Yesterday, President Barack Obama signed PROMESA (Puerto Rico Oversight, Management, and Economic Stability Act) into law, just one day before the July 1st deadline where Puerto Rico is expected to default on $2 billion of debt, including $800 million of Constitutionally backed general obligation debt.
Watch bill signing on C-SPAN.
Under Puerto Rico’s Constitution, these Constitutionally backed general obligation debts should receive priority over government resources, including those needed to keep hospitals and schools open. Earlier this month, U.S. hedge funds filed law suits against a local debt-moratorium law to ensure that they received priority, suggesting future lawsuits if Congress did not intervene.
PROMESA is the result of bipartisan compromises, Congressional leadership support, and the backing of Treasury Secretary Jack Lew. The bill passed the House on June 9th by 297-127 vote [voting AYE: Amodei and Titus; voting NAY: Heck and Hardy] and passed the Senate this Wednesday with a vote of 68-30 [voting YEA: Reid; Voting NAY: Heller]. Senate approval was uncertain due to the unexpected early House recess, forcing the Senate to adopt the bill as is because amendments would have necessitated a House vote after the July 1st deadline.
What Will PROMESA Do?
Although PROMESA was passed before July 1st, Puerto Rico Governor Alejandro Garcia Padilla said Puerto Rico does not have the money nor time to meet the debt payments due today.
Though PROMESA will not help Puerto Rico make today’s $2 billion debt payment, it will prevent lawsuits from creditors, create a financial oversight board that will control Puerto Rico’s budget and can reorder the priority of creditors, and allow federal minimum wage to be lowered to $4.25 for workers under 24 years old. The oversight board will operate independently of the Puerto Rican government and restructure its finances, similar to the oversight boards created in Detroit and New York City. Additionally, PROMESA prevents a taxpayer bailout of Puerto Rico’s debt.