConnell indicated on the Senate floor late Monday that no amendments will be allowed.

The AP and EFE contributed to this report.

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