I 114th CONGRESS 1st Session H. R. 3725 IN THE HOUSE OF REPRESENTATIVES October 8, 2015 Mr. Pierluisi introduced the following bill; which was referred to the Committee on Financial Services A BILL To authorize the Secretary of the Treasury to guarantee principal and interest payments on bonds issued by the government of the U.S. territory of Puerto Rico, including its public corporations and instrumentalities, on the condition that the government of the territory demonstrates meaningful improvement in the management of its public finances, and for other purposes.

1. Short title This Act may be cited as the Puerto Rico Financial Improvement and Bond Guarantee Act of 2015 . 2. Purpose and sense of Congress (a) Purpose The purpose of this Act is to empower the Secretary of the Treasury to facilitate access of the government of Puerto Rico to capital markets for— (1) immediate short-term financing needs, (2) capital expenditures, and (3) debt refinancing, by guaranteeing the principal and interest payments on bonds issued by the government of Puerto Rico upon determination by the Secretary that certain conditions relating to financial accountability in Puerto Rico have been met. (b) Sense of Congress It is the sense of Congress that— (1) Puerto Rico, as a territory, is treated inequitably and inconsistently by Federal law and policy, and that such treatment has contributed significantly to the current financial distress of the government of Puerto Rico; (2) consequently, there exists a Federal responsibility and need to help the government of Puerto Rico gain access to the capital markets on reasonable terms; (3) stronger financial controls, budgeting processes, and accountability measures should be implemented by the government of Puerto Rico in order to improve its financial standing and creditworthiness; and (4) it is in the national interest of the United States to reduce the risk of default by the government of Puerto Rico on its bond payments, to ensure essential public services can be provided in the territory, and to promote economic growth and responsible borrowing in the territory. 3. Definitions For purposes of this Act: (1) Cost With respect to a guarantee, the term cost has the meaning given such term under section 502 of the Federal Credit Reform Act of 1990 ( 2 U.S.C. 661a ). (2) Guarantee The term guarantee — (A) has the meaning given the term loan guarantee in section 502 of the Federal Credit Reform Act of 1990 ( 2 U.S.C. 661a ); and (B) includes a loan guarantee commitment (as defined in such section 502). (3) Instrumentality thereof With respect to Puerto Rico, the term instrumentality thereof means any political subdivision, instrumentality, or instrumentality of a political subdivision of Puerto Rico. (4) Obligation The term obligation means a bond that is guaranteed under this Act. (5) Secretary The term Secretary means the Secretary of the Treasury. I Financial improvement and bond guarantees for Puerto Rico 101. Bond guarantees (a) General authority The Secretary of the Treasury is authorized to guarantee bonds issued by the government of Puerto Rico or any instrumentality thereof that are issued solely for the purpose of financing capital projects or refinancing existing debt. (b) Limitation The authority granted under subsection (a) does not extend to bonds issued to finance operational expenses, except with respect to tax revenue anticipation notes. 102. Terms and conditions (a) In general A guarantee made under this Act may guarantee up to 100 percent of the principal and interest of the obligation. (b) Receipt of request A guarantee may only be made under this Act if— (1) the Secretary first receives a request for such guarantee, in writing, from the Governor of Puerto Rico, along with the terms, including the purpose and amount, of the bond to be issued for which the guarantee is requested; and (2) the Secretary determines, pursuant to section 103(b), that the government of Puerto Rico and, if applicable, any instrumentality thereof, has demonstrated meaningful improvement in the management of its finances. (c) Obligation requirements (1) Maturity An obligation shall require full repayment over a period not to exceed 30 years. (2) Interest rate An obligation shall bear interest at a rate that does not exceed a level that the Secretary determines appropriate. (d) Agreement document (1) Minimum requirements A guarantee agreement shall be written and executed for any guarantee made under this Act in order that such guarantee may have legal effect, and, at a minimum, shall include appropriate language detailing the terms and conditions set forth in this Act for such guarantee. (2) Additional terms and conditions A guarantee agreement may include such detailed terms and conditions in addition to those set forth in this section and as the Secretary determines appropriate to protect the interests of the United States in case of default and to ensure repayment. (3) Authority of the Secretary The Secretary is authorized to agree to any modification, amendment, or waiver or any such term or condition as the Secretary deems desirable to protect the interests of the United States. (e) Administrative expenses (1) In general The Secretary shall charge and collect fees for guarantees made under this Act in amounts the Secretary determines are sufficient to cover applicable administrative expenses. (2) Availability Fees collected under this subsection shall be available to the Secretary, without further appropriation, to pay for the administrative expenses of carrying out this Act. (f) Limitation A guarantee may be made under this Act only if the Secretary determines that there is a reasonable prospect of repayment of the principal and interest on the bond to be guaranteed. 103. Financial improvement guidelines and determination (a) Examination, guidelines, and recommendations (1) In general Not later than 120 days after the date of the enactment of this Act, the Secretary shall— (A) examine the financial management practices of the government of Puerto Rico and instrumentalities thereof and identify specific areas in such practices that may need improvement; and (B) establish guidelines and recommendations for the government of Puerto Rico and instrumentalities thereof to use as a basis for making improvements in its financial management practices and in determining whether to make a guarantee requested under section 102(b). (2) Criteria The guidelines and recommendations required under paragraph (1) shall address, at a minimum, the following criteria, where applicable: (A) Fiscal stability and operational efficiency. (B) Reduction in deficits and debt. (C) Accuracy in estimating revenues and expenditures. (D) Collection of taxes due. (E) Management of Federal grant monies. (F) Quality of financial controls, statements, and reporting. (G) Use of information technology. (H) Regulations and licensing requirements affecting business establishment, expansion, and operation. (3) Revisions The Secretary may revise such guidelines and recommendations as the Secretary determines appropriate. (4) Transmission and public notice of guidelines and recommendations The Secretary shall, within 10 days of establishing or revising guidelines or recommendations under this subsection— (A) transmit such guidelines and recommendations to the Governor of Puerto Rico and the Congress; (B) publish such guidelines and recommendations in the Federal Register; and (C) make such guidelines and recommendations available to the public on the website of the Department of the Treasury. (b) Financial improvement determination (1) Determination The Secretary shall, for purposes of section 102(b)(2), determine whether the government of Puerto Rico and, if applicable, any instrumentality thereof, has demonstrated meaningful improvement in the management of its finances. (2) Basis for determination In making a determination under paragraph (1), the Secretary shall take into account the guidelines and recommendations established under subsection (a) and such other criteria as the Secretary determines appropriate. (3) Notification If, under paragraph (1), the Secretary determines that the government of Puerto Rico and, if applicable, any instrumentality thereof, has not demonstrated meaningful improvement in the management of its finances, the Secretary shall— (A) notify the Governor of Puerto Rico and the Congress, in writing, of the Secretary’s decision and the basis for such decision; (B) publish a notice of such determination in the Federal Register; (C) make such notice available to the public on the website of the Department of the Treasury; (D) make recommendations to the Governor of Puerto Rico on specific ways the government of Puerto Rico and, if applicable, any instrumentality thereof, can demonstrate meaningful improvement; and (E) if the Secretary determines it appropriate, make recommendations to— (i) the Congress about specific legislation that can be enacted to improve the finances, financial stability, and financial management practices of the government of Puerto Rico and that would help the government of Puerto Rico or any instrumentality thereof demonstrate meaningful improvement and implement the recommendations in the areas identified by the Secretary under subsection (a)(1)(B); and (ii) the heads of Federal departments and agencies other than the Department of the Treasury about specific administrative actions that could be taken to improve the finances, financial stability, and financial management practices of the government of Puerto Rico and that would help the government of Puerto Rico or any instrumentality thereof demonstrate meaningful improvement and implement the recommendations in the areas identified by the Secretary under subsection (a)(1)(B). 104. Public notice Upon making any guarantee under this Act, the Secretary shall publish notice of such action, along with the results of the determination made under section 103(b), in the Federal Register and make such information available to the public on the website of the Department of the Treasury. 105. Loan guarantee funding There are appropriated to the Secretary such sums as may be necessary for the cost, as defined in section 502 of the Congressional Budget Act of 1974, of bond guarantees made under this title. The Secretary may make such bond guarantees notwithstanding subsections (b) and (d) of section 504 of the Federal Credit Reform Act of 1990 ( 2 U.S.C. 661c ). II Technical assistance for Puerto Rico 201. Technical assistance The Secretary is authorized to provide advice and technical assistance to the government of Puerto Rico and instrumentalities thereof about ways and means to demonstrate meaningful improvement in managing its finances (as described under section 103). III Purchase and sale of Puerto Rico bonds 301. Amendment to the Federal Reserve Act Section 14(b)(1) of the Federal Reserve Act ( 12 U.S.C. 355(1) ) is amended by inserting after continental United States the following: or Puerto Rico .