The U.S. Senate passed S. 2328, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), Wednesday with a bipartisan vote that should send the measure to Pres. Barack Obama’s desk for signing today.
The bill’s approval drew mixed reactions from lawmakers in Washington and Puerto Rico, as the mandate orders the creation of a federally appointed fiscal oversight board to take over the restructuring of the island’s $69 billion public debt, going above the authority of the local government. Critics have said the measure will support strong austerity rather than economic growth for the island looking ahead.
“This bill is not perfect, but it is a critical first step toward economic recovery and restored hope for millions of Americans who call Puerto Rico home,” Obama said following the bill’s approval. “I look forward to signing the bill into law, and remain committed to working with Congress and the people of Puerto Rico to return to lasting economic growth and opportunity.”
If Obama signs it today, he will do so one day before the Puerto Rico government is expected to default on all or part of an almost $2 billion debt service payment due July 1, which includes some $800 million in constitutionally protected General Obligation bonds.
Chairman Rob Bishop (R-UT), who authored the measure at the U.S. House, said “inaction by Congress would have jeopardized the wellbeing of U.S. citizens on the island and the investments of countless Americans across the country. We have a moral and constitutional obligation to extend a lifeline to Puerto Rico. Today [Wednesday] Congress fulfilled that obligation.”
“Although tough decisions remain ahead for Puerto Rico’s leaders, PROMESA’s passage brings hope for the island and its residents. This is a framework for the Commonwealth to restore accountability in government, impose fiscal discipline and build a foundation for future prosperity,” he said.
“This is compromise legislation based on sound principles that will help Puerto Rico’s economy recover. I am pleased the Senate passed the bill without amendments that would have stopped our progress,” he said, noting that S. 2328 is identical to H.R. 5278, which passed the U.S. House with a bipartisan vote of 297-127 on June 9.
Gov. Alejandro García-Padilla expressed hope that the mandate will give the Commonwealth the needed legal framework to restructure all of its debt, stabilize the fiscal situation and protect Puerto Ricans from an onslaught of creditor lawsuits.
“We’re recovering the island. With the approval of PROMESA we start to take it away from creditors and return it to Puerto Ricans. Puerto Ricans are being given the opportunity they deserve to fight for their future,” he said.
He said while imperfect, this bill gives the Puerto Rico government access to necessary tools to meet obligations and payments to creditors.
“Similarly, it protects us from legal action, while responsibly addressing the restructuring process and continuing to deliver uninterrupted essential services to all residents. PROMESA will help us rebuild our economy,” García-Padilla said, adding “the cost of inaction would have been devastating.”
Meanwhile, Resident Commissioner Pedro Pierluisi described the vote as a “resounding success.”
“PROMESA is an imperfect but indispensable bill that constitutes the only realistic means to prevent the collapse of Puerto Rico’s government; to protect regular citizens, pension plan participants and bondholders; to stem the tide of Puerto Rico families moving to the states; to enable the Puerto Rico government to regain access to the credit markets; and to lay the groundwork for Puerto Rico’s economy to grow,” he said.
Sen. Elizabeth Warren, who has opposed the measure for months, said Wednesday she is “concerned that it may not fix what is broken with Puerto Rico’s economy and could make it worse.”
“I traveled to Puerto Rico in November and met with top officials in the territory to discuss a long-term plan for the island. Subjecting Puerto Rico to the oversight of an undemocratic control board could lead to years of additional austerity that would bring in more cash for hedge funds but inflict nothing but more pain on everyone else,” she said.
“Debt restructuring, if it ever occurs, will proceed through an untested mechanism whose technical soundness has been questioned by experts. Minimum wage and overtime protections have been rolled back. Retirees and workers could bear the brunt of what comes next,” Warren added.
“PROMESA will now govern most aspects of life in Puerto Rico for the foreseeable future. Supporters and opponents of this bill who share the goal of a prosperous Puerto Rican economy must quickly unite to make sure that debt relief actually materializes, and that the interests of the 3.5 million Americans who live on the island come ahead of those creditors who hope to use this law to boost their own profits,” she added.
Local lawmakers, creditors weigh in
At the Puerto Rico legislature, members of the House and Senate also issued statements on the unprecedented Congressional action.
“The approval of PROMESA represents a huge economic, political and social challenge for Puerto Rico,” said Senate President Eduardo Bhatia. “Even when it does create an orderly and necessary structure to meet Puerto Rico’s unpayable debt, it represents political contempt for our island’s democratic will.”
“Today [Wednesday], the government of the people, by the people and for the people is suspended. Facing this challenge will require fiscal discipline, affirmation and Puerto Rican solidarity,” he said. “It will be up to the elected leadership to open the way, collaborate when we agree, but firmly defend the rights of Puerto Ricans when we see that backs are turned against the best interests of our citizens. I will continue vigilant, active and combative in this new stage.”
New Progressive Party gubernatorial candidate Ricardo Rosselló and House Speaker and Resident Commissioner candidate Jenniffer González-Colón issued a joint statement saying that although they endorsed and proposed a collaborative board, they object the current bill.
“Not withstanding, with or without the board, we are ready to take the reigns and have a strategy to place Puerto Rico on a path toward growth. A firm commitment to transparency, including audited financial statements and an open books policy,” they said.
Finally, senior creditors of the Puerto Rico Sales Tax Financing Corporation (known as COFINA for its initials in Spanish) — the only creditors to publicly discuss the bill’s approval — applauded the passage of the legislation Wednesday.
“We applaud the bipartisan manner in which Congress worked to craft and pass this vital legislation that puts the Commonwealth on a path to economic and fiscal health — all without imposing any cost on U.S. taxpayers,” said former U.S. Sen. Judd Gregg, a senior policy advisor to the COFINA Senior Bondholders Ad Hoc Group.
“After enduring years of financial and social duress due to a lengthy recession and excessive government spending, the roughly 3.5 million American citizens living in Puerto Rico can finally look forward to the revitalization of local commerce and ultimately economic growth,” he said.
Although extensively negotiated legislation is rarely perfect from the perspective of any one stakeholder, PROMESA represents pragmatic public policy, he said.
“The bill’s components will help head off a near-term crisis by balancing the best interests of the Puerto Rican people with a process for restoring fiscal order and respecting creditors’ rights,” Gregg said.
Susheel Kirpalani, a partner at Quinn Emanuel Urquhart & Sullivan and the legal counsel for the COFINA Senior Bondholders Ad Hoc Group added the following with respect to future negotiations with the Commonwealth: “Passage of PROMESA is a very positive step toward helping creditors reach fair and equitable restructuring agreements with the Commonwealth and its issuers.”
“Given our group’s record of negotiating constructively and in good faith with various stakeholders over the past year, we feel well-positioned to reach an eventual outcome that balances our rights as senior, secured bondholders of the Commonwealth’s historically highest-rated issuance with Puerto Rico’s liquidity needs and economic growth objectives,” he said.