Puerto Rico debt-restructuring bill advances amid criticism

SAN JUAN, Puerto Rico — Puerto Rico’s Senate on Tuesday approved a bill that would slash the central government’s debt by half but has also sparked protests and led to fiery exchanges between lawmakers and a federal control board that oversees the U.S. territory’s finances.

The bill aims to end a bankruptcy-like process that began after Puerto Rico announced in 2015 that it could not pay its more than $70 billion public debt load that the government accumulated following decades of mismanagement, corruption and excessive borrowing. In May 2017, the government filed for the biggest municipal bankruptcy ever in the U.S.

The bill would allow Puerto Rico to cut its debt by some $26 billion, issue new debt worth $10 billion and award some $7 billion in cash to bondholders who have not been paid for nearly five years. Critics say Puerto Rico’s government does not have the finances to adhere to the proposed debt service and warned of upcoming austerity measures.

However, the bill — which squeaked by in a 14-13 vote and is expected to be approved by Puerto Rico’s House of Representatives — is still in limbo because it does not have the board’s support.

One of the biggest points of contention between Puerto Rico’s government and the board was a proposed cut to some public pensions. The government refused to approve a bill that contained any kind of public pension cuts, while the board sought to cut pensions higher than $1,500 a month by 8.5%, a move that would affect some 40,000 retirees. Some lawmakers also demanded zero cuts to the University of Puerto Rico, the island’s largest public university, and to the island’s 78 municipalities.

Two organizations that represent mayors across Puerto Rico warned in a statement that some city and town services still might be cut as a result of the bill.

“Municipalities already have made great sacrifices and budgetary adjustments to maintain its services, some with a reduction in hours and others with layoffs,” officials said.

The federal control board did not immediately comment on the bill approved Tuesday night.

The impasse between the board and legislators threatens to erase nearly five years of negotiations with bondholders as part of a bankruptcy-like process that has generated nearly $1 billion in earnings for the attorneys involved. It also could expose Puerto Rico to litigations that were temporarily suspended as part of the process and force the government to pay bondholders.

The federal control board has said it would not approve of the bill that the Senate passed, and both sides are expected to go into mediation after the federal judge in the case, Laura Taylor Swain, warned on Monday that she would not push back the Nov. 8 confirmation hearing on the plan, adding that “my patience is wearing thin.”

Puerto Rico Sen. José Antonio Vargas Vidot said it was best to skip the bill and go straight into mediation.

“The judge’s patience is running out, and so is the people’s,” he said.