WASHINGTON — With two days left before Puerto Rico defaults on $2 billion in debt, the Senate on Wednesday advanced legislation meant to stave off the creditors and hedge funds now circling the island.
While the bill — which would establish an oversight board to aid Puerto Rico in restructuring its $70 billion in debt — comes too late to prevent the commonwealth from defaulting on its payment due on July 1, it would put an immediate pause on any lawsuits filed against the island for a year and half.
After Wednesday’s 68-32 vote, the bill, which passed in the House earlier this month, is now headed for final passage, expected no later than Thursday. President Barack Obama is expected to sign the legislation if and when it reaches his desk, at which point the stay on litigation would go into effect — shielding Puerto Rico from having to make deeper cuts to hospitals, schools and other vital services in order to pay back the constitutionally prioritized debt that comes due on Friday. Much of that debt is owned by creditors.
It’s the first time the commonwealth — home to 3.5 million American citizens — will default on constitutionally protected debt, which Puerto Rico needs to repay before it can pay back any of the other kinds of debt it owes. Leading up to Wednesday’s vote, Treasury Secretary Jack Lew warned that if the Senate doesn’t get the bill to the president before July 1, any retroactive stay on litigation against Puerto Rico would not reverse a court order by a judge directing the commonwealth to immediately pay back the parties it owes.
Those parties include the creditors and hedge funds that bought up billions of the island’s debt, and that helped finance Puerto Rico’s budget shortfalls in exchange for deals. Now they are coming to collect. Lawsuits have already begun, and the debt due on Friday could unleash a lot more unless the bill advanced on Wednesday takes effect in time.
“Creditors are hoping to gain the protection of legal judgments as quickly as possible, and this could impair Puerto Rico’s chances of getting on a path to stability and eventual growth,” Lew wrote in a letter to the Senate earlier this week. “Some well-funded creditors are working hard to delay legislative action this week, even if it comes at the expense of the Puerto Rican people.”
Senate Majority Leader Mitch McConnell (R-Ky.) urged his colleagues ahead of the vote to support the bill, pushing back against claims that the legislation would provide a taxpayer bailout for the island — a common concern among Republicans.
“The U.S. territory of Puerto Rico is in crisis and it could be forced to leave residents without essential services,” McConnell said. “This bill won’t cost taxpayers a dime, not a dime. This is the best and possibly the only action we can take to help Puerto Rico.”
Despite their wariness, Democratic leaders also voted to move toward final passage of the bill. Senate Minority Leader Harry Reid (D-Nev.) supported the bill, but like many in his caucus, he was annoyed by the outcome.
“The legislation before us is far from perfect,” Reid said before the vote. “Oh, is it far from perfect.”
On Tuesday, Lew visited with a handful of Democrats, trying to secure as many last-minute votes as possible. McConnell and his leadership team did their part to sway Republicans as well.
Fourteen Democrats and 18 Republicans voted against the bill.
If and when the bill passes the final vote, Obama and party leaders will appoint officials to an oversight board, which would oversee Puerto Rico’s restructuring (if one is deemed necessary) and its economic recovery plan.
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