H.R. 5278, Puerto Rico Oversight, Management and Economic Stability Act Of 2016 (PROMESA)

H.R. 5278

Puerto Rico Oversight, Management and Economic Stability Act Of 2016 (PROMESA)

Rep. Sean Duffy

June 9, 2016 (114th Congress, 2nd Session)

Staff Contact
John Huston

Floor Situation

On Thursday, June 9, 2016, the House will begin consideration of H.R. 5278, the Puerto Rico Oversight, Management and Economic Stability Act of 2016 or PROMESA, under a rule. H.R. 5278 was introduced on May 18, 2016 by Rep. Sean P. Duffy (R-WI), and was referred to the Committee on Natural Resources, which ordered the bill reported by a vote of 29-10 on May 25, 2016.

Bill Summary

H.R. 5278 creates a fiscal oversight and management board to ensure the territory of Puerto Rico achieves fiscal responsibility and a return to capital markets, exempts the territory from the Department of Labor proposed Overtime Rule, and provides regulatory certainty to investors wishing to develop the outdated infrastructure of the island. The Committee notes that no taxpayer money is used under the bill to pay Puerto Rico’s debt, and that any debt restructuring authorized under the supervision of the oversight board is done so through the territorial clause of the U.S. Constitution, insulating the states from contagion in the municipal bond markets.

Major provisions of the bill include:

Oversight Board—The bill creates an oversight board that has the authority to enforce fiscal reforms, negotiate and enforce debt restructuring agreements with owners of Puerto Rican debt, force the sale of government assets, establish efficiencies that consolidates agencies and reduce workforce levels, prevent the execution of legislative acts, executive orders, regulations, rules, the issuance of new debt, and contracts that undercut economic growth or violate this Act. Specifically, the bill provides for the appointment of 7 individuals to the board, which shall be appointed by the President from lists of individuals provided to him by Congressional leaders.

Debt Restructuring—The bill authorizes the Oversight Board to initiate a proceeding for debt restructuring of an entity only after the Oversight Board determines certain criteria have been achieved. First, the debtor must have engaged in good-faith debt negotiations. Second, the debtor must be on the path towards producing audited financials, and must have public draft financial statements available that would allow the Oversight Board to be able to make an informed decision in regards to restructuring.  Third, the debtor must have an Oversight Board approved five-year fiscal plan in place.  If the debtor meets these criteria, and has not reached a consensual negotiation with its creditors, then it will be permitted to access restructuring only if five of the seven Board members agree that it should be restructured.  Additionally, the bill places certain limitations on judicial intervention, but provides a process for the Chief Justice of the United States to designate a district court judge to preside over the case.

Department of Labor Overtime Rule Exemption—The bill prevents the Department of Labor’s proposed Overtime Rule, which would increase by 113% the individual salary threshold to qualify as exempt from federal overtime pay requirements from taking effect in Puerto Rico.

Minimum Wage—The bill grants the Governor the authority to designate a time period no greater than five years during which employers may pay employees who are initially employed after the date of enactment a wage less than the federal minimum wage. The provision will raise the maximum age of applicability from 20 to 25.

Economic Growth—The bill expedites the permitting process for infrastructure and energy projects on the island and launches a bicameral Congressional Task Force to report on impediments in current federal law to economic growth in Puerto Rico.


The government of Puerto Rico faces severe fiscal challenges, as it has amassed over $118 billion in debt in the form of bonds and unfunded pension liabilities. In addition, Puerto Ricans are leaving the island for the mainland United States at a historic rate. The commonwealth’s Institute of Statistics revealed that Puerto Rico lost almost 2% of its population in 2014 alone. A federal district court judge in late March 2016 held that the island’s government was insolvent and unable to pay its obligations on time. Emergency legislation (Act 21 of 2016) enacted on April 6, 2016, stated that the Puerto Rican government’s fiscal condition “is more dire than at any other point in its history” and that “depleted resources and strained liquidity threaten to bind the Commonwealth to a choice between honoring its commitments to bondholders or continuing to provide the residents of Puerto Rico with essential services.” On April 8, 2016, the Puerto Rican governor invoked emergency authorities to maintain essential public services. On May 2, 2016 Puerto Rico defaulted on a $423 million debt service payment, and will default on a $2 billion payment due on July 1, 2016.[1] Whether the Commonwealth government itself can pay $1.9 billion due at the beginning of July 2016 is in doubt.

The Puerto Rican government has taken several measures over the past three years to address its deteriorating fiscal situation. Governor García Padilla and the island’s legislature enacted debt restructuring legislation (Act 71) in June 2014 that would have allowed public corporations to file for debt restructuring through legal structures set up within Puerto Rico.[2] A U.S. District Court, however, struck down Act 71 in February 2015, holding that a provision in chapter 9 of the U.S. Bankruptcy Code preempts action by Puerto Rico.[3] Chapter 9 thus prohibits Puerto Rico from filing for bankruptcy as in order to receive bankruptcy relief, a municipality, defined as a “political subdivision or public agency or instrumentality of a State,” must obtain authorization from that State.

The definition of “State” under §101(52) of the Bankruptcy Code includes Puerto Rico, “except for the purpose of defining who may be a debtor under chapter 9 of this title.”[4] Given this exclusion, Puerto Rico is unable to authorize its government corporations and municipalities to file for chapter 9 relief. Resident Commissioner in Congress Pedro Pierluisi has called for establishment of a “control board” to oversee fiscal recovery similar to the one Congress established for the District of Columbia by passing the District of Columbia Financial Responsibility and Management Assistance Act of 1995 (P.L. 104-8).[5] That act also created a chief financial officer position with authority to administer the District’s financial operations. The federal government also assumed certain pension and judicial obligations of the District and reduced the District’s share of Medicaid costs.[6] After the District government was able to balance its budget for four years, the Control Board became dormant after September 2001.[7]

PROMESA seeks to prevent impending Puerto Rican defaults and a full scale economic collapse in much the same way. According to the bill’s sponsor, “Years of disastrous polices have completely wrecked Puerto Rico’s economy. As a result, the island and its millions of American citizens face a humanitarian crisis. That’s why we must allow for a responsible restructuring for Puerto Rico’s debt, and do it without using Wisconsin taxpayer dollars for a bailout.”[8]

[1] See CRS Report, “PROMESA (H.R. 5278) and Puerto Rico,” June 3, 2016.
[2] See CRS Report, “Puerto Rico’s Current Fiscal Challenges,” April 11, 2016.
[3] Id.
[4] 11 U.S.C. 101
[5] Resident Commissioner in Congress Pedro Pierluisi Opening Statement House Natural Resources Committee, February 2, 2016.
[6] See CRS Report, “Puerto Rico’s Current Fiscal Challenges,” April 11, 2016.
[7] Id.
[8] Rep. Sean Duffy Press Release, “Duffy Introduces Puerto Rico Oversight and Debt Restructuring Plan,” May 19, 2016.


The Congressional Budget Office (CBO) estimates that enacting PROMESA will increase direct spending by $370 million for the board’s administrative costs; increase revenues—from amounts transferred to the oversight board by the government of Puerto Rico to cover the board’s expenses—by $370 million; and have no significant net effect on the federal deficit. In addition, CBO estimates that completing various reports and administrative requirements specified by the bill would cost about $1 million in 2017. Therefore, Pay-as-you-go procedures apply because enacting the legislation would affect direct spending and revenues.


  1. Rep. Rob Bishop (R-UT)—This amendment makes technical and cross reference corrections to the bill, while addressing its general workability. Deletes the opt-in option for other territories, provides an initial funding mechanism for the Oversight Board, permits the Board the opportunity to review territorial laws enacted between May 4, 2016 and the full appointment of the Board, moves up the timeline for when the president must have appointed members to the Board, and provides considerations to the Oversight Board when determining venue.
  2. Rep. Sam Graves (R-MO) —This amendment gives priority to protecting federal taxpayer assets in Puerto Rico, such as mass transportation assets.
  3. Rep. David Jolly (R-FL) —This amendment requires the Congressional Task Force on Economic Growth in Puerto Rico to report back to Congress on recommended changes to Federal law and programs that would reduce child poverty.
  4. Rep. Bradley Byrne (R-AL) —This amendment sets a deadline of 18 months for the report required in Section 410.
  5. Rep. Bradley Byrne (R-AL) —This amendment requires GAO to submit a biennial report to Congress on the debt and revenue levels of each territory, the drivers of each territory’s debt, the effect of federal policy on each territory’s debt, and the ability of each territory to repay its debt.
  6. Rep. Sean Duffy (R-WI) —This amendment temporarily eliminates in Puerto Rico a statutory cap that limits the total number of census tracts within a Metropolitan Statistical Area that can be designated as qualified census tracts under the Small Business Administration’s HUBZone program. Requires the SBA to implement a risk-based approach to requesting and verifying information from firms applying to be designated or re-certified as a qualified HUBZone small business.
  7. Rep. José Serrano (D-NY) —This amendment preserves the ability of the Puerto Rico Commission for the Comprehensive Audit of the Public Debt to continue its work in analyzing the legality of certain debts issued by the Commonwealth, and allow the government of Puerto Rico or the Oversight Board to act upon any determination by the Commission.
  8. Rep. Norma Torres (D-CA) —This amendment strikes Section 403.

Additional Information

For questions or further information please contact John Huston with the House Republican Policy Committee by email or at 6-5539.