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)

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