Alexandria, Va. — Rep. Pedro R. Pierluisi, Puerto Rico's Resident Commissioner and sponsor of the “Puerto Rico Chapter 9 Uniformity Act,” calls for congressional passage of his legislation to grant the U.S. territory the power to authorize its municipalities to file for chapter 9 in the August ABI Journal. “This bill would simply grant Puerto Rico a power that every state has and that Puerto Rico itself had for nearly half a century until Congress inexplicably removed it,” Pierluisi writes in his article “A Lifeline for Puerto Rico.” “Under the bill, Puerto Rico could seek to restructure the debts of its insolvent public corporations, not its central government.”

As a U.S. territory, Puerto Rico is currently excluded from authorizing its municipalities to seek relief under chapter 9. Puerto Rico has public debts of nearly $72 billion, and Pierluisi explains that the territory sought a local remedy to restructure nearly $20 billion in combined debt from its electric power authority (PREPA), the water and sewer authority (PRASA), and the highway and transportation authority (PRHTA). “Puerto Rico’s exclusion from chapter 9 led the territory’s government, in July 2014, to enact local legislation called the ‘Puerto Rico Public Corporation Debt Enforcement and Recovery Act [the “Recovery Act”],’” Pierluisi writes. “The Recovery Act sought to authorize certain Puerto Rico municipalities to adjust their debts, including PREPA, PRASA and PRHTA.”

However, a U.S. district court judge in February ruled that the Recovery Act was preempted by the federal Bankruptcy Code and is therefore invalid under the Supremacy Clause of the Constitution. In July, the First Circuit affirmed the U.S. district court’s decision invalidating the Recovery Act. “The federal appeals court concluded that ‘Congress preserved to itself that power to authorize Puerto Rican municipalities to seek Chapter 9 relief,’” Pierluisi writes. “According to the court, Puerto Rico had only one option — to ‘turn to Congress for recourse.’” 

After the U.S. district court invalidated the Recovery Act, Pierluisi re-introduced legislation calling for Congress to grant Puerto Rico the power to authorize its municipalities to file for chapter 9.  “Passage of this bill would not resolve all of Puerto Rico’s economic problems,” Pierluisi writes, “but instead must be complemented by other reforms in both Washington, D.C. and San Juan.”

To obtain a copy of “A Lifeline for Puerto Rico,” published in the August issue of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at [email protected].

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