Puerto Rico debt deal

Ryan strikes Puerto Rico debt deal with Obama administration

But there will be opposition from bondholders, who want to protect their investments.

By Rachael Bade and Colin Wilhelm

Speaker Paul Ryan has reached a tentative deal with the Treasury Department on a rescue package to ease Puerto Rico's debt crisis, according to House Natural Resources Chairman Rob Bishop, who has been leading negotiations.

“We are moving forward — there is a deal,” the Utah Republican said Wednesday afternoon, adding that legislative text of the deal would be released later on Wednesday.

Details of that deal were released by Bishop’s committee Wednesday night, when the bill was introduced.

The agreement represents a breakthrough on an issue that has been stuck in congressional limbo for months. Ryan (R-Wis.) said last year that helping Puerto Rico restructure its multi-billion-dollar debt would be a top priority for the first quarter of 2016. But conservatives balked at Bishop’s initial proposal, following a series of ads that labeled the measure a “bailout.” Democrats also refused to support that earlier deal because of a minimum wage decrease included in the measure. Congressional leaders on both sides of the aisle have pushed back on the bailout label, and the bill expressly prohibits federal taxpayer funds from paying down Puerto Rico’s debt.

Even with this new draft, Ryan’s work on the measure is far from over, however. Conservatives are still getting an earful from bondholders who want to see the bill fail, including from one of their former colleagues, Rep. Connie Mack (R-Fla.), who represents a group of bondholders opposed to any deal that lets Puerto Rico restructure its debt.

Mack this week emailed a series of lawmakers personally, asking them to stand against any debt restructuring bill. And just hours before the deal was announced, conservative Rep. Andy Barr (R-Ky.) started circulating a letter to fellow lawmakers asking for their support for his bill to prohibit the federal government from bailing out any state, city or jurisdiction. He wants GOP leadership to agree to hold a vote on his new measure, telling POLITICO it would ease conservative fears about accusations of a bailout in the Puerto Rico deal.

Over the past few weeks, Ryan’s office has worked with the Natural Resources and the Treasury Department to hammer out a new agreement. Bishop said Tuesday the White House and Hill staffers met one last time to iron out the details.

The sticking point Tuesday and Wednesday was a provision added by House Republicans that would essentially cancel the effects of the bill if an oversight board hasn’t been named by Jan. 3, as well as how the board would be composed. They fear the Obama administration could wait out this current Congress until a new Senate, possibly under Democratic control, is sworn in, giving Democrats a majority on the federally appointed board created by the bill to oversee Puerto Rico. The bill does not appear to have that sunset provision, and contains other language meant to prevent stalling the creation of an oversight board.

The board to oversee budgetary matters on the island will be made up of seven people total, with three-year terms. Two can be picked, one each, from two entirely different lists of experts drafted by Ryan. Another two can be selected from another list provided by Senate Majority Leader Mitch McConnell. One each can be selected from lists provided by House Minority Leader Nancy Pelosi and Senate Minority Leader Harry Reid, while the last can be at the sole discretion of President Barack Obama. The process repeats when a board member, or members, needs to be replaced.

If the president does not pick from those lists, the nominees will have to go through a standard nomination process in the Senate. The board members must have financial or governmental expertise but not be current officials in Puerto Rico’s government, nor have a conflict of interest.

The bill is still expected to include some element of a measure that would lower the minimum wage for workers under the age of 25, seen by Democrats as a poison pill in the first version, which was considered by Bishop's committee. However the lower minimum wage will be optional for Puerto Rico’s governor to instate, does not apply to current workers and must be approved by the board. The provision and the oversight board will both sunset after five years. An exemption to the Department of Labor’s new overtime rule, released Wednesday, also remains in the bill.

“Why would I work at Burger King [in Puerto Rico] for $4.25 [an hour] when I can come to New York and make $11.25 [an hour]?” House Natural Resources ranking member Raúl Grijalva (D-Ariz.) said during a press call last week.

The oversight board will be directed to give adequate funding for pensions, as reported by POLITICO last week, and outstanding liens will be respected. Language reaffirming the importance of debt payments in Puerto Rico’s constitution may also benefit pensions; in a 2014 court case, a Puerto Rican court ruled that changes made to a teachers’ pension plan on the island were unconstitutional because they violated a contractual obligation with the union.

Treasury and House Democrats, prodded by unions, have both fought to prioritize pensions over bond payments.

Negotiators also dropped a provision that would have given national preservation lands on Vieques Island to Puerto Rico — feared by opponents to be a step towards land development, and a stumbling block for the earlier version of the bill.

Other tweaks — some benefiting creditors but mainly ensuring bondholders cannot use a protection mechanism to prolong debt restructuring to the point it becomes useless — were also made.

Whether a likely majority of creditor support — a handful of hedge funds notwithstanding — will be enough to sway Republicans to support the bill remains to be seen.

On Wednesday Bishop would not commit to a markup of the bill next week, only that he wanted to hold one either then or when the House comes back in session the second week of June, after the Puerto Rican gubernatorial primary has wrapped up.