(CNSNews.com) - Puerto Rico's long-running and worsening debt crisis now appears at the top of Washington's "to-do" list.
Senate Majority Leader Mitch McConnell (R-Ky.), Senate Minority Leader Harry Reid (D-Nev.), and White House spokesman Josh Earnest all mentioned it on Wednesday.
"You know, I think the Puerto Rico issue is something a lot of us are concerned about," McConnell told a news conference. "We have a lot of discussion about what to do, and as long as it doesn't involve the use of federal tax dollars, I think it is something we ought to try to figure out some way forward on.
"Exactly what the way forward is at this point, I'm not sure," McConnell continued. "But we certainly agree that it's a big problem, and we need to see what role, if any, we should play in it."
"The Puerto Rican debt crisis is something we need to address," Senate Minority Leader Harry Reid told a news conference. "I think the only thing that's going to work is allowing them to restructure their debt."
Sen. Chuck Schumer, appearing with Reid, said Puerto Rico is in a "full-fledged crisis."
"If Congress doesn't act and give Puerto Rico the chance to restructure its debt, schools will shutter, utilities will be switched off, the sputtering economy will grind to a halt. It will be a nightmare, a nightmare.
"And Senator McConnell, at this very podium a few minutes ago, said he wants a solution that doesn't cost money. There is one: allow Puerto Rico to declare bankruptcy," Schumer said. (Like the states, Puerto Rico cannot declare bankruptcy unless Congress makes an exception. Bankruptcy means some creditors would not get repaid.)
Schumer noted that Puerto Rico is a U.S. territory and its people are U.S. citizens.
"We hope that...Speaker Ryan, who originally voiced some positive notions at the end of last year about this, will move forward. Otherwise, Puerto Rico is going to be a huge problem and it's going to end up costing us...much more money. The way to solve it, a stitch in time saves nine -- allow(ing) them to restructure to allowing them to go through bankruptcy."
Last month, House Speaker Paul Ryan (R-Wis.) gave House committees three months to come up with a "responsible solution" for Puerto Rico.
“Puerto Rico’s fiscal crisis is a problem that is not going away anytime soon,” Ryan said in a statement, as reported by The Hill. “While we could not agree to including precedent-setting changes to bankruptcy law in this omnibus spending bill, I understand that many members on both sides of the aisle remain committed to addressing the challenges facing the territory.”
At the White House on Wednesday, spokesman Josh Earnest said, "We've made clear that the administration considers this a priority, and it's not uncommon for this to be a topic of some conversation here at the White House.
Earnest noted that Treasury Secretary Jack Lew "has been at the forefront of our efforts to try to address the situation. I know that he traveled to Puerto Rico just last week to meet with officials there. And, you know, we were gratified at the end of last year when Speaker Ryan made a specific commitment to allow the House to vote on legislation that would not bail out Puerto Rico, but give Puerto Rico some more options for dealing with their financial challenges," Earnest said.
In a letter to Speaker Ryan two weeks ago, Treasury Secretary Lew wrote that Puerto Rico is already in default: "It is shifting funds from one creditor to pay another and has stopped payment altogether on several of its debts. As predicted, creditors are filing lawsuits."
Lew said only Congress can pass the measures necessary to fully resolve the problem. "Federally legislated restructuring and oversight would cost taxpayers nothing and is essential to put Puerto Rico on a sustainable path forward," Lew wrote. "In addition, legislation that improves health care policies (expanded Medicaid) and encourages work would help solve Puerto Rico’s longer-run challenges."
The Treasury Department has reported that Puerto Rico's debt service consumes more than one-third of governmental revenues and is six times the U.S. state median. Also, the ratio of debt-to- gross national product has increased sharply over the past decade, and the Commonwealth's $70 billion of debt and $45 billion in unfunded pension liabilities now dwarf Puerto Rico's stagnant economy.
In November, the Treasury Department said a "tested federal bankruptcy regime" is the best way to restructure Puerto Rico's debt.
Treasury noted at the time that critics have argued that "our proposal would unfairly change the rules of the game for creditors, who lent Puerto Rico funds under the presumption that the Commonwealth would not have access to federal bankruptcy relief. But given the history of bankruptcy jurisprudence in our country, creditors should understand that such laws may be changed by Congress. In fact, this risk was clearly disclosed to purchasers – particularly hedge funds – of (Puerto Rico's) general obligation bond offering in March 2014."
Puerto Rico has scheduled meetings on Friday with representatives of several bondholder groups to discuss a possible restructuring of $70 billion of municipal bonds, the Wall Street Journal reported this week. Restructuring generally means reducing and renegotiating delinquent debts.
According to Bloomberg news, Puerto Rico’s plight affects most of the people who have mutual funds invested in the municipal bond market. Unlike the bonds of most states and municipalities, Puerto Rico’s are exempt from local, state and federal taxes everywhere in the United States. As a result, they are held by about half of open-end municipal bond funds, according to Morningstar Inc.
The Associated Press reported that Puerto Rican professionals are fleeing the island, which has a 12 percent unemployment rate. About a third of people born in Puerto Rico now live on the U.S. mainland, seeking to escape tax increases, higher utility bills and dwindling job opportunities.