AP Explains: GOP battles bailout perception on Puerto Rico

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Columbus CEO

WASHINGTON (AP) — Debt-ridden Puerto Rico faces a $422 million bond payment deadline Sunday with no sign Congress will act in time to help.

Further complicating lawmakers' efforts to steer the U.S. territory away from economic collapse are ads airing nationwide that claim the legislation amounts to a financial bailout, even though the bill has no direct financial aid.

Some House conservatives have latched onto that argument, making it difficult for Speaker Paul Ryan, R-Wis., to garner enough support for the bill. Natural Resources Committee Chairman Rob Bishop, R-Utah, says he is reworking the bill, and a new version could come as soon as this week.

It's unlikely to come in time for Puerto Rico to avoid default on the nearly half-billion-dollar debt payment. The AP explains Puerto Rico's debt crisis, what's happening in Congress and the outside forces.



Puerto Rico's government is running out of money. Agricultural revenue has diminished and federal tax incentives that lured manufacturers were phased out by Congress a decade ago.

The territory's financial problems grew worse as a result of setbacks in the wider U.S. economy, and government spending in Puerto Rico continued unchecked. Borrowing covered increasing deficits and bonds were sold on special terms. More than 200,000 people have left Puerto Rico in the past five years, reducing the island's tax base.

Those left behind have struggled with higher taxes and utility bills that have forced businesses to close or lay off workers. Foreclosures are skyrocketing and the island's unemployment rate of 12 percent is the highest compared with any U.S. state.



Ryan is lobbying his House Republican caucus to support the legislation, which would create a control board to help manage the island's $70 billion debt and to oversee some debt restructuring. Ryan says Congress is staunchly opposed to a bailout, but the U.S. could ultimately be responsible if Congress doesn't act soon to prevent collapse.

Some lawmakers are claiming the opposite.

"This could be a first step toward a bailout," said Louisiana Rep. John Fleming, a GOP member of the House Natural Resources Committee, which will have to approve the bill before it moves to the floor.

Creditors who are owed money are spending millions to lobby on the bill and have hired former lawmakers to push their case. In some cases they are battling each other.

Former Sen. Judd Gregg, R-N.H., represents a group that hold bonds that are backed by a portion of the territory's sales tax, and he has been asking lawmakers to support the House bill. Those bondholders stand to benefit if the territory's economy — and sales — thrive because of restructuring. Gregg says the bill "treats creditors fairly and does not use taxpayer dollars."

Former Rep. Connie Mack, R-Fla., represents a group of general obligation bondholders opposed to the bill. In an email to former colleagues obtained by The Associated Press, Mack wrote: "The legislation is pure and simple a BAILOUT on the backs of taxpayers, retirees and savers ... Some in leadership have decided to try and pull the wool over the House GOP Conference's eyes."

Bishop, the Utah lawmaker supporting the measure to help Puerto Rico, says "the goal is to make sure that everyone is paid, and not just a few people are paid."



Some of the ads run by the Center for Individual Freedom have specifically targeted Bishop and Wisconsin Rep. Sean Duffy, the bill's sponsor. New ads that started Friday feature a Puerto Rican bondholder named Theresa who says she will lose her life savings if the House bill becomes law.

The group is organized as a politically active nonprofit that doesn't have to disclose its donors.

As of last week, the group had spent an estimated $1.9 million so far this month, according to advertising tracker Kantar Media's CMAG.

The Alexandria, Virginia-based group was founded in the late 1990s by tobacco industry leaders seeking to fight government restrictions on smoking. In the years since, it has evolved to aid Republican politicians and take up conservative causes such as balancing the federal budget and fighting donor disclosure laws at the state level.

The group's chairman is Tony Fabrizio, a longtime, well-known Republican pollster and strategist.

Bishop says he thinks most of his colleagues won't be convinced by the ads. "The ads are so over the top that it's hard for people to believe them," he said.

Bishop canceled a scheduled April 14 session to finalize the bill after Fleming and others made it clear they wouldn't support the legislation and the ads from the Center for Individual Freedom raised doubts within the caucus. While some Republicans are on board, others said they were wary it could set a precedent for financially strapped states.

Bishop has also continued negotiations with Democrats, Puerto Rican officials and the Obama administration.

In the Senate, Republicans say they are waiting to see what happens in the House.


Associated Press writers Julie Bykowicz and Danica Coto in San Juan, Puerto Rico, contributed to this report.