The U.S. House passed a hard-fought, bipartisan compromise designed to stem Puerto Rico’s worsening debt crisis after months of wrangling and a significant default.
The legislation, passed 297-127 Thursday, would establish a seven-member financial oversight board to manage a restructuring of Puerto Rico’s $70 billion debt and oversee the island’s finances. The commonwealth racked up the debt after years of borrowing to cover operating costs. The plan envisions the largest federal intervention into the island’s fiscal affairs since it became a U.S. territory in 1898 after the Spanish-American War.
This is a graph taken from the International Business Times:
The thing that worries me about this whole situation is that we have numerous cities and states within the United States that have large amounts of ‘unfunded liabilities’ that will eventually catch up with them. At that point they will probably ask Congress for money. At least Congress did not simply bail out Puerto Rico (and hopefully it will not bail out our cities and states as they find themselves in similar situations). This bill seems to be more of a restructuring and a restraint on spending than a bail out. That is better than a bail out, but there will be many people who are owed money that will not be paid what they are owed.
The article at Bloomberg explains why many Congressmen felt that this action was necessary:
Yet the most persuasive closing argument for many lawmakers may have been one articulated by, among others, Alabama Republican Bradley Byrne: “What really worries me is that if Congress doesn’t act on this legislation, then we will at some point find ourselves facing serious pressure to vote on a true, actual bailout of Puerto Rico. That would be a grave mistake.”
A group of unions led by the AFL-CIO urged House Democrats to vote against the bill because of the minimum-wage and overtime pay provisions. The conservative group Heritage Action opposes the measure because it allows debt restructuring and temporarily shields Puerto Rico’s government from lawsuits filed by creditors.
The commonwealth’s fiscal crisis has been escalating since last June, when Garcia Padilla said the administration couldn’t afford to repay $70 billion of debt left by years of borrowing to cover budget shortfalls as the economy contracted and residents left at a record pace for the U.S. mainland. It has since failed to cover $370 million due on bonds sold by the Government Development Bank and $150 million for two other agencies as it conserved cash.