In August 2015, debt service on bonds issued by the Public Finance Corporation, an arm of the Government Development Bank (GDB), was not paid in full. The Puerto Rico Infrastructure Financing Authority (PRIFA) did pay interest in full on certain bonds due on January 1, 2016. The Puerto Rican government's fiscal situation, according to emergency legislation (Act 21 of 2016) enacted on April 6, 2016, "is more dire than at any other point in its history" and "depleted resources and strained liquidity threaten to bind the Commonwealth to a choice between honoring its commitments to bondholders or continuing to provide the residents of Puerto Rico with essential services." On May 1, 2016, Governor García Padilla issued an order to declare a moratorium on certain debt payments by the Government Development Bank (GDB), the government's fiscal agent, which was due to make a debt service payment of $423 million on that date. The Commonwealth government has stated that even after recapturing or "clawing back" revenues from other parts of the public sector that it "will not have sufficient resources to meet the entire debt service obligation on the Commonwealth's general obligations bonds due on July 1, 2016." On June 29, 2015—a day before the end of Puerto Rico's fiscal year 2015—Governor García Padilla stated during a televised address that "the debt is not payable." On the same day, a report by three former International Monetary Fund (IMF) economists was released that described serious problems with Puerto Rico's fiscal situation, budget execution, public administration, and tax structure. The Working Group issued a framework plan on September 9, 2015, that outlined a strategy for putting the island's finances on a stable basis. The GDB and its subsidiaries are the main source of short-term financing for the Puerto Rican government and its public corporations and municipalities. In late March 2016, as noted above, a federal district court judge unveiled a 2015 finding of the Puerto Rico Commissioner of Financial Institutions that the GDB was insolvent in 2015. Fiscal Strategy and Outmigration

The precarious state of Puerto Rico's public finances stems in part from prolonged economic weakness. Economic growth was sluggish even before the 2007-2009 recession, and official forecasts project continued slow growth. Previous economic analyses of Puerto Rico's economy have pointed to low employment and labor participation rates, an economic structure shaped more by tax advantages than comparative advantages, and intensified global competition. To that end, Resident Commissioner Pierluisi introduced H.R. 870 on March 16, 2015. Senator Blumenthal introduced a similar measure ( S. 1774 ) on July 15, 2015. 4290 ) on December 18, 2015, a measure to stay litigation related to the island's public debts, which could provide further time for negotiations between Puerto Rico and its creditors. On March 14, 2016, Senator Menendez introduced two bills ( S. 2675 , S. 2676 ) that would allow adjustments of Puerto Rico's debt. Congressional and Administration Proposals for Fiscal Oversight

In October 2015, the U.S. Department of the Treasury set out a reform framework that included a call for fiscal oversight as well as a broad debt restructuring of Puerto Rico's debts. Representative Sean Duffy introduced H.R. Senator Hatch introduced S. 2381 , the Puerto Rico Assistance Act of 2015, on the same day. The House Natural Resources Committee issued a discussion draft on March 29, 2016, of the Puerto Rico Oversight, Management, and Economic Stability Act. PROMESA

On April 12, 2016, Representative Duffy introduced the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA; H.R. 4900 ), which would set up an Oversight Board for Puerto Rico and create a process to restructure the island's debts, among other provisions. Representative Duffy introduced H.R. 5278 , a revised version of H.R. 4900 , on May 18, 2016.
The government of Puerto Rico faces severe fiscal challenges. A federal district court judge in late March 2016 held that the island's government was insolvent and unable to pay its obligations on time. Emergency legislation (Act 21 of 2016) enacted on April 6, 2016, stated that the Puerto Rican government's fiscal condition "is more dire than at any other point in its history" and that "depleted resources and strained liquidity threaten to bind the Commonwealth to a choice between honoring its commitments to bondholders or continuing to provide the residents of Puerto Rico with essential services." On April 8, 2016, the Puerto Rican governor invoked emergency authorities to maintain essential public services.
The Puerto Rican government has been facing serious liquidity challenges and has lost normal access to credit markets despite measures taken by the island's government to reduce spending, increase revenues, and restructure its obligations. Much of the island's liquidity challenges stem from substantial debt service costs facing the central government and its public corporations. In August 2015, debt service on Public Finance Corporation bonds was not paid in full. The Puerto Rico Infrastructure Financing Authority (PRIFA) did pay interest in full on certain bonds due on January 1, 2016. On May 1, 2016, Governor Alejandro García Padilla declared a moratorium on certain debt payments by the Government Development Bank (GDB), the government's fiscal agent, due on that date. The Commonwealth government doubts that it can make a larger debt service payment on July 1, 2016. On June 29, 2015, Governor García Padilla stated during a televised address that "the debt is not payable." On the same day, a report commissioned from three former International Monetary Fund economists was released, which described severe short-term funding challenges as well as long-standing issues with key parts of the Puerto Rican economy and public sector. On September 9, 2015, a working group appointed by the governor released a plan that outlined its strategy. Puerto Rico's financing gap over the coming five years, according to the plan, is nearly $28 billion. The plan's proposals, along with hoped-for improvement in economic growth, were said to halve that gap.
The precarious state of Puerto Rico's public finances stems in part from prolonged economic weakness. Economic growth was sluggish even before the 2007-2009 recession, and projections suggest that the economy is contracting. Past analyses noted low employment and labor participation rates, high rates of outmigration leading to a decline in population, an economic structure shaped more by tax advantages than comparative advantages, and intensified global competition, among other factors. Others point to weaknesses in fiscal and operational controls.
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; the bill 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. On December 9, 2015, Representative Sean Duffy introduced H.R. 4199, a measure to provide fiscal oversight and a debt restructuring process. Senator Hatch introduced a similar measure (S. 2381) on the same day. On December 18, 2015, Representative Pelosi introduced H.R. 4290 and Senator Warren introduced S. 2436, both measures to stay debt-related litigation. On March 14, 2016, Senator Menendez introduced two bills (S. 2675, S. 2676) that would allow adjustments of Puerto Rico's debt. The House Natural Resources Committee issued a discussion draft on March 29, 2016. Representative Duffy introduced the Puerto Rico Oversight, Management, and Economic Stability Act (H.R. 4900) on April 12, 2016, and a revised version (H.R. 5278) on May 18, 2016, which would set up an Oversight Board for Puerto Rico and create a process to restructure the island's debts, among other provisions.