A bill to give Puerto Rico's ailing public utilities a way to restructure debt under the U.S. Bankruptcy Code drew skepticism from congressional Republicans but support from Democrats, who said that it would relieve the island's problems, Reuters reported yesterday. The House Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law yesterday held a hearing on the bill, proposed by Puerto Rico's non-voting congressional delegate, Democrat Pedro Pierluisi. The legislation would allow the territory's government-owned corporations to file under chapter 9 of the bankruptcy code. Subcommittee Chairman Tom Marino of Pennsylvania and Representative Darrel Issa of California, both Republicans, said that they were undecided on whether to support the bill in its current form. "Is it wise to provide this (chapter 9), even prospectively, without a real plan presented from the Commonwealth of Puerto Rico going forward for how they're going to work their way out of an ongoing and systemic pattern?" Issa said at the hearing. But Democrats said the legislation would help Puerto Rico's utilities when they run out of options. "This legislation is a wise use of the law — a step we can take now to avoid a bailout or a financial crisis later," said Illinois Democratic Representative Luis Gutierrez, who sits on the Judiciary Committee itself but not the subcommittee. Read more.
Additionally, a Washington Post editorial today noted that there are two main objections to the bill: that it amounts to changing the rules under which investors agreed to buy Puerto Rico’s debt and that the island could scrape together the cash to pay its creditors if it were to reform the entities in question, especially the financially inefficient electric utility, which is owed hundreds of millions of dollars by the island government. Both points are valid, to an extent — just as it’s valid to point out that investors in Puerto Rican debt heretofore enjoyed an especially good deal because it paid tax-free interest. Puerto Rico must indeed reform its public sector, according to the editorial, but the structural crisis affecting its economy is such that even dramatic new efficiencies probably wouldn’t produce enough growth to pay its debts as currently structured. The editorial argues that, for the sake of its economic future, America’s best friend in the Caribbean needs the power to negotiate a new, more sustainable deal with its creditors, and Congress should grant it. Read the editorial.