By Vicki Needham - 12/30/15 02:45 PM EST
Puerto Rico will skip a small portion of interest payments owed on nearly $1 billion in debt as the island territory struggles with a massive financial crisis.
Gov. Alejandro García Padilla on Wednesday said the commonwealth will default two upcoming payments totaling $37 million — one for $35.9 million in Puerto Rico Infrastructure Financing Authority debt and another for $1.4 million to its Public Finance Corp., according to news reports.
García Padilla said those funds had been shifted to pay $357 million in interest due on Puerto Rico’s general-obligation bonds, which take top priority under the commonwealth's Constitution and must be repaid first.
Nearly half of that payment — $163 million — is from revenue taken from other bonds, such as those for the Highways & Transportation Authority.
A Treasury Department spokesman said that the announcement "demonstrates the gravity of the commonwealth’s fiscal crisis and the need for Congress to act now."
“Puerto Rico is at a dead end, shifting funds from one creditor to pay another and diverting money from already depleted pension funds to pay both current bills and debt service,” the spokesman said.
The spokesman added that Congress should provide Puerto Rico with a way to undergo an orderly restructuring of its debt paired with independent oversight.
"Congressional leaders have committed to act, and the administration remains committed to working with Congress to address this crisis and put Puerto Rico on a sustainable path forward that protects the 3.5 million Americans who live in the commonwealth," the spokesman said.
Earlier this month, García Padilla blasted Congress for failing to help the territory with its $70 billion debt burden as part of a $1.1 trillion spending package passed before the holiday recess.
House Speaker Paul Ryan (R-Wis.) put Puerto Rico debt relief at the top of the congressional agenda for next year, directing lawmakers to work out a solution within the first three months of the year.
Top House and Senate Democrats had argued that Puerto Rico's debt situation was too dire to wait until next year.
Puerto Rico owes another $422 million on May 1.
A decade of economic decline, a shrinking population that has sapped the island of tax revenue and heavy borrowing contributed to Puerto Rico's debt issues.
García Padilla has argued that the $70 billion in debt must be restructured, a move backed by congressional Democrats and the White House, who argue that giving Puerto Rico bankruptcy power will allow the commonwealth to better organize its financial future.
Republicans, on the other hand, have expressed concern about taking the bankruptcy path, arguing that local officials made mistakes that exacerbated the island's debt woes.
On the legislative front, three Senate Republican chairmen have offered a plan that would provide Puerto Rico with $3 billion in federal relief while establishing an independent authority to keep watch over the island’s finances.
Democrats, including Senate Minority Leader Harry Reid (Nev.) and Sen. Charles Schumer (N.Y.), have offered a bill that would protect Puerto Rico from creditor lawsuits until March 31.
House Minority Leader Nancy Pelosi (D-Calif.) tried to bring similar legislation to the House floor shortly before the break, but Republicans snuffed out those efforts.
This post was updated at 3:50 p.m.