Puerto Rico has run out of money.
That was the crux of the dire message Gov. Alejandro García Padilla had for the Senate Judiciary Committee Tuesday as he renewed his call for access to bankruptcy for the island commonwealth.
"Absent an orderly process, its effects will be catastrophic. That is why, starting today, the Commonwealth of Puerto Rico will have to claw back revenues pledged to certain bond issues in order to maintain essential public services," Padilla said. "We have taken this difficult step in the hope that Congress will act soon, but let us be clear: we have no cash left. The emergency measures we have taken to maintain essential services are unsustainable."
The fiscal crisis in Puerto Rico extends beyond the island given its effects on holders of municipal bonds and other creditors, as well as to citizens' family and friends living on the U.S. mainland. Padilla's efforts to restructure debt are at odds with some investors fighting potential reductions to repayments.
But the Puerto Rican government hasn't won over Republicans, as Senate Finance Chairman Orrin G. Hatch made clear in a floor speech Monday, expressing concern that officials either hadn't taken the situation seriously enough or overstated it.
"Ultimately, whatever case can be made for restructuring authority for Puerto Rico's debt, there may not be an urgent need for that authority to be granted right away," Hatch said. "This is evidenced by the fact that, despite several months of debate surrounding these issues, Puerto Rico has only recently begun negotiating with some of its creditors. I would hope that, if the need for relief is in fact dire, the government of Puerto Rico will waste no time negotiating and working toward private solutions."
And Judiciary Chairman Charles E. Grassley, R-Iowa, used his opening statement Tuesday to warn the effect on bondholders should not be understated.
"I'm told that approximately 16,000 Iowans are invested in funds that hold PREPA bonds. These folks aren't vultures. They're middle-class Americans who probably knew little about Puerto Rico's finances. They simply invested in one of many tax-exempt municipal bond fund’s containing Puerto Rico's bonds," Grassley said.
Lawmakers championing access to bankruptcy courts for Puerto Rico's public entities are pushing for immediate action.
Sen. Richard Blumenthal, a Democratic member of the Judiciary Committee who has already introduced legislation sought to emphasize that the people of Puerto Rico are, in fact, "fellow Americans."
The Connecticut Democrat said at the hearing what Congress decides to do or not do, "will send a profoundly significant message about ... well beyond our financial obligation, our moral responsibility to look out for fellow Americans regardless of where they live."
"Right now, this crisis demands action. Many of us remember the headline that appeared in the newspapers not so long ago in American history that was, in effect: 'Congress to New York: Drop Dead.' Congress cannot tell Puerto Rico to drop dead financially any more than it could New York or any other state represented by my colleagues here today," Blumenthal said. "Reasonable people may disagree about the details of the current situation, but one thing should be absolutely clear: this situation is unsustainable. The status quo is unacceptable."
Support for Puerto Rico Bankruptcy Builds
Let Puerto Rico Go Bankrupt? Maybe
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