Democrats propose allowing Puerto Rico to declare bankruptcy

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Senate Democrats have unveiled legislation to alleviate Puerto Rico’s debt woes, urging that the island be allowed to declare bankruptcy on all of its debt.

The bill, released Monday, would allow the U.S. territory to restructure its $72 billion in outstanding debt and create a fiscal oversight board for the island.

“For the 3.5 million American citizens living on the island of Puerto Rico, time is running short,” said Sen. Bob MenendezRobert MenendezDems pressure Obama on vow to resettle 10,000 Syrian refugees Lobbying World This week: GOP lawmakers reckon with Trump MORE (D-N.J.), one of the bill’s sponsors. “Congress has to act immediately to fix the federal funding shortfalls and give Puerto Rico the tools it needs to fully restructure its debt.”

The other Democratic sponsors of the bill are Sens. Sherrod BrownSherrod BrownDems to Clinton: Ignore Trump on past scandals Sanders: Clinton with a moderate VP would be a 'disaster' The Hill's 12:30 Report MORE (Ohio), the top Democrat on the Banking Committee; Maria CantwellMaria CantwellDem senators back Interior coal leasing review An affordable housing solution both parties can get behind Senators float bipartisan wildfire bill MORE (Wash.), the ranking member of the Energy and Natural Resources Committee; and Sen. Richard BlumenthalRichard BlumenthalDems press ITT Tech to give students right to sue Senate amendments could sink email privacy compromise Groups urge Senate to oppose defense language on for-profit colleges MORE (Conn.).

The measure is likely to be opposed by Republicans, who have been reluctant to let Puerto Rico declare bankruptcy on large amounts of its debt. Investment firms with significant holdings in Puerto Rican debt are also likely to make their displeasure known.

At the same time, House Republicans are trying to craft their own bill to address the debt crisis before a March 31 deadline set by Speaker Paul RyanPaul RyanSessions: Ryan 'needs to' endorse Trump soon Dole: Gingrich should be Trump's running mate In House GOP, Ryan endorsement of Trump seen as inevitable MORE (R-Wis.).

Time is of the essence for Congress; Puerto Rico is expected to default on some of its legally owed payments as early as May.

The Obama administration has floated the idea of letting Puerto Rico restructure some of its debt, but has stopped short of pushing for outright bankruptcy through something like Chapter 9 of the bankruptcy code, which outlines powers granted to states. Instead, the White House is pushing Congress to adopt a law that would allow Puerto Rico to restructure its debts without bankruptcy, through the territorial clause of the U.S. Constitution.

The Senate Democratic proposal goes much further by giving the island the power to declare bankruptcy on all its debt.

The bill would also establish a fiscal oversight board, filled with nominees selected by a mix of Puerto Rican officials and the president. It would also require Puerto Rico’s governor to establish a five-year fiscal plan to get the island’s finances in order. The measure would grant relief to Puerto Rican residents in terms of additional tax relief and healthcare coverage, comparable to what the states currently receive.

This post updated at 4:54 p.m.