TRENTON – Legislation sponsored by Senators Nilsa Cruz-Perez, Nellie Pou and M. Teresa Ruiz urging the United States Congress to approve the “Puerto Rico Chapter 9 Uniformity Act of 2015,” cleared the Senate State Government, Wagering, Tourism and Historic Preservation Committee today.
Under the bill, SCR-38, the Commonwealth of Puerto Rico would be allowed to authorize one or more of its municipal governments or government-owned corporations to restructure their debts under Chapter 9 of the federal bankruptcy code if they become insolvent, as all state governments are already empowered to do under current federal law.
“Puerto Rico needs the same tools to restructure its debts that every state’s municipalities have,” said Senator Nilsa Cruz-Perez (D-Camden/Gloucester). “Our country’s fate is tied to the Commonwealth, and it is crucial that we protect it. Congress must act quickly on Puerto Rico’s behalf or risk a financial disaster that could have ripple effects across the nation.”
A recent report by CNN Money highlighted that Puerto Rico has run out of money to pay its creditors. The governor of Puerto Rico has warned that his country is close to defaulting on over $70 billion in loans owed by the island and its public corporations. The island can no longer pay all its bills and has large bond payments due again in May and June.
“History has shown that economies in financial distress at the local, state, or national level need a recovery plan that stimulates economic activity and improves the appeal to investors in order to move once again toward prosperity,” said Senator Ruiz (D-Essex). “We have to do this for the people of Puerto Rico and for the nation, to ensure that families are protected.”
Chapter 9 currently does not apply to Puerto Rico. The Commonwealth attempted to construct its own law for dealing with its fiscal problems, the “Puerto Rico Public Corporation Debt Enforcement and Recovery Act,” for use by the Puerto Rico Electric Power Authority (PREPA) and a number of other public corporations.
The Recovery Act was viewed by the United States municipal bond market as unfair to bondholders, leading some bondholders to sue alleging the Recovery Act was “preempted by Section 903 of the federal bankruptcy code and therefore void pursuant to the Supremacy Clause of the United States Constitution,” an argument with which the United States District Court for the District of Puerto Rico agreed, thereby holding the law unconstitutional.
“This legislation is asking Congress to step up and act quickly to help Puerto Rico,” said Senator Nellie Pou (D-Bergen/Passaic). “We as a country need to help the commonwealth during this troubling time. If Puerto Rico fails, our nation as a whole could feel the impact. The island, its infrastructure and its people need help, and this is our chance to bring it to them.”
Puerto Rico became a United States Territory in 1898. In New Jersey, there are over 430,000 people who were born in Puerto Rico or are of Puerto Rican descent, constituting approximately five percent of the State’s population.
SCR-38 cleared the committee by a vote of 4-0. It now heads to the Senate for consideration.