On June 9, 2016, the United States House of Representatives approved legislation to stem the escalating debt crisis, after an unusually bi-partisan course on a fraught and technically complex compromise measure. After months of internal wrangling, the House passed legislation creating a federal control oversight board to help the Commonwealth of Puerto Rico cope with crippling debt that is wreaking havoc throughout the island’s economy and its services to residents.
The bill, entitled the “Puerto Rico Oversight, Management and Economic Stability Act,” (PROMESA), which was introduced in May and must still pass the Senate, establishes a process to handle what is shaping up as the largest municipal debt workout in U.S. history.
Supporters praised PROMESA for not using taxpayer funds to help the island restructure its debt. Failure to pass it, they warned, could put Congress in the difficult position of ultimately overseeing a massive bailout of Puerto Rico.1
As previously reported, Puerto Rico is a territory of the United States, and unlike American states and cities, is not permitted by law to file under Chapter 9 of the Bankruptcy Code and seek a court-arranged reorganization. And unlike sovereign nations, Puerto Rico cannot seek emergency assistance from the International Monetary Fund.2
Puerto Rico’s government has begun defaulting on $72 billion in debt and has warned that it will run out of cash this summer. The island faces $2 billion in debt service payments on July 1. “Come July 1, if nothing is done, Puerto Rico will technically be bankrupt,” said Anne Krueger, a former IMF economist who led a detailed review of the island’s economy. “Assets will be tied up in courts. It is very likely that essential services will have to be suspended.”
The House bill passed 297 to 127. The bill passed with the support of 139 Republicans and 158 Democrats. It was opposed by 103 Republicans and 24 Democrats.
The bill had the bi-partisan support of President Barack Obama, House Speaker Paul Ryan, and Minority Leader Nancy Pelosi.3