Conservative Republicans won’t support a bill on Puerto Rico’s debt crisis that would set a precedent for fiscal mismanagement in U.S. states or other territories, Rep. Raul Labrador (R-Idaho) said Wednesday.
“Whatever we do on Puerto Rico cannot affect our states and cannot affect the way that we’re going to respond to any fiscal crisis in the future for any of the states,” Labrador, a member of the conservative House Freedom Caucus, told reporters today.
He also rejected complaints from some general obligation bondholders that they be exempt from some of the debt restructuring processes set out in the bill, H.R. 4900.
“I don’t think that’s right,” he said. “If you read the Puerto Rico constitution, it specifically says that general obligation bonds need to have priority up to 15 percent of the debt of the island. We need to make sure we protect that. Because if we don’t protect that, our state constitutions are not going to be protected.”
Labrador said the other priority for conservatives is to ensure that a restructuring process doesn’t emulate the kind of process witnessed when Detroit declared bankruptcy, especially when it comes to prioritizing payments to pensioners versus creditors.
“We need to ensure in the language that the pensions are not getting any priority over the secured debt,” Labrador said. “And if we can get those two things, I think most conservatives can support a bill that gives this debt restructuring mechanism to the island of Puerto Rico.”
Lawmakers who drafted the Puerto Rico bill avoided language that would prioritize payments to Puerto Rican pensioners over bondholders.