House conservatives voice skepticism over Puerto Rico bill

House conservatives voice skepticism over Puerto Rico bill
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House conservatives say they’re worried that a bill to institute financial oversight over Puerto Rico and restructure its debt could set harmful precedents that stifle the bond market and trample states rights.

They also fear a last-ditch bailout of Puerto Rico could be necessary if the legislation fails to help it.

The House is expected to miss a crucial May 1 deadline to pass a bill to help Puerto Rico settle more than $70 billion in debt.

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Several dark money groups have run ad ads panning the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) as a bailout, though no taxpayer money will be sent to Puerto Rico under the current proposal.

Rep. Dave Brat (R-Va.), a member of the conservative House Freedom Caucus, said PROMESA isn’t a bailout on its face, but he’s concerned that one could be necessary if the fiscal oversight board it establishes fails to clean up Puerto Rico’s debt.

"I don't think it's fair to say it's going to be a bailout upfront. I think that's accurate, but the major is concern is will it end up being a backstop?,” Brat said Wednesday. “If we go along with setting up a control board and something goes wrong...who’s the backstop? 

“And who was the backstop for when federal policy utterly failed and lost half the stock market’s value in half a day?” he said. “The American people.”

Some conservatives aren’t opposed to debt restructuring in principal, but worry about certain precedents the bill could set. 

Rep. Raul Labrador, another Freedom Caucus member, said he could only support a bill that respects debt payment priorities written into Puerto Rico’s constitution and doesn’t prioritize payments to pensioners. He cited concerns that doing so could lead to violations of state constitutions and stifle the bond market. 

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"Whatever we do on Puerto Rico cannot affect our states and cannot affect the way that we're going to respond to any fiscal crisis in the future for any of the states,” said Labrador, a member of the House Natural Resources Committee, which is handling the bill. “I think if we can get those two things, most conservatives can support a bill that gives the debt restructuring mechanism to the island of Puerto Rico."

Freedom Caucus Chairman Jim Jordan (R-Ohio) echoed Labrador’s concerns about prioritizing pension payments over bond payments.

"If you move them up and treat them different like they did in Detroit, then now it's not one thing that happened in Detroit. It's becoming a pattern...and my understanding is that is has implications for the entire bond market,” said Jordan, citing Detroit’s bankruptcy in 2014. “ And that is a real concern."

Labrador also said he was squabbling over the specificity of the bill’s language with Natural Resources Committee leaders who he said are risking executive overreach to gain Democratic support.

The fight that I'm having right now with the people who drafted this bill is that they want the language to be loose enough that we can get enough votes from the Democrats,” said Labrador. “Well guess what? If the language is loose enough, you're going to be able to get around the language."