WASHINGTON (AP) — The Obama administration on Thursday told Congress that Puerto Rico's economic woes could quickly turn into a humanitarian crisis unless Congress adopts a blueprint for dealing with the island's crushing $72 billion debt burden.
Antonio Weiss, a Treasury Department official who is the administration's point person on Puerto Rico, called on lawmakers to create a new territorial bankruptcy regime that would allow Puerto Rico to restructure its debt. The plan would also impose new oversight on the island's finances, expand Medicaid benefits and allow residents to qualify for the same low-income tax credits that are offered to other American citizens through the Earned Income Tax Credit.
"Puerto Rico is out of cash and running out of options," Weiss told the Senate Energy and Natural Resources Committee, which has jurisdiction over U.S. territories such as Puerto Rico. "In the very near future, Puerto Rico will face impossible choices among providing essential public services, delivering promised pension benefits and paying its debt."
Committee Chairman Lisa Murkowski, R-Alaska, told Weiss that while Congress wants to be helpful, she and other lawmakers will need to see verifiable data on the island's financial condition. The administration's proposal faces an uncertain future in a Republican-controlled Congress that wants to rein in spending.
Sens. Elizabeth Warren and Bernie Sanders, who is seeking the Democratic presidential nomination, argued that the administration needs to make sure that any rescue plan protects the island's 3.5 million residents, rather than just the Wall Street investors who have purchased the government's bonds at a discount.
"This is a human tragedy, and Wall Street should not be believing that they can get blood from a stone," said Sanders, I-Vermont.
Warren, D-Massachusetts, said that the "so-called vulture funds that wait until borrowers are in trouble and then buy the debt at a big discount" are making unreasonable demands about firing teachers and pursuing other austerity measures. She called on Treasury officials to be as aggressive in efforts to help Puerto Rico as they were in helping to bail out big financial institutions during the 2008 financial crisis.
"During the financial crisis, Treasury did more. It stretched the limits of its authority to make sure the banks stayed afloat," Warren said. "I urge Treasury to be just as creative (for Puerto Rico) as they were for the big banks."
The administration's plan was accompanied by a joint statement from Treasury Secretary Jacob Lew, National Economic Council Director Jeff Zients and Health and Human Services Secretary Sylvia Mathews Burwell, imploring Congress to act and contending that administration efforts alone cannot manage Puerto Rico's problems.
The administration said that its proposal did not constitute a bailout for Puerto Rico. But if approved by Congress, it would allow the island to restructure its debt under a special type of bankruptcy protection that would be provided to Puerto Rico and other U.S. territories.
On Wednesday, Puerto Rico's Government Development Bank announced it was ending lengthy talks with a group of bondholders without reaching a deal on debt restructuring.