# The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA; H.R. 5278, S. 2328)

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URL: https://www.frixlaw.com/law-library/documents/crs%3AR44532

## Record

- **Collection:** Congressional research report
- **Document type:** CRS Report
- **Published:** July 1, 2016
- **Citation:** R44532

## Text

The Puerto Rico Oversight, Management, and
Economic Stability Act (PROMESA; H.R. 5278,
S. 2328)
(name redacted), Coordinator
Analyst in Economic Policy
July 1, 2016

Congressional Research Service
7-....
www.crs.gov
R44532

Puerto Rico Oversight, Management, and Economic Stability Act

Summary
Representative Duffy introduced H.R. 5278, the Puerto Rico Oversight, Management, and
Economic Stability Act (PROMESA), on May 18, 2016. This bill is a revised version of H.R.
4900, introduced by Representative Duffy on April 12, 2016. The House Committee on Natural
Resources marked up H.R. 5278 on May 25, 2016. Amendments include technical corrections
and extensions of certain studies on the Puerto Rico government and economy. The major
provisions of the bill were unaffected. The House passed an amended version of H.R. 5278,
which is organized into seven titles, on June 9, 2016, (297-127). The Senate approved the
measure (S. 2328) on June 29, 2016 (68-30). On June 30, 2016, President Obama signed the bill
into law.
The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA; H.R. 5278)
would create a structure for exercising federal oversight over the fiscal affairs of territories.
PROMESA would establish an Oversight Board with broad powers of budgetary and financial
control over Puerto Rico. PROMESA also would create procedures for adjusting debts
accumulated by the Puerto Rico government and its instrumentalities and potentially for debts of
other territories. Finally, PROMESA would expedite approvals of key energy projects and other
“critical projects” in Puerto Rico.
The current version of PROMESA (H.R. 5278) differs from the previous version (H.R. 4900) in
several ways, although most sections are similar or identical. Many changes clarified or modified
existing provisions, although some provisions were added or altered and others were dropped. For
instance, H.R. 4900 would have allowed other territories, through normal political processes, to
request setup of an Oversight Board.
The structure and appointment process for the board was modified to allow the President to select
one board member at his sole discretion. The process by which congressional leaders would
submit lists of potential board members was specified in more detail. H.R. 5278 also specifies
that the board could only begin to establish bylaws and take other major actions once all members
were appointed. In H.R. 4900, by contrast, the board could act in certain ways, such as setting a
schedule for formulation of Fiscal Plans, once four members were appointed. The powers of the
board were also modified in some ways and the independence of the board was strengthened.
Other changes include a new provision that empowers the Chief Justice of the U.S. Supreme
Court to appoint a presiding judge for Title III debt adjustment cases in which the territory is a
party, while the chief judge of the applicable Court of Appeals would appoint the presiding judge
for cases involving only the instrumentalities of the territory. The relationship between Title VI
collective action procedures to reach debt modification agreements and the Title III debt
adjustment process was also modified. A provision to allow a transfer of certain federally
controlled parts of Vieques Island to Commonwealth control was dropped. The time period that
the Puerto Rico governor could propose, subject to board approval, to set a training wage below
the usual federal minimum wage but above a $4.25/hour floor was shortened from five to four
years, or when the Oversight Board terminates, if sooner. A public comment period provision was
added to the Title V expedited approval process. Mandates for reports from a congressional task
force and the Government Accountability Office (GAO) were also added.
The report presents a brief description of Puerto Rico, its relationship with the federal
government, and its fiscal challenges. A short overview of the bill, along with a comparison with
previous legislation involving control boards, follows. The body of the report provides a sectionby-section description of H.R. 5278. Appendix A gives a background on Puerto Rico’s fiscal

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Puerto Rico Oversight, Management, and Economic Stability Act

situation and aspects relevant to H.R. 4900. Appendix B contains a summary of provisions of the
federal Bankruptcy Code cited in H.R. 5278.

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Contents
Brief Overview ................................................................................................................................ 1
Changes in H.R. 5278 Compared to H.R. 4900 ........................................................................ 1
CBO Cost Estimate ................................................................................................................... 3
Oversight Board ........................................................................................................................ 3
Adjustment of Debts ................................................................................................................. 4
Other Provisions in H.R. 5278 .................................................................................................. 4
Section-by-Section Summary and Analysis of H.R. 5278............................................................... 5
Basic Legal Information ............................................................................................................ 5
Section 1: Short Title .......................................................................................................... 5
Section 2: Effective Date .................................................................................................... 5
Section 3: Severability ........................................................................................................ 5
Sections 4 and 5: Supremacy and Definitions .................................................................... 5
Sections 6 and 7: Placements and Compliance with Federal Laws .................................... 6
Title I: Establishment and Organization of Oversight Board .................................................... 6
Section 101: Territory Financial Oversight and Management Board ................................. 6
Section 102: Location of Oversight Board ......................................................................... 8
Section 103: Executive Director and Staff of Oversight Board .......................................... 8
Section 104: Powers of the Board ....................................................................................... 8
Section 105: Exemption from Liability for Claims ............................................................ 9
Section 106: Treatment of Actions Arising from Act .......................................................... 9
Section 107: Funding of Board Operations....................................................................... 10
Section 108: Autonomy of the Oversight Board ............................................................... 10
Section 109: Ethics ........................................................................................................... 10
Title II: Responsibilities of Oversight Board .......................................................................... 10
Section 201: Approval of Fiscal Plans ............................................................................... 11
Section 202: Approval of Budgets ..................................................................................... 11
Section 203: Effect of Finding of Noncompliance with Budget ....................................... 12
Section 204: Review of Activities to Ensure Compliance with Fiscal Plans .................... 13
Section 205: Recommendations on Financial Stability and Management
Responsibility ................................................................................................................ 13
Section 206: Oversight Board Responsibilities Related to Restructuring ........................ 13
Section 207: Oversight Board Authority Related to Debt Issuance .................................. 13
Section 208: Required Reports ......................................................................................... 14
Section 209: Termination of Oversight Board .................................................................. 14
Section 210: No Full Faith and Credit of the United States.............................................. 14
Section 211: Pensions ....................................................................................................... 14
Section 212: Intervention in Litigation ............................................................................. 14
Title III: Adjustments of Debts ................................................................................................ 15
Section 301: Applicability of Other Laws; Definitions..................................................... 15
Section 302: Who May Be a Debtor ................................................................................. 15
Section 303: Reservation of Territorial Power to Control Territory and Territorial
Instrumentalities ............................................................................................................ 15
Section 304: Petition and Proceedings Relating to Petition .............................................. 16
Section 305: Limitation on Jurisdiction and Powers of Court .......................................... 16
Section 306: Jurisdiction ................................................................................................... 16
Section 307: Venue ........................................................................................................... 16
Section 308: Selection of Presiding Judge ........................................................................ 17

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Section 309: Abstention .................................................................................................... 17
Section 310: Applicable Rules of Procedure..................................................................... 17
Section 311: Leases ........................................................................................................... 17
Section 312: Filing of Plan of Adjustment ........................................................................ 17
Section 313: Modification of Plan .................................................................................... 17
Section 314: Confirmation ................................................................................................ 17
Section 315: Role and Capacity of Oversight Board ........................................................ 18
Section 316: Compensation of Professionals .................................................................... 18
Section 317: Interim Compensation.................................................................................. 18
Title IV: Miscellaneous Provisions ......................................................................................... 18
Section 401: Rules of Construction .................................................................................. 18
Section 402: Right of Puerto Rico to Determine Its Future Political Status ..................... 18
Section 403: First Minimum Wage in Puerto Rico ........................................................... 19
Section 404: Application of Regulation to Puerto Rico .................................................... 19
Section 405: Automatic Stay upon Enactment .................................................................. 20
Section 406: Purchases by Territory Governments ........................................................... 21
Section 407: Protection from Inter-Debtor Transfers ....................................................... 21
Section 408: GAO Report on Small Business Administration Programs in Puerto
Rico ................................................................................................................................ 22
Section 409: Congressional Task Force on Economic Growth in Puerto Rico ................. 22
Section 410: Report........................................................................................................... 23
Section 411: Report on Territorial Debt ............................................................................ 23
Title V: Puerto Rico Infrastructure Revitalization ................................................................... 24
Section 501: Definitions ................................................................................................... 24
Section 502: Position of the Revitalization Coordinator .................................................. 24
Section 503: Critical Projects............................................................................................ 24
Section 504: Miscellaneous Provisions............................................................................. 25
Section 505: Federal Agency Requirements ..................................................................... 25
Section 506: Judicial Review ............................................................................................ 26
Section 507: Savings Clause ............................................................................................. 26
Title VI: Creditor Collective Action ........................................................................................ 26
Title VII: Sense of Congress Regarding Permanent, Pro-Growth Fiscal Reforms ................. 27

Tables
Table A-1. Selected Measures to Address Puerto Rico’s Fiscal Situation ..................................... 29

Appendixes
Appendix A. Legislative Context .................................................................................................. 28
Appendix B. Sections of Title 11, U.S. Code Referenced in H.R. 5278 Section 301 ................... 36

Contacts
Author Contact Information .......................................................................................................... 42

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his report provides a summary and analysis of H.R. 5278, the Puerto Rico Oversight, Management,
and Economic Stability Act (PROMESA), which Representative Duffy introduced on May 18,
2016.1 This bill is a revised version of H.R. 4900, which Representative Duffy had introduced on
April 12, 2016.2 The House Committee on Natural Resources had circulated two discussion drafts in late
March 2016 similar in structure to H.R. 4900 and H.R. 5278.3

T

The House Committee on Natural Resources marked up H.R. 5278 on May 25, 2016.4 Amendments
agreed to include technical corrections and extensions of certain studies on the Puerto Rico government
and economy, among others. The major provisions of the bill, however, were unaffected.5 Most sections
are similar or identical. Many changes clarified or modified existing provisions, although some new
provisions were added and other provisions were dropped. The measure is organized into seven titles,
which are summarized below.
The House Rules Committee issued a rule (H.Res. 770) that made consideration of eight amendments in
order.6 The House passed an amended version of H.R. 5278 on June 9, 2016, by a 297-127 vote. Seven
amendments were agreed to, but a proposal to strike a minimum wage provision (§403) was not.
According to that rule, the text of the measure was inserted into an unrelated Senate-passed bill (S. 2328)
upon House passage. The Senate then concurred with the House amendment to S. 2328 on June 29, 2016,
by a 68-30 vote, thus approving PROMESA. The President signed the bill on June 30, 2016.
A brief description of Puerto Rico, its relationship with the federal government, and its fiscal challenges is
presented below. A short overview of the bill, along with a comparison with previous legislation involving
control boards, follows. The body of the report provides a section-by-section description of H.R. 5278.
Appendix A also describes other measures introduced to address Puerto Rico’s fiscal condition.
Appendix A gives a background on Puerto Rico’s fiscal situation and aspects relevant to H.R. 4900.
Appendix B contains a summary of provisions of the federal Bankruptcy Code cited in H.R. 5278.

Brief Overview
The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA; H.R. 5278) would
create a structure for exercising federal oversight over the fiscal affairs of territories. PROMESA would
establish an Oversight Board with broad powers of budgetary and financial control over Puerto Rico.
PROMESA also would create procedures for adjusting debts accumulated by the Puerto Rico government
and its instrumentalities. PROMESA would also expedite approvals of key energy projects and other
“critical projects” in Puerto Rico.

Changes in H.R. 5278 Compared to H.R. 4900
The current version of PROMESA (H.R. 5278) differs from the previous version (H.R. 4900) in several
ways. The structure and appointment process for the board was modified to allow the President to select
1

The word “promesa” means promise in Spanish.
An earlier congressional distribution memorandum that analyzed H.R. 4900 is available upon request from the Coordinator.
3
One discussion draft was released on March 24, 2016, and the second was released on March 29, 2016.
4
U.S. Congress, House Committee on Natural Resources, Puerto Rico Oversight, Management, and Economic Stability Act,
114th Cong., 2nd sess., June 3, 2016, H.Rept. 114-602 (Washington: GPO, 2016).
5
H.R. 5278 was referred to the House Committees on Natural Resources as well as the committees on Judiciary; Education and
the Workforce; and Small Business. The latter committees could have considered provisions falling within each of their
jurisdictions.
6
U.S. Congress, House Committee on Rules, Providing for Consideration of the Bill (H.R. 5278) to Establish an Oversight Board
to Assist the Government of Puerto Rico, 114th Cong., 2nd sess., June 8, 2016, H.Rept. 114-610 (Washington: GPO, 2016).
2

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one board member at his sole discretion. The process for nominating and appointing board members was
modified and specified in greater detail.
The powers of the board were also modified in some ways. For example, H.R. 5278 specifies that the
board could only begin to establish bylaws and take other major actions once all members were
appointed. In H.R. 4900, by contrast, the board could take certain actions, such as setting a schedule for
formulation of Fiscal Plans, once four members were appointed (§201). Other changes would strengthen
the independence of the board. The board was also empowered to investigate how Puerto Rico
government bonds were sold to small investors.7
Other changes include a new provision that empowers the Chief Justice of the U.S. Supreme Court to
appoint a presiding judge to conduct Title III debt adjustment cases in which the territory is a party. For
cases involving only the instrumentalities of the territory, the chief judge of the applicable Court of
Appeals would appoint the presiding judge (§308). The relationship between Title VI collective action
procedures to reach debt modification agreements and the Title III debt adjustment process was also
modified. A provision to allow a transfer of certain federally controlled parts of Vieques Island to
Commonwealth control was dropped. The time limit on a provision to allow a training wage below the
usual federal minimum wage was changed from five to four years, or until the Oversight Board
terminated. A provision (§407) was added to bar inter-debtor transactions that would violate applicable
law.
H.R. 5278 also included provisions to study fiscal issues in federal territories. Mandates for a report from
a congressional task force on economic growth in Puerto Rico and a report from the Government
Accountability Office (GAO) on small business programs in Puerto Rico were added. A mandate for
another GAO report on debt levels of territorial governments and of debt policy for subnational
governments was added during the House Natural Resources Committee markup.8 Title VII, also added
during that markup, expresses the sense of Congress that any solution to Puerto Rico’s fiscal and
economic crisis should include permanent, pro-growth fiscal reforms.9
Seven amendments were agreed to during House deliberations.10 An amendment offered by
Representative Bishop, Chairman of the Committee on Natural Resources, made technical corrections;
dropped a provision that would have allowed other territories to request establishment of an Oversight
Board;11 accelerated deadlines for appointment of Oversight Board members; modified the provision of
funding for the Oversight Board; modified treatment of certain preexisting agreements with creditors; and
would empower the Oversight Board to rescind laws enacted by the Puerto Rico government from May 4,
2016, until all members of the board were appointed. The latter provision would allow the board to
rescind the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act (PREMFRA; Act 21 of
2016).12 An amendment offered by Representative Graves stressed the need to “preserve and maintain
federally funded mass transportation assets,” such as San Juan’s Tren Urbano. An amendment offered by
7

That provision was added by an amendment offered by Representative Graves and Representative Beyer at the House
Committee on Natural Resources markup.
8
The mandate for that GAO report was added by an amendment offered by Representative Graves and Representative Polis.
9
Title VII was added by an amendment offered by Representative MacArthur.
10
For text of amendments see U.S. Congress, House Committee on Rules, Providing for Consideration of the Bill (H.R. 5278) to
Establish an Oversight Board to Assist the Government of Puerto Rico, 114th Cong., 2nd sess., June 8, 2016, H.Rept. 114-610
(Washington: GPO, 2016).
11
H.R. 4900 would have allowed other territories to request establishment of an Oversight Board through normal political
processes. Inclusion of that provision appeared to reflect constitutional issues involving uniformity. The judicial remedy for such
potential uniformity issues, according to Section 3 of H.R. 5278, would be to extend relevant provisions to other territories.
12
See Appendix A for details.

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Representative Byrne would require GAO to submit regular reports on debt levels and other fiscal
information of territory governments.

CBO Cost Estimate
The Congressional Budget Office (CBO) judged that the Oversight Board that H.R. 5278 would establish
should be considered part of the federal budget according to the “unified budget concept” set forth in the
1967 President’s Commission on Budget Concepts.13 CBO estimated that operating the Oversight Board
for Puerto Rico would cost $370 million over the period FY2017-FY2022. Section 107 of H.R. 5278
mandates that the territory’s government designate a dedicated funding source for the board, which (under
the unified budget concept) would increase federal revenues by an estimated $370 million. The net effect
on the federal budget, therefore, is estimated to be zero.

Oversight Board
Title I of PROMESA would set up a Financial Management and Oversight Board with broad fiscal
powers with seven voting members, along with the Puerto Rico governor (or designee) who would serve
as an ex officio non-voting member. The President, as noted above, would appoint one member at his sole
discretion. Congressional leaders would then each submit lists of candidates. The Speaker would submit
two lists, with one restricted to candidates residing or doing business in Puerto Rico. The President would
then choose members from those lists, although he could choose other candidates before September 1,
2016.14 Those candidates would be subject to Senate confirmation.
Title II charges the Oversight Board with powers to approve, for territory governments or
instrumentalities of those governments (such as public corporations or municipal governments):






Fiscal Plans;
Budgets;
Voluntary agreements with bondholders;
Debt restructuring plans; and
Critical projects eligible for expedited permitting processes.

The Oversight Board in some ways resembles the District of Columbia Financial Responsibility and
Management Assistance Authority, more commonly known as the DC Control Board.15 The Oversight
Board that PROMESA would establish, however, differs in many important aspects from the structure and
responsibilities of the DC Control Board, which are spelled out in detail in the section-by-section
analysis.

13

CBO, “H.R. 5278: Puerto Rico Oversight, Management, and Economic Stability Act, As ordered reported by the House
Committee on Natural Resources on May 25, 2016,” June 3, 2016; https://www.cbo.gov/sites/default/files/114th-congress-20152016/costestimate/hr5278.pdf. Also see President’s Commission on Budget Concepts, Report, (Washington, DC; October 1967),
which stated (at p. 25) that “The budget should, as a general rule, be comprehensive of the full range of federal activities.
Borderline agencies and transactions should be included in the budget unless there are exceptionally persuasive reasons for
exclusion.”
14
This deadline was changed from September 30, 2016, by an amendment offered by Representative Bishop, Chairman of the
Committee on Natural Resources, during House deliberations.
15
The DC Control Board was set up by the District of Columbia Financial Responsibility and Management Assistance Act of
1995 (P.L. 104-8). The DC Control Board is currently dormant.

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Adjustment of Debts
Title III of PROMESA would set up a process for adjustment of debts by a territorial government or an
instrumentality of a territorial government. Eligibility for the restructuring process would first require
approval of at least five of the seven voting members of the Oversight Board to issue a “restructuring
certificate.”16 Under terms of H.R. 5278, the Oversight Board would take the place of a debtor
government or instrumentality in the proceedings to adjust debts. Thus, the roles of filing the petition and
proposing a plan would be taken by the Oversight Board, not the debtor.
The debt restructuring process, in general, is set up to ensure fair and equitable treatment of creditors. The
treatment of public sector pensions is not addressed explicitly, although pensions are typically included
when governments undergo debt restructuring processes.17 The Oversight Board may order a study of
pension systems if it determines that they are underfunded.
Title VI would create a process for creditor collective actions, which resemble collective actions clauses
(CACs) that are a common feature of sovereign debt contracts. CACs typically allow some subset of
creditors holding a supermajority of the face value of a given debt category to enter into an agreement that
would bind remaining creditors within that category. Title VI would require the Oversight Board, in
consultation with the Puerto Rico government and its subunits that have outstanding debts, to set up
voting pools for the CAC process. Separate pools, in general, would correspond to the relative priority or
security arrangements of bondholders. Triggering the Title VI CAC provision for a voting pool would
require a two-thirds vote (by value of eligible debt), in which holders of at least half of the eligible debt
participated. Creditors in those voting pools not assenting to a modification agreement would retain
certain rights, which might be affected by a subsequent Title III debt restructuring. Creditors agreeing to a
Title VI CAC provision, in general, would then avoid Title III debt restructuring.

Other Provisions in H.R. 5278
Title IV of PROMESA includes several diverse provisions. Puerto Rico’s right to determine its future
political status is affirmed (§402). The Governor, with board approval, could reduce the minimum wage
for most workers in Puerto Rico under the age of 25 for a four-year period (§403). Title IV also includes
an automatic stay on litigation (§405). H.R. 5278 lacks a provision in H.R. 4900 that would have allowed
a transfer of certain parts of Vieques Island from federal to Commonwealth control.18
Title V provides for accelerated processes for the review and permitting of infrastructure projects
designated as “Critical Projects.” A Revitalization Coordinator would be appointed by the Puerto Rico
Governor from a list provided by the Oversight Board. The Revitalization Coordinator would oversee the
selection and review of Critical Projects, in consultation with the Governor. H.R. 5278 includes a new
provision for a public comment period. The Revitalization Coordinator would have to respond to those
comments before proceeding with a project. A previous Puerto Rico Governor, Luis Fortuño Burset,
invoked similar authorities in 2010 and 2011.19 Some contend that Puerto Rico has had difficulty in

16

By contrast, a municipality seeking protection under chapter 9 of the Bankruptcy Code would require approval by a state
government and a federal judge.
17
Section 201 requires that a Fiscal Plan “provide adequate funding.”
18
Issues related to Vieques Island can be addressed by (name redacted), Specialist in Environmental Policy, 7 -....,
[redacted]@crs.loc.gov .
19
See Executive Order OE-2010-034, July 19, 2010: http://app.estado.gobierno.pr/Ordenes_Ejecutivas/2010/OE-2010-034.pdf;
and Preamble of Act 32-2011, March 14, 2011; http://www.oslpr.org/download/en/2011/A-0032-2011.pdf.

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completing major infrastructure projects in the past.20 Others argued that environmental consequences of
those projects were not evaluated with sufficient care.21

Section-by-Section Summary and Analysis of H.R. 5278
Basic Legal Information
The first seven sections set out basic legal information regarding H.R. 5278.

Section 1: Short Title22
Section 1 of H.R. 5278 (hereinafter “bill”) provides that this bill may be cited as the “Puerto Rico
Oversight, Management, and Economic Stability Act” or “PROMESA.” The bill contains seven titles:
Title I (Establishment and Organization of Oversight Board), Title II (Responsibilities of Oversight
Board), Title III (Adjustments of Debts), Title IV (Miscellaneous Provisions), Title V (Puerto Rico
Infrastructure Revitalization), Title VI (Creditor Collective Action); and Title VII (Sense of Congress
Regarding Permanent, Pro-Growth Fiscal Reforms).

Section 2: Effective Date
Section 2 provides that the bill’s provisions shall take effect on the date of enactment, except that Title III
(Adjustment of Debts) shall apply to cases commenced under that title on or after the date of enactment,
and Title III and IV (Miscellaneous Provisions) shall apply with respect to debts, claims, and liens created
before, on, or after such date.

Section 3: Severability
Section 3 contains a severability clause, which provides that if any provision of the bill is held invalid, the
remainder of the bill or any application thereof will not be affected, except that Title III is not severable
from Titles I or II, and Titles I or II are not severable from Title III. If any provision of the bill is held
invalid on the ground that the provision fails to treat similarly situated territories uniformly, then the court
shall, in granting a remedy, order that the provision of the bill or the application thereof be extended to
any other similarly situated territory, provided that the legislature of that territory adopts a resolution
signed by the territory’s governor requesting the establishment and organization of a Financial Oversight
and Management Board pursuant to Section 101.

Sections 4 and 5: Supremacy and Definitions
Section 4 provides that the provisions of the bill will prevail over any general or specific provision of
territorial law, state law, or regulation that is inconsistent with the bill, and Section 5 provides definitions
for various terms used in the bill.23
20

For instance, a Puerto Rico Electric Power Authority (PREPA) document claimed that “Instability of board and management
due to political cycles has complicated long-term planning required for key infrastructure projects that would have diversified
PREPA’s fuel mix and facilitated environmental compliance.” Others contend that planning for some of those projects did not
evaluate potential environmental consequences sufficiently carefully. See PREPA, PREPA’s Transformation: A Path to
Sustainability, June 1, 2015; http://www.gdb-pur.com/documents/PREPARecoveryPlan6-1-15.pdf.
21
Carmelo Ruiz-Marrero, “Puerto Rico Divided Over Energy Future.” Guardian, January 26, 2012;
http://www.theguardian.com/environment/2012/jan/26/puerto-rico-clean-energy.
22
Summary of Sections 1 through 7 was authored by Kenneth Thomas, Legislative Attorney, 7-...., r[ edacted]@crs.loc.gov.

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Sections 6 and 7: Placements and Compliance with Federal Laws
Section 6 indicates where the bill language should be placed in the United States Code, while Section 7
provides that nothing in the bill should be construed as impairing or relieving a territorial government or
instrumentality from compliance with federal laws or requirements or territorial laws and requirements
implementing a federally authorized or federally delegated program, protecting the health, safety, or
environment of persons in such territory.

Title I: Establishment and Organization of Oversight Board24
Title I would create an oversight board for Puerto Rico and would allow for the creation of such boards in
other territories.25

Section 101: Territory Financial Oversight and Management Board
Section 101 of this title would establish a Financial Oversight and Management Board (Oversight Board)
for the Commonwealth of Puerto Rico and would allow for the creation of such oversight boards in other
U.S. territories only if enabling legislation is passed by the legislative body of that territory and is signed
by the territory’s governor. The act identifies Article IV, Section 3 of the Constitution as granting
Congress plenary authority and power to “dispose of and make all needful Rules and Regulations
respecting the Territory.... ” An oversight board established under H.R. 5278 would be an entity of the
territorial government and not an agency, department, or instrumentality of the U.S. government. The bill
would grant to an oversight board, established in accordance with its provisions, the power to designate
any territorial instrumentality26 as subject to the provisions of the act.
References to the Oversight Board below generally mean the board that H.R. 5278 would establish for
Puerto Rico, although most provisions would also apply to oversight boards that might be set up in the
future for other territories.
The bill would require the governor, at the discretion of the Oversight Board, to include the budget of any
covered territorial instrumentality subject to legislative approval in the Territory Budget. The bill would
also require the governor to submit to the Oversight Board monthly and quarterly reports regarding a
covered territorial instrumentality. However, the bill would exclude any covered territorial instrumentality
from inclusion in the Territory Budget if the applicable territory law does not require legislative approval
of the budget of the covered territorial instrumentality.
The bill would require the governor of the territory to include certain territorial instrumentalities, whose
budget is subject to review and approval by the territory’s legislature, in its Fiscal Plan. Under provisions
of the bill, the Oversight Board could require, at its discretion, the governor of a territory to develop
separate budgets and fiscal plans for territorial instrumentalities whose budget is not subject to legislative
approval. The Oversight Board, at its discretion, also may exclude any territorial instrumentality from
requirements of this bill.
(...continued)
23
Definitions relevant to other sections of the bill are discussed elsewhere in this report.
24
Analysis of Title I was authored by (name redacted), Analyst in Federalism & Economic Development Policy,-....,
7
r[ edacted]@crs.loc.gov
.
25
The possibility of creating a process for establishing oversight boards for other territories, according to discussion at the May
25, 2016, markup, may reflect concern that a lack of uniformity might present constitutional issues.
26
Section 5(19)(A) of the bill defines territorial instrumentality as “any political subdivision, public agency, instrumentality, or
public corporation of a territory, and this term should be broadly construed to effectuate the purposes of this Act.”

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Term and Appointments
Under provisions of the bill, the members of the Board would serve concurrent three-year terms, but
could continue to serve beyond the three-year period until a successor has been appointed. An oversight
board created under the provisions of the bill would be comprised of seven (7) voting members with six
(6) selected by the President from a list of recommendations submitted by House and Senate leadership.
The President, if acting with sufficient promptness, could also select names not on those lists, although
those nominees would be subject to Senate confirmation. If the President appointed an individual from a
list, Senate confirmation would not be required.






The Speaker of the House would submit two separate lists of at least three (3) names.
One of the lists shall be comprised of individuals whose primary residence or primary
business is in Puerto Rico.
The Senate majority leader would submit the names of at least four (4) individuals.
The minority leader of the House would submit the names of three (3) individuals; and
The minority leader of the Senate would submit the names of at least three (3)
individuals.27

The President would select two individuals from the Senate majority leader’s list and one individual from
each of the other lists. The President could also name members not on those lists, although those
appointments would have to be made with the advice and consent of the Senate. If all appointments were
not made by September 1, 2016, however, then the President would be mandated to choose nominees to
fill remaining vacancies from appropriate lists by September 15, 2016.28
The governor of the territory or his designee shall serve as an eighth non-voting (ex officio) member of
the Oversight Board. Thus, the governor could participate in deliberations, but would not vote on
decisions of the board. The bill would allow the appointed members of the board, at their discretion, to
conduct the business of the Oversight Board in executive session effectively barring the public and the
governor from participating in such sessions.
The Oversight Board would select a chair from among the seven voting members. Members of the
Oversight Board would serve without compensation, although they may be reimbursed for reasonable and
necessary expenses incurred in the performance of their duties. The President could only remove a
member for cause. The Oversight Board would be charged with developing and approving its own
bylaws, rules, and procedures needed to carry out its responsibilities under the bill. In order to meet this
directive, the Oversight Board may hire professionals to assist in the process. The adopted bylaws, rules,
and procedures are to be submitted to the governor, territorial legislature, the President, and Congress and
are to be considered public documents. The bill would require an affirmative vote of the majority of the
27

By contrast, the act (P.L. 104-8) that created the District of Columbia control board (formally known as the Financial
Responsibility and Management Assistance Authority) required that the control board be comprised of five members appointed
by the President after consulting with the chairs of the appropriation committees of the House and Senate and the Chair of the
Committee on Government Reform and Oversight of the House of Representatives and the Chair of the Senate Governmental
Affairs Committee. The President, in appointing members of the control board, was required to designate one of the five
appointees, chair of the control board. Members of the initially appointed control board served three-year terms. Subsequently
appointed board members served staggered terms with one member serving a one-year term, two members serving two-year
terms, and two members serving three-year terms. The act creating the District’s control board also included expanded
responsibilities for the office of inspector general. The act established the office as an independent agency, responsible for
identifying issues of waste, fraud and abuse, and included the powers to issue subpoenas and to refer findings of investigations
and audits for criminal prosecution. H.R. 5278 includes no similar provision.
28
An amendment offered by Representative Bishop during House deliberations changed the first deadline from September 30,
2016, and the second deadline from December 1, 2016.

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members of the Oversight Board in order to (1) approve a fiscal plan under Section 201 of the bill; (2)
approve a budget under Section 202 of the bill; (3) cause legislative acts not to be enforced under Section
204 of the bill; or (4) approve or disapprove an infrastructure project as a Critical Project as defined by
Section 503 of the bill.

Qualifications of Board Members
The bill would require that the President appoint individuals who meet the following two qualifications.
Each must



have expertise in finance, municipal bond markets, management, law, or the organization
and operations of business or government; and
not be a candidate for elected office nor an elected or appointed official, nor an employee
of the territorial government, nor a former elected official of the territorial government.29

The latter qualification would prohibit a voting member of the Oversight Board from being a candidate
for elected office, as an elected or an appointed official could be perceived as being in conflict with the
provision designating the governor, or his designee, as an ex officio member of the Oversight Board.
Although nonvoting, the governor, or his designee, could, at the discretion of the Oversight Board,
participate in the deliberations of the board when the board is not in executive session.

Section 102: Location of Oversight Board
The bill would require that oversight boards, including the board to be established for Puerto Rico,
maintain an office in the territory and such additional offices as it deems appropriate. The bill also would
allow the board to request the use of the facilities of any department or agency of the United States. The
head of each federal agency may set the terms and conditions allowing for the use of the agency’s
facilities by the Oversight Board.

Section 103: Executive Director and Staff of Oversight Board
The Chair of the Board, with the consent of Board members, would be charged with hiring an Executive
Director (ED). The Board would be responsible for establishing salary compensation for the ED. The bill
does not establish a ceiling or limits on the amount of compensation to be paid the ED. The bill conveys
to the ED the power to hire and fix the pay of additional personnel employed by the Board. However, no
one hired by the ED may be paid at a rate greater than the salary paid to the ED. The bill specifically
identifies the position of Revitalization Coordinator, as identified in Title V, among the staff to be hired by
the governor based on nominations submitted by the Oversight Board.

Section 104: Powers of the Board
The bill would exempt the Board and its staff from the laws of Puerto Rico governing procurement and
allow for the detailing of employees of federal agencies and agencies of the Puerto Rico government to
the Board on a reimbursable or non-reimbursable basis. The Board would have the power to


hold hearings and seek testimony;

29

The DC Control Board Act required that control board members: (1) maintain a primary residence or a primary place of
business in the District of Columbia; (2) possessed expertise in finance, management, law, or the organization and operations of
business or government; (3) did not provide goods or services to the government of the District of Columbia; and (4) was not an
officer or employee of the District of Columbia.

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









obtain information, including written and electronic documents and data from federal
agencies (with the consent of the agency head) and agencies and entities of the
government of Puerto Rico;
accept, use, and dispose of gifts, bequests, and donations of real and personal property for
the purpose of aiding the work of the board;30
issue subpoenas;
request administrative support services from the U.S. General Services Administration
(GSA);
enter into contracts;
enforce laws of Puerto Rico prohibiting public sector employees from participating in a
labor strike or lockout;
initiate civil actions to carry out its responsibilities; and
investigate how Puerto Rico government bonds were sold to small investors.31

The bill would allow the Oversight Board to obtain information on the nature and aggregate amount of
claims held by each creditor or organized group of creditors from those creditors seeking to participate in
voluntary negotiations regarding debt restructuring.
Most importantly, the bill would grant an Oversight Board, at its sole discretion, the power to certify
voluntary debt restructuring agreements entered into between the territory or territorial instrumentality
and holders of its debt instruments. Upon review of such an agreement, the Oversight Board must certify
that the agreement provides for a sustainable level of debt and is in conformance with the territory or
territorial instrumentality’s certified Fiscal Plan. The act would grandfather in voluntary agreements
executed before its enactment.
Title I also includes a provision that would make it a misdemeanor to knowingly provide false and
misleading information, including projections and estimates to the Board, or to refuse or fail to take any
action ordered by the Board. Such violations are subject to a $1,000 fine or one-year imprisonment or
both, in addition to administrative disciplinary actions, which may include suspension from duty without
pay or removal from office by order of the Governor or the Board. Should such a violation occur by an
officer or employee of the government of Puerto Rico, the Governor would be required to report all
pertinent facts to the Board, including a statement of actions taken.

Section 105: Exemption from Liability for Claims
Section 105 would shield the board and its employees from liability claims.

Section 106: Treatment of Actions Arising from Act
Section 106 would mandate that any legal actions against the board are to be brought before the U.S.
District Court for the covered territory or the U.S. District Court for the District of Hawaii in instances
where the covered territory does not have a district court. The bill would provide expedited judicial
review by the courts, including the Supreme Court, of legal challenges to the act or the actions of an
Oversight Board. The bill would prohibit any court orders providing declaratory judgment or injunctive
30

The bill would require the Oversight Board to publicly disclose the identity of donors within 30 days of the receipt of a gift,
bequest, or donation. P.L. 104-8, creating the District of Columbia control board, included similar language allowing for the
acceptance of gifts, bequest, and donations; however, P.L. 104-8 did not require the public disclosure of the identities of donors.
31
This provision was added during the House Committee on Natural Resources markup.

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relief against an Oversight Board from taking effect during the time the court challenge is pending before
a court, or the period during which an appeal could be filed, or before a court may render a decision on
appeal, except for court orders intended to remedy constitutional violations. The bill would exempt from
judicial challenges Oversight Board certifications of voluntary debt restructuring agreements.

Section 107: Funding of Board Operations
Section 107 of the bill would require the Oversight Board to submit an annual budget to the President, the
House Committee on Natural Resources, the Senate Committee on Energy and Natural Resources, and the
legislature and governor of Puerto Rico or any covered territory. The bill would allow the Oversight
Board to use its powers to ensure that there are sufficient funds to cover its operations. At its discretion,
the Oversight Board could submit a budget to the governor and legislature of Puerto Rico. The bill would
require the government of Puerto Rico, within 30 days of enactment of the bill, to designate a dedicated
funding source for the operations of the Oversight Board. The source of funding for the operations of the
Oversight Board, once initially approved, would not be subject to subsequent legislative appropriations.32
Unlike the act creating the District of Columbia control board, which established target dates for the
submission of proposed budgets to the President for transmittal to Congress for its approval, H.R. 5278
would convey to an Oversight Board for Puerto Rico the “sole and exclusive discretion” in determining
its annual budget.

Section 108: Autonomy of the Oversight Board
Section 108 of the bill would prohibit the governor or the legislature of Puerto Rico from enacting any
laws or taking any actions that would interfere with or attempt to nullify the actions or activities of the
Oversight Board.

Section 109: Ethics
Section 109 of the bill would subject members of an Oversight Board and its staff to federal conflict of
interest and financial disclosure requirements under 18 U.S.C. §208, which is the principal conflict of
interest law for all executive branch officials. However, it is unclear if these provisions, as well as the
financial disclosure provisions of the Ethics in Government Act of 1978, would apply to an oversight
board since such a board would not be a federal agency and its members would not be federal officials for
these purposes.

Title II: Responsibilities of Oversight Board33
This title lays out the process for the submission, approval, and certification of fiscal plans and budgets
for Puerto Rico and its territorial instrumentalities.

32

This provision is a significant departure from the provisions governing funding of operations of the District of Columbia
control board. P.L. 104-8 required the District’s control board to submit an annual budget for its operations to the President for
inclusion in the District’s annual budget, which must be approved by Congress, by a date certain (May1) prior to the first day the
fiscal year. In the case of the FY1995 budget, the year in which the measure was enacted, no later than July 15, 1995.
33
Analysis of Title II was authored by (name redacted), Analyst in Federalism & Economic Development Policy,-....,
7
r[ edacted]@crs.loc.gov
.

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Section 201: Approval of Fiscal Plans
The Oversight Board, upon the selection and appointment of all of its members and the chair of the board,
shall submit to the Governor of Puerto Rico a notice delineating a schedule for the development,
submission, approval, and certification of fiscal plans, including revisions to fiscal plans that had been
previously certified. Although the Oversight Board may consult with the Governor regarding the
schedule, it is the sole responsibility of the Oversight Board. Under provisions of the bill, a fiscal plan
developed by the Oversight Board would cover, at minimum, a period of five fiscal years and would focus
on improving the territory’s access to capital markets. Section 201(b) identifies 14 specific components
and objectives a fiscal plan should address.34
The bill outlines three means by which a fiscal plan may be certified as compliant with the 14
requirements outlined in Section 201(b) of the bill. They include the following:






A fiscal plan submitted by the governor and approved by the Oversight Board. If the
fiscal plan meets the requirements outlined in the bill, as determined by the Oversight
Board, then the board shall certify the fiscal plan as approved. If the fiscal plan is found
to be deficient then the Oversight Board could issue a “notice of violation” which
includes recommendations to correct the deficiencies.
A fiscal plan developed and approved by the Oversight Board. Should the governor
fail to take corrective action to address deficiencies identified by the Oversight Board
within the timeframe specified by the Oversight Board, then the Oversight Board, at its
sole discretion, could develop and submit a fiscal plan together with a compliance
certificate to the governor and legislature of Puerto Rico and the plan would be
considered approved.
Fiscal plan jointly developed by the Oversight Board and the Governor. The bill
would allow the Oversight Board and Governor to work collaboratively to develop a
consensus fiscal plan.

Section 202: Approval of Budgets
Section 202 would mandate that the Oversight Board, upon the selection and appointment of all of its
members and the chair, submit to the Governor of Puerto Rico a notice delineating a schedule for the
development, submission, approval, and certification of proposed budgets to be submitted by the
Governor and legislature for the Oversight Board approval. The Oversight Board, at its discretion, would
be responsible for determining the number of fiscal years to be covered by the budget submission.
The Oversight Board would be responsible for submitting revenue estimates for the period covered by the
proposed budgets to the Governor and legislature for use by the Governor in developing budgets to be
submitted for review and approval to the Oversight Board.35 The bill outlines three means by which a
proposed budget could be approved.


Budget Submission by Governor. If the Oversight Board determines that the proposed
budget is compliant with the applicable fiscal plan then the bill would allow the

34

This includes providing realistic revenue and expenditure estimates; funding essential public services, sufficiently funding
public pension systems, eliminating structural deficits and providing sustainable debt service; improving financial controls and
oversight; investing in capital projects that promote economic growth; adopting and implementing management reforms
recommended by the oversight board; ensuring that assets of the covered territory or covered territorial instrumentality are not
misused; and that a fiscal plan respect the lawful priorities and lawful liens in effect before the enactment of the bill.
35
Under P.L. 104-8, it is the responsibility of the Chief Financial Officer to develop and submit revenue estimates to the mayor
to assist in the formula of a budget.

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









Oversight Board to approve the proposed budget and submit it to the legislature for
approval. If the proposed budget is found to be non-compliant with the applicable fiscal
plan then the bill would allow the Oversight Board to issue a “notice of violation” which
would include recommendations to correct the deficiencies.
Oversight Board Budget. Should the governor fail to submit a compliant budget then
the bill would permit the Oversight Board to develop and submit to the Governor and
legislature a revised compliant budget for the territory, and only to the Governor in the
case of a territorial instrumentality.
Budget Adopted by Legislature. The bill would direct the territory’s legislature to adopt
a proposed budget for submission to the Oversight Board. If the proposed budget is found
to be non-compliant with the applicable fiscal plan then the Oversight Board may issue a
“notice of violation” which includes recommendations to correct the deficiencies.
Oversight Board Budget. Should the legislature fail to submit a compliant budget then
the bill would allow the Oversight Board to develop and submit to the Governor and
legislature a revised compliant budget for the territory.
Certification of Budget as Compliant. Under provisions of the bill, if the Governor and
legislature approve a territorial budget that is compliant, or if the Governor develops a
budget for a territorial instrumentality that is compliant with the applicable fiscal plan
then the Oversight Board could issue a certificate of compliance. If the Governor and
legislature fail to develop and approve a territorial budget that would be compliant, then
the Oversight Board could develop and submit a territorial budget to the Governor and
legislature and such budget would be deemed approved by the Governor and the
legislature. In the case of a territorial instrumentality, only the Governor could submit a
proposed budget for review by the Oversight Board.
Budget jointly developed by the Oversight Board, the Governor, and Legislature.
The bill would allow the Oversight Board, the Governor, and the legislature to work
collaboratively to develop a consensus budget for the territorial government. In the case
of a territorial instrumentality, the bill would allow the Oversight Board and the Governor
to work collaboratively to develop a budget.

Section 203: Effect of Finding of Noncompliance with Budget
Section 203 of the bill would establish requirements intended to identify and address inconsistencies in
the projected and actual revenues and expenditures. The bill would require the Governor to submit
quarterly financial reports to the Oversight Board that would identify actual cash revenues, cash
expenditures, and cash flows as compared to projected cash revenues, cash expenditures, and cash flows
identified in approved and certified budget. Inconsistencies in the actual and projected revenues and
expenditures, if unexplained or inconsistent with the approved projections, could require the territorial
government to take corrective action. If the territorial government fails to take corrective action then the
Oversight Board would be required to notify House and Senate committees of jurisdiction (House
Committee on Natural Resources and Senate Committee on Energy and Natural Resources), in addition to
the Governor and legislature. Under provisions of the bill, the Board could direct the territorial
government to take corrective action. If it failed to do so, the Oversight Board could take remedial actions
designed to address the inconsistency, including reductions in nondebt expenditures, hiring freezes, and
prohibiting the territorial government or territorial instrumentality from entering into any contract or
financial transaction not previously approved by the board.

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Section 204: Review of Activities to Ensure Compliance with Fiscal Plans
Section 204 of the bill would grant the Oversight Board the power to review any proposed legislation and
all enacted laws passed by the territorial government for consistency with the budget and fiscal plan. If an
enacted law is found to be inconsistent with or will interfere with the enactment of the fiscal plan and
budget then the Oversight Board may take action to prevent the enforcement or application of the law.
The bill would require the Oversight Board to maintain a registry of contracts and would grant the
Oversight Board the power to review all contracts and rules for compliance with the approved fiscal plan.
The bill would allow the Oversight Board to take any action necessary to ensure that any contract, rule,
executive order, or regulation will not adversely affect compliance with the fiscal plan. In addition, the
bill would prohibit a covered territory or covered territorial instrumentality from taking any action or
enacting any law that would permit the transfer of funds or assets outside the normal course of business
during the period following enactment of the bill but prior to the appointment of all Oversight Board
members. Any action taken by the Governor or legislature authorizing the movement of assets during the
interim period between the enactment of the bill and the appointment of all the members of the Oversight
Board may be subject to review and reversal by the Oversight Board. The Oversight Board may not take
any action that would impede the territory’s ability to comply with court or administrative orders with
respect to carrying out a federal program or implementing territorial laws that execute federal
requirements and standards.

Section 205: Recommendations on Financial Stability and Management
Responsibility
Section 205 would permit the Oversight Board to submit to the Governor and legislature
recommendations intended to improve the delivery of services, to ensure compliance with the fiscal plan,
and to promote financial stability and economic growth. If the territorial government rejects the
management reform recommendations of the Oversight Board then the Governor or the legislature would
be required to submit a statement to the President and Congress explaining why the recommendation was
rejected.

Section 206: Oversight Board Responsibilities Related to Restructuring
Section 206 would mandate that the Oversight Board review and approve debt restructuring agreements,
provided that the agreements meet certain requirements. The bill would also require that at least five of
the six voting members of the Oversight Board approve a debt restructuring agreement.

Section 207: Oversight Board Authority Related to Debt Issuance36
Section 207 would bar the government of Puerto Rico from issuing or guaranteeing debt, or taking other
actions to restructure debts without the prior approval of the Oversight Board, as long as that body
remains in operation. The Oversight Board would not be empowered to borrow on behalf of the Puerto
Rico government.37 The power to “contract and to authorize the contracting of debts,” according to Article
VI, Section 2 of the Puerto Rico Constitution, is to be exercised by the Puerto Rico Legislature.38
36

This section authored by (name redacted), Analyst in Economic Policy, 7 -...., r[ edacted ]@crs.loc.gov
.
The March 29, 2016, House Natural Resources Committee discussion draft included a bracketed (i.e., not agreed to) provision
that would have empowered the Oversight Board to borrow on behalf of the territorial government.
38
Constitution of the Commonwealth of Puerto Rico; http://welcome.topuertorico.org/constitu.shtml. For more on legal and
constitutional issues related to public debts of Puerto Rico, see Sergio Marxuach, “The Endgame: An Analysis of Puerto Rico’s
Debt Structure and the Arguments in Favor of Chapter 9,” Center for a New Economy working paper, November 30, 2015.
37

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Section 208: Required Reports
Section 208 of the bill would require the Oversight Board to submit annual reports to Congress, the
President, the Governor, and the legislature describing (1) the progress made in meeting the objectives of
this act; (2) assistance provided to the territorial government; and (3) recommendations that would assist
the territorial government in complying with the fiscal plan for the year. In addition, the bill would require
the Governor to submit to the Oversight Board, within six months of its establishment, a report
documenting all existing tax abatement agreements. The Oversight Board would also issue quarterly
reports, if feasible, on cash flows available to pay debt service affected by a stay or moratorium.

Section 209: Termination of Oversight Board
The Oversight Board would terminate when the Oversight Board finds that the territorial government has



access to short-term and long-term credit markets at reasonable rates of interest; and
achieved balanced budgets for four consecutive years.

Section 210: No Full Faith and Credit of the United States39
Section 210 states that the “full faith and credit” of the U.S. government is not pledged to pay any
obligation issued by a covered territory government or instrumentality; nor is the U.S. government
responsible or liable for any such payment. If the United States were to be held liable for some claim,
payment would be subject to appropriation. A provision was added during the House Natural Resources
Committee markup to emphasize that the act would not authorize payment of federal funds for any
liability of a territorial government or territorial instrumentality.40

Section 211: Pensions41
Section 211 of H.R. 5278 would require the Oversight Board to conduct an analysis of any territorial
pension system that the Oversight Board determines to be materially underfunded. The analysis would be
conducted by an independent actuary. The analysis would include (1) a study of the pension plan’s benefit
obligations and funding strategy over 30 years; (2) sources of funding to cover future benefit obligations;
(3) a review of existing benefits and their sustainability; (4) a review of the system’s legal structure and
operational arrangements; and (5) any other studies of the pension system that the Oversight Board deems
necessary. Additionally, the bill would require the of future benefit obligation to be measured using an
appropriate discount rate, as determined by the Oversight Board.42

Section 212: Intervention in Litigation43
Section 212 provides that the Oversight Board may intervene in any litigation filed against the territorial
government, although the section is not intended to provide an independent basis for injunctive relief. A
similar provision was included as Section 408 in H.R. 4900.
39

This section authored by (name redacted), Analyst in Economic Policy, 7 -...., r[ edacted]@crs.loc.gov
.
This provision was added by an amendment offered by Representative Graves.
41
This section authored by (name redacted), Analyst in Income Security, 7 -...., [redacted]@ crs.loc.gov.
42
The Commonwealth of Puerto Rico and its instrumentalities operate several pension funds for its employees: The Employees
Retirement System (for government employees); the Puerto Rico System of Annuities and Pensions for Teachers; the
Commonwealth Judiciary Retirement System; the Retirement System of the University of Puerto Rico; and the Employees
Retirement System of the Puerto Rico Electric Power Authority.
43
This section authored by Kenneth Thomas, Legislative Attorney, 7-...., r[ edacted]@crs.loc.gov.
40

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Title III: Adjustments of Debts44
Although not included in the U.S. Bankruptcy Code45 (Bankruptcy Code), the provisions of this title are,
in many ways, similar to the chapters 9 and 11, two of the operative chapters of the Bankruptcy Code.
Chapter 9 of the Bankruptcy Code governs adjustments of municipal debts. Chapter 11 governs
reorganization of businesses and, in rare cases, certain individuals. Generally, such adjustment or
reorganization is effectuated through a “plan” proposed by the debtor,46 voted on by creditors, and
confirmed by the court. Title III of PROMESA includes a provision for a plan of adjustment to be
proposed by the debtor, voted on by the creditors, and confirmed by the court.

Section 301: Applicability of Other Laws; Definitions
Subsection (a) would make many sections of the Bankruptcy Code applicable to the process of adjusting
debts under PROMESA. As a general matter, the Bankruptcy Code, in chapters 1, 3, and 5, establishes
general procedures that are applicable to the operative chapters. The Bankruptcy Code sections made
applicable to Title III of PROMESA are listed and described in Appendix B.

Section 302: Who May Be a Debtor
Neither a territory nor its instrumentalities would be eligible to be a debtor unless the territory had either
requested that an Oversight Board be established or had had it established for it under Section 101 of
PROMESA. The section uses the term “instrumentality” rather than “municipality”—the term used in the
Bankruptcy Code. As used in the Bankruptcy Code, “municipality” includes an “instrumentality” as well
as a political subdivision and a public agency.47

Section 303: Reservation of Territorial Power to Control Territory and Territorial
Instrumentalities
Section 303 is very similar to Section 903 of the Bankruptcy Code. It states that, except for some
limitations in Titles I and II of PROMESA, Title III would not impair or limit the territory’s power to
control itself or its instrumentalities. Similar to the Bankruptcy Code’s Section 903, this section would
prohibit a territorial law that would bind a creditor to a method of composition of indebtedness unless the
creditor consents to it, but only to the extent that the proposed modification prohibits the payment of
principal or interest by an entity not described in Section 109(b)(2) of the Bankruptcy Code. These
entities are generally domestic insurance companies, banks, savings banks, cooperative banks, and similar
institutions.48
The bill’s third subsection would preempt any “unlawful executive orders” altering, amending, or
modifying the rights of those holding any debt of the territory or territorial instrumentality, or diverting
funds from a territorial instrumentality to either the territory or another territorial instrumentality.

44

This section authored by (nameredacted), Legislative Attorney, 7-...., r[ edacted]@crs.loc.gov
.
11 U.S.C. §101 et seq.
46
In chapter 11 cases, creditors may propose a plan if the debtor has failed to do so within a prescribed period of time. Creditors
do not have this option in chapter 9 or under Title III of PROMESA.
47
11 U.S.C. §101(40).
48
It is currently unclear whether the Government Development Bank would be considered to be an entity described in Section
109(b)(2) of the Bankruptcy Code.
45

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Section 304: Petition and Proceedings Relating to Petition
A voluntary case would begin when the Oversight Board filed a petition with the appropriate district
court. The court may dismiss a petition, after notice and hearing, to which an objection has been filed.
However, such dismissal cannot occur during the first 120 days after the petition has been filed. The
commencement of the case would constitute an order for relief. An appeal from an order of relief would
not authorize a court to delay any proceeding in the case nor to order a stay of the proceeding pending the
appeal. Any debt incurred that was authorized by the court would remain valid even after a reversal on
appeal.
This section would provide for joint filing of both petitions and plans as well as joint administration of
affiliated cases when those cases are filed separately. Additionally, the section clarifies that PROMESA
cannot be construed to permit discharge of various obligations arising under federal laws, including those
related to the environment and public health or safety as well as to territorial laws enforcing federal
regulations. Finally, the section clarifies that nothing in Section 304 would prevent claim holders from
voting on or consenting to a proposed modification of their claim under title VI of PROMESA.

Section 305: Limitation on Jurisdiction and Powers of Court
Generally, the court would not be able to interfere in any way with any of the debtor’s political or
governmental powers; property or revenues; or use and enjoyment of any income-producing property
unless the Oversight Board either consented to such interference or allowed it within the plan proposed by
the Oversight Board. However, limitations in titles I and II of PROMESA may override this limitation.

Section 306: Jurisdiction
District courts would have original and exclusive jurisdiction of a case under Title III except:




As provided in paragraph (2), which gives the district courts original but not exclusive
jurisdiction of all civil proceedings arising under this title or arising in or related to cases
under this title; and
As provided in paragraph (b), which provides that the district court shall have exclusive
jurisdiction of all property, wherever located, of the debtor as of the commencement of
the case.

The section also would provide for removal, remand, and transfer of claims or cases,49 as well as appeal50
and reallocation of court staff to assure proper case management.51

Section 307: Venue
Generally, venue would be in the district court for the location of the territory or the covered territorial
instrumentality. If the territory does not have a district court, venue would be proper in the U.S. District
Court for the District of Hawaii. However, if the Oversight Board were to determine that those venues
will not provide sufficiently for proper case management, venue would be proper in the jurisdiction
outside the territory in which the Oversight Board maintained an office.

49

H.R. 5278, §306(d).
Id. at §306(e).
51
Id. at §306(f).
50

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Section 308: Selection of Presiding Judge
For those cases in which the debtor is a territory, the Chief Justice of the U.S. Supreme Court would
designate a district court judge to conduct the case. The chief judge of the court of appeals for the circuit
would appoint a district court judge in other cases—other than those in which there is a motion for joint
administration with the territory.

Section 309: Abstention
This section clarifies that a district court, in the interests of justice, may abstain from hearing a proceeding
related to a case under title III.

Section 310: Applicable Rules of Procedure
The Federal Rules of Bankruptcy Procedure would apply to any case under Title III as well as to all
related civil proceedings.

Section 311: Leases
Leases would not be treated as executory contracts or unexpired leases under Sections 365 or 502(b)(6) of
the Bankruptcy Code simply because the lease is subject to termination if the debtor fails to appropriate
rent.

Section 312: Filing of Plan of Adjustment
The Oversight Board would be the only party allowed to file a plan of adjustment, but only after the
Oversight Board had issued certification. The court would set the time when the debtor would be required
to file the plan if it was not filed with the petition.

Section 313: Modification of Plan
Section 313 of the bill describes the conditions under which a plan may be modified.52

Section 314: Confirmation
This section closely mirrors Section 943 of the Bankruptcy Code.
A “special tax payer”53 would be able to object to the confirmation of a plan. However, the court would
have to confirm the plan if it complied with provisions of the Bankruptcy Code (made applicable here by
Section 301 of Title III of PROMESA) and the provisions of Title III of PROMESA; the debtor would not
be prohibited by law from taking any action necessary to carry out the plan; each holder of a priority
claim for administrative costs and fees or charges assessed against the estate would receive full payment
of the allowed amount of the claim unless the holder had agreed to different treatment; all legislative,
regulatory, or electoral approval legally necessary to carry out any provision in the plan had been obtained
or such provision was expressly conditioned on obtaining such approval; the plan was feasible and in the
best interests of the creditors; the plan was consistent with the applicable Fiscal Plan certified by the

52

Notably, Section 301(a) of PROMESA makes Sections 942 and 1127(d) of the Bankruptcy Code, which also deal with
modifications to a plan, applicable to Title III of PROMESA, and there is no indication of how these various provisions will be
reconciled.
53
“Special tax payer” is defined in 11 U.S.C. §902(3), which is applicable via §301 of Title III of PROMESA.

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Oversight Board under Title II of PROMESA; and all amounts owed by the debtor or any person for
services or expenses in the case or incident to the plan were reasonable and had been fully disclosed.
In considering whether a plan was feasible and in the best interest of creditors, the court would be
required to consider whether other remedies available under the constitution and non-bankruptcy laws of
the territory would provide greater recovery for creditors.
In cases where there was only one class of impaired creditors, the court would be permitted to confirm a
plan even if that class had not accepted the plan. The general requirements for confirmation54 would
continue to apply, including the requirements that the plan is fair and equitable and does not discriminate
unfairly with respect to the impaired class.

Section 315: Role and Capacity of Oversight Board
The Oversight Board would be the representative of the debtor. Generally, the Oversight Board could take
any action necessary on behalf of the debtor to prosecute the debtor’s case, including filing a petition,
submitting or modifying a plan of adjustment, and submitting filings with the court.

Section 316: Compensation of Professionals
The court would be allowed to authorize reasonable payments to various professionals connected to a
Title III proceeding.

Section 317: Interim Compensation
This section would provide the authority for the court to allow payments to professionals connected to a
Title III proceeding while the case is pending.

Title IV: Miscellaneous Provisions
Section 401: Rules of Construction55
Section 401 provides that nothing in the bill is intended, or may be construed, to limit the authority of
Congress over the territories; to authorize the issuance of subpoenas by the Oversight Board to judicial
officers or employees of territorial courts pursuant to Section 104(f) of the bill; to alter, amend, or
abrogate the Covenant to Establish a Commonwealth of the Northern Mariana Islands in Political Union
With the United States; or to alter, amend, or abrogate the treaties of cession regarding certain islands of
American Samoa.

Section 402: Right of Puerto Rico to Determine Its Future Political Status56
As with H.R. 4900, Section 402 of H.R. 5278 states that “nothing in this Act shall be interpreted to
restrict Puerto Rico’s right to determine its future political status.” This includes a future plebiscite
(popular vote), which Congress funded in the FY2014 omnibus appropriations law.57 As noted above,

54

These general requirements would not include those in Section 1129(a)(8) & (10), which require acceptance by either all of the
classes of impaired creditors or at least one such class.
55
This section authored by Kenneth Thomas, Legislative Attorney, 7-...., r[ edacted]@crs.loc.gov.
56
This section authored by (name redacted), Specialist in American National Government, 7-...., [redacted]@crs.loc.gov.
57
P.L. 113-76; 128 Stat. 61.

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Section 401 of the bill (and of H.R. 4900) also contains status provisions related to American Samoa and
the Commonwealth of the Northern Mariana Islands (CNMI).

Section 403: First Minimum Wage in Puerto Rico58
Section 403 would amend the Fair Labor Standards Act of 1938 (29 U.S.C. 206(g)) to allow the Puerto
Rico Governor, with the approval of the Oversight Board, to set a minimum wage less than the federal
minimum wage of $7.25 per hour for workers who are under the age of 25 and initially employed after
enactment of the act for a period of four years or until the termination of the Oversight Board.59 H.R.
4900 would have allowed for a five-year period with a minimum wage of $4.25 per hour for workers who
are under the age of 25. Puerto Rico enacted a minimum wage for women in 1919, although enforcement
and coverage of that standard were uneven.60 The Fair Labor Standards Act of 1938 (FLSA; 5 Stat. 1062)
initially applied to Puerto Rico, but was soon supplanted by a system of Special Industry Committees that
set industry-specific minimum wage levels.61 In the mid-1970s, Congress amended FLSA to bring Puerto
Rico wage standards closer to mainland levels.62 In 1989, the special industry committee system was
eliminated and a step-by-step transition process was established to bring minimum wage levels to
federally established levels by April 1, 1996.63 A report authored by three former International Monetary
Fund (IMF) economists argued that the federal minimum wage was high relative to the local wage level
and presented more of a binding constraint on employment than on the mainland.64 In September 2015,
the Working Group for the Fiscal and Economic Recovery of Puerto Rico proposed exempting workers
aged 25 and younger from future increases in the federal minimum wage for a 10-year period.65

Section 404: Application of Regulation to Puerto Rico66
Section 404 would prevent the application in Puerto Rico of the Department of Labor’s proposed July 6,
2015, overtime rule and any final rule that is subsequently issued until the Comptroller General completes
a report that examines the economic conditions of the Commonwealth, and the Secretary of Labor
indicates in a written determination to Congress that the application of the rule in Puerto Rico would not
have a negative impact on its economy.67 The Comptroller General would have to complete the report and
transmit it to Congress within two years of PROMESA’s enactment. Section 404 also expresses the sense
of Congress that the Bureau of the Census should conduct a study to determine the feasibility of

58

This section authored by (name redacted), Analyst in Economic Policy, 7 -...., r[ edacted]@crs.loc.gov
.
The provision would those covered under 29 U.S.C. 206(a)), which are employees “engaged in commerce or the production of
goods for commerce” or “employed in an enterprise engaged in commerce or in the production of goods for commerce.”
60
Lindley D. Clark, “Minimum-Wage Laws of the United States,” Monthly Labor Review, vol. 12, no. 3, March 1921, pp. 1-20.
Also see David Neumark and William L. Wascher, Minimum Wages (MIT Press: Cambridge, MA, 2008).
61
See archived CRS Report RL30235, Minimum Wage in the Territories and Possessions of the United States: Application of the
Fair Labor Standards Act, by (name redacted)
.
62
Fair Labor Standards Amendments of 1974 (P.L. 93-259) and 1977 (P.L. 95-151).
63
P.L. 101-157, Section 4. See Whittaker, op. cit.
64
Anne O. Krueger, Ranjit Teja, and Andrew Wolfe, Puerto Rico: A Way Forward, June 29, 2015, p. 6.
65
Working Group for the Fiscal and Economic Recovery of Puerto Rico, Puerto Rico Fiscal and Economic Growth Plan,
September 9, 2015, p. 23; http://www.bgfpr.com/documents/PuertoRicoFiscalandEconomicGrowthPlan9.9.15.pdf.
66
This section authored by Jon Shimabukuro, Legislative Attorney, 7-...., [redacted]@c rs.loc.gov .
67
See Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer
Employees, 80 Fed. Reg. 38,516 (July 6, 2015) (to be codified at 29 C.F.R. pt. 541). The Department of Labor’s final overtime
rule was published on May 23, 2016. See Defining and Delimiting the Exemptions for Executive, Administrative, Professional,
Outside Sales and Computer Employees, 81 Fed. Reg. 32,391 (May 23, 2016) (to be codified at 29 C.F.R. pt. 541).
59

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expanding data collection to include Puerto Rico and the other U.S. territories in the Current Population
Survey.
The Department of Labor’s new overtime rule implements the Fair Labor Standards Act’s exemption for
bona fide executive, administrative, professional, computer, and outside sales employees. The new rule
raises the salary threshold that must be met before an employee may be considered exempt from the
statute’s minimum wage and overtime requirements. Under the agency’s old rule, an employee would
have to be compensated on a salary basis at a rate of not less than $455 a week and perform specified
duties to be deemed exempt from the minimum wage and overtime requirements. The new rule raises the
salary threshold to not less than $913 a week.

Section 405: Automatic Stay upon Enactment68
Unlike the automatic stay that is part of the Bankruptcy Code (and applicable to Title III as specified in
Section 301), this stay would take effect upon enactment of PROMESA. In general, it would prevent










the commencement or continuation of an action or proceeding against the Government of
Puerto Rico69 that was or could have been commenced before the enactment of
PROMESA, or to recover a Liability Claim against the Government of Puerto Rico that
arose before the enactment of PROMESA;70
enforcement of a judgment obtained before the enactment of PROMESA against the
Government of Puerto Rico or its property;
any act to obtain property of or from the Government of Puerto Rico or to exercise
control over property of the Government of Puerto Rico;
any act to create, perfect, or enforce any lien against property of the Government of
Puerto Rico;
any act to create, perfect, or enforce against property of the Government of Puerto Rico
any lien to the extent that the lien secures a Liability Claim that arose before the
enactment of PROMESA;
any act to collect, assess, or recover a Liability Claim that arose before PROMESA’s
enactment; and
setoff of any debt owed to the Government of Puerto Rico that arose before PROMESA’s
enactment against any Liability Claim against the Government of Puerto Rico.71

Generally,72 the stay would continue until the earlier of


February 15, 2017, or six months after the Oversight Board is established for Puerto
Rico, whichever is later; or

68

This section authored by (nameredac ted), Legislative Attorney, 7-...., r[ edacted]@crs.loc.gov
.
The term “Government of Puerto Rico” includes all of Puerto Rico’s instrumentalities. Section 5(11) of PROMESA.
Additionally, for purposes of Section 405, the term includes the directors, officers, and employees of the Government of Puerto
Rico who are acting in their official capacities on behalf of the Government of Puerto Rico, as well as the Oversight Board, and
its directors, officers, and employees when acting in their official capacities on behalf of the Oversight board.
70
Although Section 405 provides that the stay will be effective upon enactment of PROMESA, Section 405(c) provides that
establishing an Oversight Board for the Commonwealth of Puerto Rico under Title I, Section 101 of PROMESA does not act as a
stay of the continuation of an action against the Government of Puerto Rico that began on or before December 18, 2015.
71
The bill does not specify that the Liability Claim against the Government of Puerto Rico must have arisen before PROMESA’s
enactment; however, other provisions of this section require that.
72
Relief from the stay may be granted under Section 405(e)-(g).
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

the date on which a case would be filed by or on behalf of the government of the
Commonwealth of Puerto Rico or its applicable instrumentalities with respect to the
entity filing a case.73

However, if either the Oversight Board or the district court confirms that additional time is needed to
complete a voluntary process under Title VI of the bill, the first date above74 would be extended by 60
days if the extension is triggered by the district court or 75 days if triggered by the Oversight Board.
PROMESA would provide that the stay may not be treated as a default under existing contracts or laws.
However, to the extent feasible—as determined by the Oversight Board—the Government of Puerto Rico
would be required to make timely interest payments on outstanding debts throughout the duration of the
stay. This section would also make void any act in violation of the stay.
The stay would not act to prevent any holder of a liability claim from voting on or consenting to any
proposed modification of such claim under Title VI of PROMESA.

Section 406: Purchases by Territory Governments
Only federal agencies, organizations, and entities authorized to make purchases through the General
Services Administration (GSA) are eligible to do so. Presently, the government of Puerto Rico is not
authorized to make purchases using GSA’s federal supply schedules (schedules),75 or its other acquisition
programs.76
Section 406 would amend 48 U.S.C. §1469e by, among other things, adding the government of Puerto
Rico to the list of territory governments authorized to make purchases through GSA.77

Section 407: Protection from Inter-Debtor Transfers78
While the Oversight Board is in operation, territorial instrumentalities would be barred from transferring
property encumbered by liens or security interests in violation of applicable law. A transferee would be
liable for the value of the property. A creditor could bring suit in U.S. District Court in Puerto Rico once
the stay imposed by Section 405 expired or was lifted. No similar provision was included in H.R. 4900.
Inclusion of this provision follows shortly after a bond insurer sued the Puerto Rico Highways and
Transportation Authority after the latter extended a toll concession agreement for 10 years.79 The Puerto
73

Although the stay provided by PROMESA’s Section 405 would end for a particular entity when a case was filed under Title III
on behalf of that entity, the Bankruptcy Code’s automatic stay provision, 11 U.S.C. §362, would go into effect immediately upon
the filing of the petition. That section of the Bankruptcy Code is incorporated into Title III in Section 301 and is substantially
similar to the stay described in PROMESA’s Section 405.
74
The later of February 15, 2017, or six months after the Oversight Board is established for Puerto Rico.
75
GSA presently has 34 schedules. Each schedule is akin to an online catalogue and focuses on a particular category of goods or
services (or both). Examples of schedules include schedule 23 V, Automotive Superstore; 58 I, Professional Audio/Video
Telemetry/Tracking, Recording/Reproducing and Signal Data Solutions; 71, Furniture; 76, Publication Media; and 81 I B,
Shipping, Packaging and Packing Supplies. The entire list of schedules is available at http://www.gsaelibrary.gsa.gov/ElibMain/
scheduleList.do.
76
Other GSA acquisition programs include GSA Global Supply, Assisted Acquisition, and a variety of technology products and
services. U.S. General Services Administration, “How to Buy Through GSA,” at http://www.gsa.gov/portal/category/26760.
77
Section 406 also includes the governments of American Samoa, the Commonwealth of the Northern Mariana Islands, Guam,
and the U.S. Virgin Islands.
78
Summaries of Sections 407, 408, 409, 410, and 411 were written by (name redacted), Analyst in Economic Policy, 7 -....,
r[ edacted]@crs.loc.gov
.
79
Amended Complaint, Ambac Assurance Corp. v. P.R. Highways and Transp. Auth., 16-cv-1893 (JAG) (U.S.D.P.R. May 16,
2016).

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Rico government stated that it used initial proceeds of $100 million to pay for essential services “in
consideration of the complicated situation of liquidity that confronts the Commonwealth.”80

Section 408: GAO Report on Small Business Administration Programs in Puerto Rico
Section 408 would mandate the Government Accountability Office (GAO) to report to House and Senate
committees with jurisdiction over small business policy within 180 days after enactment. The report
would examine Administration contracting activities, including HUBZone programs, as well as any
provisions in federal law that might hinder those activities.81 No similar provision was included in H.R.
4900.

Section 409: Congressional Task Force on Economic Growth in Puerto Rico
Section 409 would establish a Congressional Task Force on Economic Growth in Puerto Rico. The Task
Force would have eight members. Two members would be appointed by the Speaker of the House in
coordination with the chairman of the House Natural Resources Committee. Two members would be
appointed by the House minority leader in coordination with the ranking Member of the House Natural
Resources Committee. Two members would be appointed by the Senate majority leader in coordination
with the chairman of the Senate Energy and Natural Resources Committee, and the remaining two
members would be appointed by the Senate minority leader in coordination with the ranking Member of
the Senate Energy and Natural Resources Committee. Appointments would be made within 15 days after
enactment.
The Task Force would be charged with issuing a report by December 31, 2016, that would examine

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

the relation of federal laws and economic growth in Puerto Rico;
economic consequences of a Puerto Rico Department of Health Regulation 346,82 which
relates to natural products, natural supplements, and dietary supplements;83 and would
recommend changes to federal laws to spur sustainable, long-term economic growth;
recommend changes to federal law and programs that would reduce child poverty;84 and
include additional information as deemed necessary.

The Task Force would also provide Congress with a status update during the first half of September 2016.
The Task Force would be encouraged to reflect the shared views of all eight members to the greatest
extent practicable. The Task Force would consult with the Puerto Rico legislature, the Puerto Rico
Department of Economic Development and Commerce, and private sector participants. The Task Force
would terminate once its report was issued. No similar provision was included in H.R. 4900.

80

See P.R. Executive Order OE-2016-017, May 17, 2016, p. 4; http://estado.pr.gov/es/ordenes-ejecutivas/.
For a description of the HUBZone program, see CRS Report R41268, Small Business Administration HUBZone Program, by
(name redacted) .
82
Puerto Rico Department of Health, Administrative Order 346; http://www.salud.gov.pr/Estadisticas-Registros-y-Publicaciones/
rdenes%20Administrativas/346PARA%20ESTABLECER%20LA%20POLITICA%20PUBLICA%20EN%20TORNO%20A%20LA%20DISTRIBUCION%20
DE%20PRODUCTOS%20NATURALES%20O%20SUPLEMENTOS%20NUTRICIONALES.pdf. That regulation was issued
under authorities granted in the Puerto Rico Pharmacy Act (Act 247 of 2004); http://www.oslpr.org/download/en/2004/0247.pdf.
83
This provision was added by an amendment offered by Representative Zinke.
84
This provision was added by an amendment offered by Representative Jolly and Representative Curbelo.
81

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Several reports and studies have examined Puerto Rico’s economic development since the island
encountered a sharp slowdown of economic growth in the early 1970s. In 1974, then Governor Rafael
Hernández Colón appointed a Committee to Study Puerto Rico’s Finances headed by Yale economist
James Tobin.85 The U.S. Department of Commerce coordinated an economic study of the Puerto Rico
economy that issued a report in December 1979.86 The Brookings Institution and the San Juan-based
Center for a New Economy together produced a set of papers on Puerto Rico’s economy in 2006.87 The
Federal Reserve Bank of New York has issued a 2012 report and a 2014 update on the competitiveness of
Puerto Rico’s economy.88 The current Puerto Rico government commissioned a report by three former
International Monetary Fund (IMF) economists that described Puerto Rico’s fiscal situation, along with
issues presented by problems in its budget execution, public administration, and tax structure.89

Section 410: Report
Section 410 would task the Government Accountability Office (GAO) to develop and submit a report to
the House Committee on Natural Resources and to the Senate Committee on Energy and Natural
Resources describing debt accumulations by territorial governments. The report would also assess the
financial consequences of policies of those governments and would recommend actions to avert future
indebtedness of subnational governments. As noted above, Puerto Rico’s fiscal policies have been studied
before.

Section 411: Report on Territorial Debt
Section 411 would require GAO to submit reports on debts of territorial governments and other fiscal
data. The initial report would be due within a year of enactment and later reports would be issued at least
every two years.90
Puerto Rico, Guam, and the U.S. Virgin Islands once participated in the U.S. Census Bureau’s Census of
Governments.91 The Census of Governments, which takes place in years ending in “2” or “7”, provides
extensive data on government organization and finances. The Census Bureau also conducts a Survey of
Governments in other years.

85

Committee to Study Puerto Rico’s Finances, Report to the Governor, December 11, 1975; http://rafaelhernandezcolon.org/
Libros%20Digitales/Report%20to%20the%20Governor/REPORTGOVERNOR.html.
86
U.S. Department of Commerce, Economic Study of Puerto Rico: Report to the President, December 1979;
https://catalog.hathitrust.org/Record/007413166.
87
Susan M. Collins, Barry P. Bosworth, and Miguel A. Soto-Class, eds., The Economy of Puerto Rico: Restoring Growth
(Brookings: Washington, DC, 2006).
88
Federal Reserve Bank of New York, Report on the Competitiveness of Puerto Rico’s Economy, 2012. Available in English at
http://www.newyorkfed.org/regional/puertorico/index.html. Federal Reserve Bank of New York, An Update on the
Competitiveness of Puerto Rico’s Economy, July 31, 2014; https://www.newyorkfed.org/medialibrary/media/outreach-andeducation/puerto-rico/2014/Puerto-Rico-Report-2014.pdf.
89
Anne O. Krueger, Ranjit Teja, and Andrew Wolfe, Puerto Rico: A Way Forward, June 29, 2015, http://recend.apextech.netdnacdn.com/docs/editor/Informe%20Krueger.pdf.
90
This section was added by an amendment offered by Representative Byrne during House deliberations.
91
For instance, see U.S. Department of Commerce, Bureau of the Census, 1982 Census of Governments: Puerto Rico, Virgin
Islands, and Guam, Topical Studies, vol. 6, no. 2, October 1984; http://www2.census.gov/govs/pubs/cog/1982/
1982_vol6_no2_fin_puerto_rico_vi_&_guam.pdf.

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Title V: Puerto Rico Infrastructure Revitalization92
Title V of the proposed legislation, the “Puerto Rico Revitalization Act,” would overhaul the processes for
review and permitting of certain infrastructure projects within the Commonwealth. Title V would create
the position “Revitalization Coordinator”; grant the Revitalization Coordinator a role in reviewing and
permitting “Critical Projects”; establish an expedited review process for such projects; and add related
provisions intended to ease the permitting process and increase the federal oversight role.

Section 501: Definitions
Section 501 sets out definitions used in Title V. Some of these definitions are described in the section
summaries below.

Section 502: Position of the Revitalization Coordinator
Section 502 would establish a new position, the Revitalization Coordinator, to be appointed by the
Governor of Puerto Rico from among a group of nominees selected by the Puerto Rico Financial
Oversight and Management Assistance Board. Section 502 would direct the Oversight Board to select
nominees with backgrounds in planning, financing, and development of infrastructure projects. Section
502 also would set forth a framework for support staff and compensation for the Revitalization
Coordinator.

Section 503: Critical Projects
Section 503 would authorize Project Sponsors to submit applications to the Revitalization Coordinator
and to “relevant Puerto Rico agencies” for consideration for classification as a “Critical Project.” Section
501(2) defines a “Critical Project” as one that is “intimately related to addressing an emergency whose
approval, consideration, permitting and implementation shall be expedited and streamlined according to
the statutory process provided by Act 76, or otherwise adopted pursuant to this title.” Act 76 is a Puerto
Rico law that establishes a process by which Puerto Rico agencies may accelerate review and permitting
of works and projects that are related to or respond to a declared emergency as defined by the act.
Section 503(a)(1) provides a number of criteria by which proposed Critical Projects would be evaluated,93
including the impact the project would have on an emergency; the availability of funds to implement the
project; the cost of the project (including the cost to the government of Puerto Rico); environmental and
economic benefits provided by the project; the current status of the project; and additional criteria related
to energy production and conservation that the Revitalization Coordinator deems appropriate.
Pursuant to Section 503(a)(3), Puerto Rico agencies that receive a Critical Project submission would be
required to set forth an “Expedited Permitting Process.” This Expedited Permitting Process must be filed
with the Revitalization Coordinator within 20 days of receipt of the project submission. Failure to do so
would trigger a requirement that the Revitalization Coordinator consult with the Governor of Puerto Rico
to develop such a process for the agency within 20 days. The section further instructs the Revitalization
Coordinator to require the relevant Puerto Rico agencies to implement that Expedited Permitting Process.
In addition, Section 503(a)(3) provides that “Critical Projects shall be prioritized to the maximum extent
possible in each Puerto Rico Agency regardless of any agreements transferring or delegating permitting
authority.”
92

The analysis of Title V was authored by (name redacted), Legislative Attorney,
-....,
7 r[ edacted]@crs.loc.gov
.
Note that the bill initially categorizes the list found at Section 503(a)(1) as required items to be included in a submission, but
subsequently references the items as criteria to be considered by the Revitalization Coordinator.
93

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With respect to the Critical Project determination, Section 503(b) would require the Revitalization
Coordinator to consult with the Puerto Rico agencies and develop a “Critical Project Report” within 60
days of submission that includes an assessment of how well the project meets the criteria for a Critical
Project and a recommendation from the Governor regarding the Critical Project determination, as well as
findings from the Planning Board regarding land use and/or from the Puerto Rico Electric Power
Authority, where applicable. Once the Report is completed, the public would be given a 30-day period to
submit comments, and the Revitalization Coordinator would have 30 days thereafter to respond to public
comments. The Revitalization Coordinator would then submit the Report to the Oversight board within
five days of the conclusion of the response to public comments. The Oversight Board would be required
to take action within 30 days of receipt. An approval would classify the project as a Critical Project, while
a vote of disapproval must be accompanied by a statement to the Revitalization Coordinator explaining
the reasons for disapproval.

Section 504: Miscellaneous Provisions
Section 504(a) would establish the “Interagency Environmental Subcommittee” to “evaluate
environmental documents required under Puerto Rico law for any Critical Project within the Expedited
Permitting Process.” The subcommittee would consist of the Revitalization Coordinator along with
representatives of various Puerto Rico agencies chosen by the governor in conjunction with the
Revitalization Coordinator.
Section 504(b) is titled “Length of Expedited Permitting Process” and provides that for a Critical Project,
Puerto Rico agencies would be required to operate as if there has been a declared emergency under Act
76. Section 504(b) also provides that “any transactions, processes projects, works or programs essential to
the completion of the Critical Project” are to continue even if the Oversight Board is terminated pursuant
to Section 209 of this act.
Section 504(c) would give the Oversight Board the power to take enforcement action upon complaint for
the failure of a Puerto Rico agency or the Revitalization Coordinator to adhere to the Expedited
Permitting Process.
Section 504(d) would require the Puerto Rico Governor to notify the Oversight Board of any duly enacted
law that might “affect the Expedited Permitting Process.” The Oversight Board would then be required to
review the law and, if it would “adversely impact” the process, the law would be deemed “significantly
inconsistent with the applicable Fiscal Plan.”
Section 504(e) would bar Puerto Rico agencies from including terms or conditions in permits, certificates,
or other authorizations for Critical Projects not required by applicable Puerto Rico law, if the
Revitalization Coordinator determines that “the term or condition would prevent or impair the expeditious
construction, operation or expansion of the Critical Project.”
Section 504(f) would require that all Critical Project reports and justifications for approval or denial of
Critical Projects be made publicly available.

Section 505: Federal Agency Requirements
Section 505 would require, at the request of the Revitalization Coordinator, federal agencies with
jurisdiction over permitting or administrative or environmental review for projects in Puerto Rico to name
a “Point of Contact.” This requirement would not be limited to Critical Projects, but would apply to
agencies with jurisdiction over any public and private projects in the Commonwealth. For Critical
Projects, Section 505 would direct the Revitalization Coordinator to cooperate with the relevant Point of
Contact concerning a pending or potential federal grant for the project. In addition, all reviews by federal
agencies related to a Critical Project would be expedited so as to comply with the deadlines established by

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the Expedited Permitting Process, although those deadlines would not be considered as binding on a
federal agency.

Section 506: Judicial Review
Section 506 provides that claims arising under Title V would have to be brought no later than 30 days
after the decision or action giving rise to the claim. If the claim is brought in the U.S. District Court for
the District of Puerto Rico, the court would have to set any such action for expedited consideration.

Section 507: Savings Clause
Section 507 provides that Title V is not intended to change or alter any other federal legal requirements or
laws. Savings clauses of this nature are common and are intended to provide insurance against unintended
consequences with respect to interpretation and application of existing statutes.

Title VI: Creditor Collective Action94
The first section of Title VI (§601) would establish a process for creditor collective action that could
retroactively change individual creditor rights for a portion of Puerto Rico’s outstanding bonded debt.
“Collective action clauses” (CACs) are a feature of sovereign bonds that, while long-standing in Londonissued sovereign debt, became more common for debt issued under New York law around 15 years ago.95
The second section (§602) states that the process would be governed by U.S. law, without regard to any
foreign or international law.
CACs have been used to expedite the restructuring of sovereign debt. CACs allow a supermajority of
bondholders (usually 75%) to agree to a debt restructuring that is legally binding on all bondholders.
Without CACs, some bondholders may have incentives to try to hold out for better terms, slowing down
the negotiations.96 CACs describe a procedure a country may use once it decides it must restructure its
debt. In general, CACs include:




A majority action clause. This clause would allow a super-majority of creditors to change
the terms of the contract, which is then binding on the minority. In this way, a small
minority of creditors could not delay or disrupt a restructuring agreement.
A clause describing the process through which debtors and creditors come together to
negotiate a restructuring. This clause would specify how the creditors would be
represented and the data that the debtor must provide to the creditors’ representative. The
creditors’ representative would negotiate with the debtor and would have authority to
initiate litigation (on instructions of a certain proportion of the creditors).

94

Analysis of Title VI authored by Martin Weiss, Specialist in International Trade and Finance, 7-...., r[ edacted]@crs.loc.gov.
for a discussion of the debates that lead to the proliferation of CACs in the early 2000s, see CRS Report RL31451, Managing
International Financial Crises: Alternatives to "Bailouts," Hardships and Contagion, by (name redacted) and (name redacted) .
Also see Mitu Gulati and W. Mark Weidermaier, “A People's History of Collective Action Clauses,” Virginia Journal of
International Law, vol. 54, no. 1 (2013); and Anna Gelpern, “Building a Better Seating Chart for Sovereign Restructurings,”
Emory Law Journal, vol. 53 (2004).
96
See Federal Reserve Bank of San Francisco, “Resolving Sovereign Debt Crises with Collective Action Clauses,” Economic
Letter, No. 2004-06 (February 20, 2004); http://www.frbsf.org/economic-research/files/el2004-06.pdf. See also International
Monetary Fund, Sovereign Debt Restructuring—Recent Developments and Implications for the Fund’s Legal and Policy
Framework: Executive Summary, April 26, 2013, pp. 27-28; https://www.imf.org/external/np/pp/eng/2013/042613.pdf.
95

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

A clause describing how the sovereign country would initiate the restructuring. This
clause would allow for a suspension of payments between the time the sovereign had
requested a restructuring and the time the creditors’ representative would be chosen.

H.R. 5278 loosely borrows the CAC model from recent sovereign debt experience and attempts to apply it
toward Puerto Rico’s outstanding bonded debt. In contrast to recent trends in sovereign CACs, which
have been to create larger voting pools by allowing a vote to be aggregated across different series of
bonds in to facilitate reaching consensus on a restructuring, H.R. 5278 Section 601(d) would establish
separate voting pools corresponding to the relative priority (senior vs. subordinate lien, for example) or
security arrangements (guaranteed vs. non-guaranteed debt, or debt with a dedicated revenue stream) of
each holder of bonds against each issuer.97 H.R. 5278 Section 601(j) specifies that a restructuring would
require the support of two-thirds of the aggregate outstanding principal amount of the outstanding bonds
in a pool.
Antonio Weiss, Counselor to the Treasury Secretary, criticized H.R. 4900’s CAC language in an April 13,
2016, hearing before the House Committee on Natural Resources. According to his testimony, H.R. 4900,
“imposes an unworkable, mandatory process that will only delay the ability to reach a comprehensive
resolution. Under the proposed approach, all of Puerto Rico’s numerous debtors would have to complete a
complicated process before any single entity could begin to restructure.”98 Given the large size and
complexity of Puerto Rico’s outstanding bonded debt, H.R. 4900 would, Mr. Weiss argues, create a large
number of voting pools, making it nearly impossible to reach the super-majority required for a
restructuring. Other critics argue that H.R. 4900 provides insufficient protections for senior creditors and
that the threshold for creditor acceptance of CACs should be increased from two-thirds to 85%.99
Treasury Secretary Jacob Lew, in a statement released the day after H.R. 5278 was introduced, stated that
“We are pleased the bill reintroduced in the House last night includes restructuring tools for Puerto Rico
that are comprehensive and workable.”100

Title VII: Sense of Congress Regarding Permanent, Pro-Growth Fiscal
Reforms
Title VII’s sole section (§701) expresses the sense of Congress that “any durable solution for Puerto
Rico’s fiscal and economic crisis should include permanent, pro-growth fiscal reforms that feature, among
other elements, a free flow of capital between possessions of the United States and the rest of the United
States.”

97

International Capital Markets Association, “Standard Aggregated Collective Action Clauses (“CACs”) for the terms and
conditions of sovereign notes governed by New York Law,” May 2015. See also, Mark Sobel, “Strengthening Collective Action
Clauses: Catalysing Change—the Back Story,” Capital Markets Law Journal, January 2016.
98
Testimony of Antonio Weiss, Counselor to the Treasury Secretary, in U.S. Congress, House Committee on Natural Resources,
“The Puerto Rico Oversight, Management, and Economic Stability Act,” hearings, 114th Cong., 2nd sess., April 13, 2016;
https://www.treasury.gov/press-center/press-releases/Pages/jl0417.aspx.
99
Conversation with Cate Long, Puerto Rico Clearinghouse, April 19, 2016.
100
U.S. Department of the Treasury, “Statement From Secretary Lew on Puerto Rico Legislation,” press release, May 19, 2016;
https://www.treasury.gov/press-center/press-releases/Pages/jl0461.aspx.

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Appendix A. Legislative Context
Representative Sean Duffy, as noted at the first section of this report, introduced the Puerto Rico
Oversight, Management, and Economic Stability Act (PROMESA; H.R. 5278) on May 18, 2016.101 This
bill is a revised version of H.R. 4900, which Representative Duffy had introduced on April 12, 2016.102
The House Natural Resources Committee issued a discussion draft with the same title on March 24, 2016,
and a revised discussion draft on March 29, 2016. The committee held a hearing and heard opening
statements for a markup on H.R. 4900 on April 13, 2016. The continuation of the markup on the
following day was postponed. The House Committee on Natural Resources marked up H.R. 5278 on May
25, 2016.103 Amendments agreed to include technical corrections and extensions of certain studies on the
Puerto Rico government and economy, among others. The major provisions of the bill, however, were
unaffected. The House passed an amended version of H.R. 5278 on June 9, 2016, by a 297-127 vote. The
Senate approved the measure (S. 2328) on June 29, 2016, by a 68-30 vote. President Obama signed the
measure into law on June 30, 2016.

Other Proposals to Address Puerto Rico’s Fiscal Crisis
In October 2015, the U.S. Department of the Treasury set out a reform framework and called on Congress
to pass legislation to aid Puerto Rico. Resident Commissioner Pierluisi introduced H.R. 870 on March 16,
2015, that would restore the island’s access to chapter 9 of the Bankruptcy Code. Senator Blumenthal
introduced a similar measure (S. 1774) on July 15, 2015. Representative Duffy introduced H.R. 4199, a
measure to provide fiscal oversight and a process for debt restructuring, on December 9, 2015. Senator
Hatch introduced a similar measure (S. 2381) on the same day. On December 18, 2015, Representative
Pelosi introduced H.R. 4290, a measure to stay debt-related litigation. Senator Warren introduced a
companion measure (S. 2436) on the same day. On March 14, 2016, Senator Menendez introduced the
Puerto Rico Recovery Act of 2016 (S. 2675) and the Puerto Rico Stability Act of 2016 (S. 2676). Both
measures would create ways to adjust Puerto Rico’s debt. On June 9, 2016, Senator Sanders introduced S.
3044, which would establish a Puerto Rico Reconstruction Finance Corporation, restore the island’s
access to chapter 9 of the Bankruptcy Code, and make changes in federal health care and economic
development programs to benefit Puerto Rico. Table A-1 summarizes measures introduced to address
Puerto Rico’s fiscal difficulties.
Several other measures have been introduced to alter federal programs’ eligibility rules or levels of
benefits available to Puerto Rico residents. For example, Resident Commissioner Pierluisi has also
introduced several measures (including H.R. 1225, H.R. 1417, H.R. 1418, H.R. 1822, H.R. 2635, H.R.
3552, H.R. 3553, and H.R. 4163) that would remove various limitations on federal health care funding,
refundable tax credits, and social insurance programs.104 Increased federal funding for health or income
security programs could mitigate the Puerto Rico government’s fiscal pressures, although such funding
would require an increase in federal revenues, reduction in other federal spending, or additional federal
borrowing, or some combination of those means.

101

The word “promesa” means promise in Spanish.
An earlier congressional distribution memorandum that analyzed H.R. 4900 is available upon request from the Coordinator.
103
U.S. Congress, House Committee on Natural Resources, Puerto Rico Oversight, Management, and Economic Stability Act,
114th Cong., 2nd sess., June 3, 2016, H.Rept. 114-602 (Washington: GPO, 2016).
104
See CRS Report R44275, Puerto Rico and Health Care Finance: Frequently Asked Questions, coordinated by (name redacted).
102

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Table A-1. Selected Measures to Address Puerto Rico’s Fiscal Situation
Sponsor

Measure

Title

Date

Summary

Res. Comm. Pierluisi

H.R. 870

Puerto Rico Chapter 9
Uniformity Act

March 16, 2015

Amends the Bankruptcy Code to treat Puerto Rico as a state under
chapter 9.

Sen. Blumenthal

S. 1774

Puerto Rico Chapter 9
Uniformity Act

July 15, 2015

Amends the Bankruptcy Code to treat Puerto Rico as a state under
chapter 9.

Rep. Duffy

H.R. 4199

Puerto Rico Financial Stability and
Debt Restructuring Choice Act

December 9, 2015

Establishes the Puerto Rico Financial Stability Council, if enacted by the
Puerto Rico Legislature Assembly and Governor. Council would
approv

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR44532. Public record. Not legal advice.