By Kristina Peterson and Nick Timiraos
WASHINGTON -- House Speaker Paul Ryan has surprised many of his
closest Republican colleagues by making an all-out push to resolve
Puerto Rico's debt crisis, one of the year's thorniest and most
thankless legislative puzzles.
The U.S. territory's plight is set to worsen Monday with the
government likely to miss a $422 million debt payment, which would
be the largest default so far on the island. Ryan supporters cite
the looming default as evidence of why the speaker has thrust
himself into an intensifying squabble, with little obvious
political upside.
Inaction now, they say, would force Congress to take
more-unpopular steps in the future. "The longer we wait, the worse
the potential danger, " said Rep. Rob Bishop, a Ryan ally who is
the Republican chairman of the House Natural Resources
Committee.
Six months into his tenure as speaker, Mr. Ryan has largely
maintained peace with House conservatives with little of the open
warfare that flared up with GOP leaders in recent years. But his
reputation could take a hit if he decides to pass legislation with
mostly Democrats, triggering a conservative backlash, and
alternately if he can't pass any bill, exposing the GOP to attacks
that it has ignored Puerto Rico.
Rep. John Fleming (R., La.), a vocal critic of allowing Puerto
Rico to restructure its debts, said Mr. Ryan would be making a
mistake to pursue legislation with a majority of Democrats. "I
think that would be a political disaster," he said.
Few GOP lawmakers are feeling pressure from their constituents
that Congress needs to wade into the troubled finances of Puerto
Rico, an island 1,500 miles from Washington. "It's not on their
radar," said Rep. Ted Yoho (R., Fla.).
Mired in recession for a decade, Puerto Rico now faces more than
$70 billion in debt repayments that the island's government says it
lacks the cash to cover. As defaults accelerate, different classes
of creditors are likely to sue not only the government but also one
another to compete for dibs on the island's dwindling revenues.
Puerto Rico's debt crisis isn't seen as likely to spill into the
U.S. economy or the broader $3.7 trillion municipal bond market
because the island's unique set of economic troubles make it
something of an outlier.
The commonwealth's public institutions don't have access to
federal bankruptcy courts, unlike municipalities in U.S. states.
And because Puerto Rico isn't a country, it can't turn to the
International Monetary Fund for assistance.
For Mr. Ryan, "this is a chance to demonstrate that Congress can
actually do something," said Marc Joffe, a former senior director
at credit-rater Moody's Investors Service who is now principal
consultant at Public Sector Credit Solution, a research group.
Mr. Ryan first promised to tackle the issue in December, when
Democrats balked at passing a year-end spending bill without a
pledge to help the island's finances. Now, the House is struggling
to hit on a compromise that can satisfy the Obama administration
and leaders of both parties in Congress.
The legislation would create a federal oversight board with the
power to approve or reject local budgets, and to approve plans for
court-supervised debt restructuring. It wouldn't commit taxpayer
funds.
Despite weeks of close negotiations, the Obama administration
hasn't blessed the legislation. Treasury Department officials say
restructuring provisions in the most recent draft aren't workable
because they would allow creditors to drag their feet in any debt
workout.
Mr. Ryan, who declined to comment for this article, told
reporters in April that his intention was "to bring order to the
chaos" while assuring American taxpayers don't have to foot any of
the bill.
His balancing act has grown harder because groups allied with
some of the island's creditors are spending millions of dollars on
an advertising blitz that characterizes the bill as a bailout, even
though it wouldn't require any taxpayer dollars.
Critics say the bill would set a precedent for indebted states.
Bondholders are worried that the legislation will treat them
unfairly by, for example, using a restructuring process to shore up
the island's unfunded pensions.
Failure to get Republicans on board will force Mr. Ryan to make
the same lose-lose proposition his predecessor, John Boehner, often
faced: whether to muscle legislation through the House with the
support of Democrats at the expense of political backlash from
conservatives.
"Paul Ryan's trying to do the right thing," Senate Minority
Leader Harry Reid (D., Nev.) said in an interview. "But he's
running into the same problem that Boehner ran into."
The danger for Mr. Ryan is that if more Republicans defect,
Democrats will have more leverage to steer the legislation in their
direction. "The more Democrats it takes to pass a bill, by
definition, the less conservative the policy will be," said Rep.
Luke Messer (R., Ind.), a member of House GOP leadership. On Puerto
Rico, "I'm not sure we've quite hit that sweet spot yet," he
said.
On other issues this year, Mr. Ryan has adopted a bottom-up
approach, taking pains to elicit feedback from conservatives who
rebelled against Mr. Boehner. While he's made clear he wants to
pass a budget blueprint, he's deferred to the will of the House GOP
majority, whose internal disagreements have stymied the effort so
far.
With Puerto Rico, Mr. Ryan has been a more vocal advocate. He
has spent weeks laying out his rationale for the complex
legislation and rebutting the charge that it is a bailout as he
works to build GOP support.
Political analysts say Mr. Ryan is betting that inaction carries
not just a fiscal cost for Puerto Rico but also a political cost
for Republicans, especially in Florida, the top destination of
hundreds of thousands of Puerto Ricans who have left the island in
recent years.
If Congress doesn't pass legislation, Republicans risk taking
blame for the island's fiscal woes -- rather than the island's
creditors or government, which ran up more than $70 billion in debt
from just $24 billion in 2000. Possible casualties of any political
backlash include the open Florida seat to replace Sen. Marco Rubio,
one of a handful of contests that could determine which party
controls the Senate next year.
Write to Kristina Peterson at kristina.peterson@wsj.com and Nick
Timiraos at nick.timiraos@wsj.com
(END) Dow Jones Newswires
April 29, 2016 18:06 ET (22:06 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.