Skip to content

Blumenthal, Schumer Introduce Legislation to Grant Puerto Rico Ability to Declare Bankruptcy for Its Municipalities & Public Utilities, Avoid Growing Fiscal Crisis

The Puerto Rico Chapter 9 Uniformity Act will let Puerto Rico’s municipalities and public corporations readjust debts that have become unpayable; orderly readjustment under judge’s supervision would avoid potential taxpayer liability

Legislation gives Puerto Rico the authority to authorize its municipalities to access a fair, orderly process for avoiding humanitarian catastrophe and fiscal crisis, like every state in the country

(Washington, DC)Today, U.S. Senators Richard Blumenthal (D-Conn.) and Charles E. Schumer (D-N.Y.) announced The Puerto Rico Chapter 9 Uniformity Act, legislation they have co-authored and introduced to address the growing fiscal crisis in Puerto Rico by granting Puerto Rico the authority to allow its municipalities and public utilities to readjust their debts under the supervision of a bankruptcy court. The Puerto Rico Chapter 9 Uniformity Act will provide Puerto Rico with the same authority granted to all U.S. states that enables its municipalities and public utilities to restructure their debt.

“This measure is vital to prevent a humanitarian and financial catastrophe – a clearly avoidable disaster,” said Blumenthal. “Creditors, investors, ordinary citizens, all will be harmed if the Congress fails to act. This measure is not a bailout – involving not a dime of federal funds. It enables an orderly, rational restructuring of debt, instead of a financial free for all and potential free fall.”

“We can either do the right thing and give Puerto Rico the bankruptcy option it needs and deserves, or we can risk a disaster on the island and billions in bailout payments later,” said Schumer. “Allowing Puerto Rico’s municipalities to go through the bankruptcy process, just like other American municipalities, is the right way to begin untangling the fiscal mess on the island, and I hope both parties will come together to get this done.”

Specifically, The Puerto Rico Chapter 9 Uniformity Act of 2015 would:

  • Amend the Bankruptcy Code to treat Puerto Rico as a State for purposes of Chapter 9.
  • Give the Puerto Rican government the ability to authorize its municipalities and public corporations to enter Chapter 9 proceedings.

The legislation is supported by the editorial boards of The New York Times, The Washington Post and Bloomberg; by the vast majority of stakeholders in the financial community, including most owners of Puerto Rico bonds; and by individuals and organizations across the political spectrum.

Joining Blumenthal and Schumer as co-sponsors are U.S. Senators Bill Nelson (D-Fla.), Kirsten Gillibrand (D-N.Y.), Elizabeth Warren (D-Mass.), Robert Menendez (D-N.J.), Cory Booker (D-N.J.), Harry Reid (D-Nev.), Chris Murphy (D-Conn.), Bernie Sanders (I-Vt.), Martin Heinrich (D-N.M.), and Mazie Hirono (D-Hawaii). A companion version of this legislation has been introduced into the House by Congressman Pedro Pierluisi of Puerto Rico.

Full text of the legislation can be viewed here.

Additional Background

The Commonwealth of Puerto Rico and its agencies currently hold roughly $73 billion in debt. The public electric utility on the island, PREPA has $9 billion of debt outstanding. After narrowly avoiding a default on July 1, it faces another payment on January 1, 2016. A PREPA default could result in diminished services and severe humanitarian consequences.

Chapter 9 of the U.S. Bankruptcy Code provides a legal mechanism through which a “municipality,” or a “political subdivision or public agency or instrumentality of a State,” may restructure its debts. Currently, any state may authorize its municipalities to file a Chapter 9 petition.

While the government of Puerto Rico is treated like a state for every other purpose of the Bankruptcy Code, the 1984 Bankruptcy Amendments and Federal Judgeship Act expressly excluded Puerto Rico from Chapter 9. This means the government of Puerto Rico has not been granted the power to authorize its municipalities to enter into Chapter 9 proceedings. At the same time, federal courts have held that Puerto Rico cannot pass its own bankruptcy rules. The Puerto Rico Chapter 9 Uniformity Act would amend Section 101(52) of title 11 of the United States Code in order to treat Puerto Rico as a State for purposes of chapter 9 of such title relating to the adjustment of debts of municipalities. The Puerto Rican government would have the ability to authorize its municipalities to enter Chapter 9 proceedings. This power would apply to debts, claims, and liens created before, on or after the date of enactment.

###