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A debate about an island territory's debt could weigh on Congress's already-packed summer to-do list.

As the House and Senate brace for a month-long session dominated by highway-bill funding, education reform, a possible Iran deal, and the potential renewal of the Export-Import Bank, members are also preparing for a serious discussion on whether it has a responsibility to amend bankruptcy law so Puerto Rico can attempt to crawl out from under its debt.

Puerto Rico Governor Alejandro Garcia Padilla announced last week that he'd like to file bankruptcy to absolve some of the territory's $72 billion in debt, but that is impossible unless Congress steps in to give the territory access to the U.S. bankruptcy courts. Under Chapter 9 of the Bankruptcy Code, only states and municipalities have the ability to file for bankruptcy. Territories, such as Puerto Rico, are excluded. On Tuesday, a U.S. appeals court upheld a decision that struck down the territory's attempt to allow some of their local governments to file for bankruptcy, upping the ante for Congress to weigh in.

Yet members of Congress are stuck between conflicting forces. Wall Street executives—who remain powerful brokers in the 2016 election—will likely suffer losses if Puerto Rico is allowed to move forward with bankruptcy, and U.S. bondholders are not paid. Conservative campaign backers also may be skeptical of lending a hand to a fiscally liberal territory, making it harder for Republicans to back the plan. But presidential candidates and lawmakers also know that they must remain in good favor with millions of Puerto Rican voters in the U.S. who still have strong ties to the territory and could make a major difference for them in a swing state like Florida.

Padilla, a Democrat, sees the upcoming presidential election as a leverage point for getting what he wants.

"Puerto Ricans decide the elections in Florida. That's very important. By deciding the election in Florida, we can decide [who is the next] president of the United States," Padilla said recently on Spanish-language television network Telemundo, according to the The Washington Post.

Earlier this year during a trip to Puerto Rico, presidential candidate and former Florida Gov. Jeb Bush said he was in favor of allowing the territory to have access to bankruptcy, although he has added since that it must find a way to cut costs.

Democratic presidential candidates Hillary Clinton, Bernie Sanders, and Martin O'Malley have also come out in support for amending the bankruptcy code through Congress.

Clinton said Tuesday in a statement that "we're not talking about a bailout, we're talking about a fair shot at success."

Sanders argued Wall Street shared responsibility for Puerto Rico's financial woes.

"The reason Puerto Rico has such unsustainable debt has everything to do with the policies of austerity and the greed of large financial institutions. Puerto Rico has been in a severe recession for almost a decade," Sanders said in a statement. "Our goal must be not only to give Puerto Rico the flexibility it needs to restructure its debt, but to make sure that it can rebuild its economy, create good-paying jobs, and expand its tax base."

Members on Capitol Hill, however, are weighing their options before giving Puerto Rico more financial flexibility. Sen. Marco Rubio, another Republican presidential candidate, has yet to decide, and South Carolina GOP Sen. Lindsey Graham said he was still looking at potential legislation.

Puerto Rico's congressional representative, Resident Commissioner Pedro Pierluisi, filed a House bill in February that would treat Puerto Rico like any other state when it came to filing for bankruptcy. But while the House Judiciary Committee's Regulatory Reform subcommittee held a hearing on the bill, a committee aide says Chairman Bob Goodlatte is still looking at a bill that could "have large economic consequences." Still, he "feels the committee has a responsibility to review the merits of this legislation."

In the Senate, Florida Democrat Bill Nelson says that he plans to sponsor legislation that would allow Puerto Rico to file for bankruptcy.

"We need to get the law such that they can go through the normal legal process," Nelson said. "It is important for all the states, but I just happen to be sensitized because I work with Puerto Rico quite a bit."

Sens. Chuck Schumer of New York and Richard Blumenthal of Connecticut are also working on a bill that would allow the municipalities and public corporations within Puerto Rico to have the same access to Chapter 9 bankruptcy as any group in the U.S. Blumenthal says the territory not having it is just an "anomaly" of the current law.

"This issue urgently affects the finances of Puerto Rico, but also bondholders and the creditors," Blumenthal says. "It vitally impacts our financial markets."

But conservatives in the Senate are wary of backing anything that could be perceived back home as a bailout.

"I want to look into it, because I understand that they are in a situation where they are having trouble paying back their debt," North Dakota Republican Sen. John Hoeven said. "I am really going to have to evaluate it before I say yes. I have concerns because I think people need to be paid."

After a week-long break, Congress may not be quite ready to jump in as immediately as Puerto Rico would like. Senate Judiciary Committee ranking member Patrick Leahy of Vermont, whose committee has jurisdiction, said he still has not given the issue extensive thought.

"The problem there is they have years of mismanagement. It's such a shame because it is a beautiful country," Leahy said.

Wherever lawmakers end up standing, the issue may not cut cleanly along party lines.

While his party's presidential contenders were calling on Congress to give more debt flexibility, Democratic Sen. Dick Durbin said he still harbored concerns about giving Puerto Rico the ability to file for bankruptcy when his own state of Illinois was struggling financially.

"It's tricky. I have to weigh it against a state and a city that are struggling against similar issues. Right now I want to make sure we start this out and do it appropriately," Durbin said. "I want to maintain the integrity of the bond market ... but there comes a point where bankruptcy is inevitable for some."


Alex Rogers contributed to this article

This article is from the archive of our partner National Journal.

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