Facing another deadline and likely default on a $2 billion debt payment on July 1, the Senate passed legislation, previously passed by the U.S. House of Representatives on June 9, to help Puerto Rico navigate out of its current financial crisis by a vote of 68–30. On Monday, June 27, Senate Majority Leader Mitch McConnell (R-Ky.) filed cloture on the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA)(H.R. 5278), setting up the final vote on Wednesday, June 29. President Obama subsequently signed PROMESA into law on June 30. NACo, along with other organizations representing states and local governments, initially expressed concern that any assistance legislation for Puerto Rico may be used as a vehicle to advance provisions harmful to states and local governments. However, the provisions in PROMESA are primarily focused on the territory.

NACo, joined by other local government organizations, sent a letter in April to congressional leaders stressing the need to keep state and local government fiscal matters separate from any efforts to address Puerto Rico’s financial crisis. As the situation has unfolded and dominated municipal finance headlines, organizations like NACo have remained vigilant to attempts to capitalize on the tumultuous debate to advance initiatives harmful to states and local governments. The concern stems from language that emerged in at least one Senate proposal, as well as the general rhetoric flowing around the debate on a plan to get the territory’s finances back in order.  

One proposal of concern to counties was the Puerto Rico Assistance Act (S. 2381), introduced in December of 2015 by Sen. Orrin Hatch (R-Utah). The bill would have, among other provisions specifically applying to Puerto Rico, included language from a bill state and local government organizations have opposed in the past: the Public Employee Pension Transparency Act (PEPTA)(H.R. 4822). PEPTA, introduced by Rep. Devin Nunes (R-Calif.) in each of the last three sessions of Congress, would create a new layer of reporting for state and local government pension plans to the U.S. Treasury, require a new calculation of unfunded liabilities on top of current accounting standards requirements and tie non-compliance with these requirements to the loss of the ability to issue tax-exempt municipal bonds. NACo, in conjunction with the Public Pension Network, sent a letter in March to all Representatives urging opposition to the bill when it was introduced. 

With respect to the rhetoric, critics of these efforts to address Puerto Rico are characterizing them as potential government bailouts. But some have not stopped there. Others also argue that states and local governments experiencing fiscal stress may also seek to utilize any plan that is established for Puerto Rico. However, during the debate leading up to PROMESA’s passage, House leaders and the bill’s supporters stressed that provisions in the bill were only intended to apply to the territory.

Senate passage of the bill came just days before the July 1 deadline. Majority Leader McConnell did not allow any amendments from the floor. This was important for timing because any changes to the bill would have had to be sent back to the House. With the president’s signature, this bill prevents a potentially catastrophic default for Puerto Rico while avoiding measures that could harm counties and their financial security.

Contact: Mike Belarmino at mbelarmino@naco.org or 202.942.4254