The Road to PROMESA
Puerto Rico has run into numerous crises after defaulting on numerous debt payments due to a $70 billion national debt. Crises include lawsuits filed by Wall Street, not being able to provide adequate health care for a Zika outbreak, and a mass fleeing of Puerto Ricans to the United States. On June 30, President Obama signed the HR 5278 Bill, known as PROMESA (Puerto Rican Oversight Management, and Economic Stability Act). This bill, introduced by Representative Sean Duffy, was created in the hopes of establishing an oversight board to assist the Puerto Rican Government in managing public finances and help relieve Puerto Rico’s debt. Below is a breakdown of important events that led to the creation of PROMESA, based on a timeline prepared by the Puerto Rico Federal Affairs Administration:
On August 7, 2014, the Government Development Bank for Puerto Rico (GDB) passed the Puerto Rico Public Corporation Debt Enforcement and Recovery Act (shortened to Recovery Act). This Act was created to provide a law to allow Puerto Rico to recover and reconstruct their debt.
On February 6, 2015, the Puerto Rico Federal District Court ruled that the Recovery Act is unconstitutional and will be declared void under the Supremacy Clause of the United States Constitution.
On July 6, 2015, Congresswoman Nydia M. Velázquez wrote a letter to President Obama addressing the Puerto Rican debt. She stated that the President’s Working Group on Financial Markets held the optimal plan to assure the debt was dealt with in an organized and fair fashion.
On August 3, 2015, the Puerto Rico Public Finance Corp failed to pay a $58 million debt on time.
On September 9, 2015, the Governor’s Working Group released a economic growth plan. This plan addressed the current economic situation by looking at various economic variables, such as GNP, since 2007 to point out dangerous trends that were causing Puerto Rican debt to increase rapidly and presented solutions to minimize debt increases.
On October 21, 2015, the White House released a four pronged legislative proposal to help aid Puerto Rican debt. The four elements proposed were: 1) Congress to provide Puerto Rico an organized regime to address the debt. 2) provide Congressional oversight to make sure Puerto Rico follows the recovery plan. 3) Congress needs to improve the Commonwealth’s Medicaid program to allow better access to healthcare. 4) Congress needs to provide the commonwealth with access to Earned Income Tax Credit (EITC) to reward work and support growth in Puerto Rico.
On December 1, 2015, Governor Alejandro García Padilla signed Executive Order No. OE-2015-46. This Executive Order declared that certain available revenues will be used to pay public debt instead of debt to certain public corporations. This allowed for the retention of revenues that would normally be used for highways, transportation, or infrastructure. The retained revenues would instead be used to pay off public debts.
On December 16, 2015, Speaker of the House Paul Ryan delivered a statement that instructed the House committees to create an appropriate solution to deal with Puerto Rico’s fiscal crisis by the end of the first quarter of 2016, following the holiday recess.
On January 4, 2016, Puerto Rico Infrastructure Finance Authority failed to make their $37 million debt payment.
On January 7, 2016, Ambac Financial Group, Inc. and Assured Guaranty Ltd. filed a joint suit to challenge the constitutionality of the Executive Order passed in December saying that the clawback is not necessary to make General Obligation (GO) bond payments.
On April 4, 2016, a large group of investors sued the GDB after Governor Padilla claimed that the bank could not make its $423 million debt payment due on the first of May.
On April 8, 2016, Puerto Rico Public Finance Corp. fail to meet a $1 million debt payment. Governor Padilla signs Executive Order 2016-010 declaring a state of emergency for the GDB.
On April 12, 2016, HR 4900 (PROMESA) is introduced. The following day a Full Committee hearing discusses the draft of the PROMESA bill.
On May 1, 2016, GDB fails to make $399 million debt payment.
On May 18, 2016, a revised version of HR 4900, HR 5278 PROMESA is presented to the House.
On June 9, 2016, PROMESA is approved by the U.S. House of Representatives in a vote of 297-127.
On June 22, 2016, Governor Padilla addresses PROMESA as a much awaited solution to the debt that questions Puerto Rican autonomy.
On June 29, 2016, PROMESA is approved in the U.S. Senate by a 68-30 vote.
On June 30, 2016, President Obama signs PROMESA.
