With over $70 billion in debt and little cash to fund its ongoing operations, Puerto Rico remains in a state of fiscal crisis. After this summer’s decision by the First Circuit affirming that Puerto Rico’s attempt at legislative self-help, the so-called “Recovery Act,” was unconstitutional, the Commonwealth was left to negotiate with its many creditors or else seek relief from the federal government.
On October 21, the White House introduced a plan urging Congress to address the situation in Puerto Rico, claiming that it “could become a humanitarian crisis” absent federal intervention.
The heart of the Obama administration’s plan is a robust legislative framework for extending bankruptcy protection to Puerto Rico’s public organs. In addition to supporting currently pending legislation that would extend Chapter 9 to Puerto Rico – allowing Puerto Rico’s municipalities to file for bankruptcy – the plan also proposes “a broader legal framework that goes beyond Chapter 9 to allow for a comprehensive restructuring of Puerto Rico’s liabilities.” The plan conditions access to this new territorial bankruptcy regime on the establishment of a fiscal oversight body to ensure that Puerto Rico “adheres to its recovery plan and fully implements proposed reforms.” The plan also encouraged Congress to reform Puerto Rico’s Medicaid program and to provide Puerto Ricans with access to the Earned Income Tax Credit.
The plan, described by the White House as A Roadmap for Congressional Action, received a “chilly” reception at a Senate committee hearing on Thursday, largely due to its lack of detail and the limited amount of information available.
(This post was drafted by Bankruptcy Roundtable Managing Editor Robert Niles, J.D./M.B.A. ’16.)