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The U.S. House plans to vote next week on a proposal to address Puerto Rico’s debt crisis, but it’s not clear the measure has enough support to pass despite the backing of Speaker Paul Ryan and Minority Leader Nancy Pelosi, Bloomberg News reported today. “It still has some hurdles,” said Representative Raul Grijalva, the top Democrat on the Natural Resources Committee, who backs the bill even though he says it’s imperfect. “I think it can pass, but it’s going to be a difficult process.” If the bill can’t clear the House, it would leave Puerto Rico and its bondholders in limbo with no clear road ahead on how to keep the island’s government functioning ahead of a likely July 1 default on a $2 billion debt payment. House leaders still want to move ahead with a vote next week, according to a Republican aide, as they try to figure out how to cobble together votes to pass the legislation. One question for Republican leaders is whether to allow debate on any amendments, and, if so, which ones. The bill, approved last week by the Natural Resources Committee, has been attacked from two sides: by conservatives who oppose anything resembling a bailout of Puerto Rico, and by liberals, including Democratic presidential candidate Bernie Sanders, who reject restrictions on the island’s government. Read more. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage. 

There is a battle playing out between the Michigan Senate and House over how to make sure Detroit Public Schools doesn’t go into bankruptcy, WXYX.com reported yesterday. The Michigan Senate in March passed bills that would provide Detroit Public Schools about $700 million to address debt and restructure into a new district, but the House never moved on them. The House then in May passed its own legislation worth just over $500 million. The legislation also threw out some union contracts, allowed uncertified teachers to work in Detroit, and delayed electing a school board. The Senate refused to act on the House bills. So, on June 1, the House pulled their legislation out of the Senate, and went to work rewriting it. New legislation being drafted keeps some aspects of both previous plans in the House and Senate. It would split Detroit Public Schools into two districts. One would exist to pay off the existing debt. The other would exist to educate kids. It would pay off the district’s estimated $467 million in operating debt with Tobacco Settlement funds.

Cities and counties are clashing with state legislators over attempts to bolster workers’ wages and benefits, the latest flashpoint in a national dispute over how to address inequality between the highest- and lowest-earning Americans, the Wall Street Journal reported today. So far this year, half a dozen Republican-dominated state legislatures—including in Alabama, Arizona and North Carolina—have passed so-called pre-emption bills that ban Democratic-leaning cities from raising wages and mandating benefits such as sick leave above state or federal minimums. A half-dozen similar measures are pending in statehouses nationwide with more expected later this year. Business groups say that the measures are critical to unwinding a confusing thicket of rules that raise compliance costs and kill jobs. Workers’ advocates say the policies being blocked can decrease employee turnover, boost productivity and support public health.

Local and state governments have a looming pension debt crisis gathering, the likes of which make Puerto Rico’s financial distress seem a minor prelude, according to a Forbes.com commentary. Illinois offers a textbook case of the coming pension fund meltdown with its years-long slow motion fiscal train wreck. On Monday, the Illinois House overrode Gov. Bruce Rauner’s veto of the Chicago police and fire pension bill at the urging of Chicago Mayor Rahm Emanuel. With the Senate’s override vote earlier, the bill becomes law. Without the bill, Mayor Emanuel warned of a “Rauner Tax” — a $300 million property tax hike made necessary by the fiscally-strapped city being unable to borrow $843 million from its pension fund at 7.75 percent to meet current obligations. Gov. Rauner said the veto override would put “an additional $18.6 billion on the backs of taxpayers” warning about “governments (that) fail to promptly fund pension obligations” and kick the can down the road instead of enacting reforms to “grow our economy, create jobs and enable us live up to the promises we’ve made to police and firefighters.” Unfortunately, Illinois is far from alone in this fiscal quagmire, according to the commentary. Top honors for unfunded public pension debt belongs to The Last Frontier State, Alaska, with per capita pension debt, assuming market rate returns, of $38,251, according to the Stanford Institute for Economic Policy Research at Stanford University. Illinois comes in at second, with $28,880 in unfunded pension liabilities per person. Connecticut, California, Massachusetts and New Jersey round out the top six, each having more debt per capita owed to just their pension systems than Puerto Rico owes on its bond debt. Read the full commentary. 

Experts on the April episode of “Eye on Bankruptcy” discussed looming financial crisis in private and public pensions. Click here to watch. 

Congress’s plan to throw a lifeline to Puerto Rico is making waves in the U.S. Virgin Islands, Bloomberg News reported today. The measure that passed a House committee last week would allow for a federal control board to oversee the finances — and potentially restructure the debt — of any U.S. territory, even though Puerto Rico is the only one now asking for help. Virgin Islands Governor Kenneth Mapp and Rep. Stacey Plaskett have blasted the bill, warning that it may tarnish its standing with investors. That concern is already starting to materialize: Returns on its securities are trailing the $3.7 trillion municipal market for the first time since 2011. The Caribbean island, Puerto Rico’s closest American neighbor, has a sliver of the population — about 104,300 — and a fraction of the debt, with $2.4 billion across all issuers. But divvied up, that’s $23,000 of obligations per person, even more than Puerto Rico’s $20,000. The two Caribbean territories with a shared culture also have similar fiscal strains: declining populations, underfunded pensions, histories of borrowing to cover budget shortfalls and unemployment rates that are twice as high as the U.S. mainland’s. Virgin Islands leaders insist the government can and will pay what it owes, in part because of the way the bonds are structured.

Three and a half million Americans live on an island that is in economic free-fall, and Congress still isn’t sure whether it will throw them a lifeline, according to a New York Times editorial today. A bipartisan bill to help Puerto Rico is expected to come to a vote soon in the House, and while it has flaws and it is facing opposition on many fronts, it offers the island its best chance of survival, according to the editorial. This is how urgent the situation is: Thousands of residents leave for the mainland every month to seek jobs and better public services, and the exodus will accelerate if nothing is done to change Puerto Rico’s trajectory. With its economy in decline for a decade, the island has accumulated huge debts that it cannot repay. It owes $72 billion to investors and about $46 billion to government pension funds. Two weeks ago, Republican and Democratic lawmakers in the House and the Obama administration reached a compromise on aiding Puerto Rico. The island desperately needs to restructure its debt, which is about 100 percent of its gross national product. Given its shrinking economy and population, Puerto Rico cannot possibly repay bondholders every dollar it owes them. The island’s government has cut spending and raised taxes, but that has only made the situation worse by depressing economic activity. Read more. 

For more news and analysis of Puerto Rico's debt crisis, be sure to visit ABI's "Puerto Rico in Distress" webpage.