House Passes Puerto Rico Debt Crisis Legislation

[WestVirginiaRebel]

Breitbart:

The U.S. House passed the “Puerto Rico Oversight, Management and Economic Stability Act” (PROMESA) debt crisis legislation on Thursday by a 297-127 vote. The bill now heads to the U.S. Senate, where there appears to be a similar level of bipartisan support for approval.

 

This bill applies a form of Chapter Nine bankruptcy to the general obligation bonds of Puerto Rico that are guaranteed under the commonwealth’s constitution. Although Article VI, Section 8 of Puerto Rico’s constitution explicitly provides that “interest on the public debt and amortization thereof shall be paid first,” the “PROMESA” legislation overrides the Puerto Rican constitution and could be used to pay junior claims first.

 

Many fear that PROMESA is a bad precedent, because every US state government has similar constitutional provisions that guarantee their general obligation bonds. This constitutional guarantee has allowed states to borrow at extremely low interest rates, because the risk of default is extremely low.

 

PROMESA could have been written to respect the $18 billion of constitutionally guaranteed debt, and just focused instead on restructuring the $54 billion of Puerto Rican municipal debt that is not constitutionally guaranteed. But Congress, fearing a protracted battle, chose to include all of the territory’s municipal debt.

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Big government's bad debt deal.