Paul Ryan finds himself in a tough spot as Puerto Rico nears a potential taxpayer bailout. | AP Photo Puerto Rico bankruptcy bill faces do or die moment

House Speaker Paul Ryan faces a challenge on Friday as he tries to rally Republicans and salvage a deal with the Obama administration that would allow Puerto Rico to restructure more than $70 billion in debt.

If Republicans can't muster enough conservative support for the bill, the measure could be dramatically rewritten to win over Democrats, who are currently opposed to the legislation.


But it was those kinds of maneuvers that turned Republicans away from his predecessor, John Boehner. Moving too far leftward risks alienating key members of Rep. Rob Bishop's House Natural Resources Committee and could imperil the bill on the House floor.

Both Bishop and GOP leadership believe if this bill goes down, a taxpayer bailout would be practically inevitable.

Conservative opposition on the committee also presents an early test for Ryan’s process-focused approach to his speakership. Bishop's panel, which has jurisdiction over territories, drafted the bill in consultation with the Treasury Department and stakeholders, with a hands-off approach from the speaker’s office.

Republicans are meeting on Friday morning to talk over the bill, but on Thursday, several members of the Natural Resources panel expressed reservations about it.

“I hate to say this, but the two weeks we were all gone did not help the situation,” Bishop said. “What I’m getting back from everybody is they don’t know what the hell this does.”

On Thursday, Democrats said the bill would need to be changed before they would consider backing it.

“They have to work with us,” Natural Resources Ranking Member Raul Grijalva (D-Ariz.) said, adding that he thought only four Republicans and two Democrats on the panel would vote for the bill right now. Grijalva and others on the panel object to the power the bill grants a seven-member fiscal oversight board over the governor and Legislature of Puerto Rico. Grijalva and several others also objected to a lowering of the minimum wage for workers under 25.

“We’re going around the country fighting to raise the minimum wage,” Grijalva said. “We’ll be lowering the minimum wage in Puerto Rico,” if Democrats vote for the bill in its current form.

The legislation would establish a seven-member fiscal oversight board selected by the president and members of House and Senate leadership. Working with local leaders, the board would draft a plan to get Puerto Rico out of debt, and it would have the ability to overrule the Puerto Rican Legislature and governor on any measure it deems to undermine that fiscal health plan.

The legislation also provides incentives for creditors holding portions of Puerto Rico’s debt to come to terms with the island and its public corporations. If an agreement can’t be met, the board has the power to ask a federal district court to weigh in, similar to a bankruptcy proceeding. The bill also includes a temporary stay on lawsuits that creditors can bring against the island government, until early next year, when a new governor will be in place.

The debt restructuring — inspired by but technically not a bankruptcy — has angered some conservatives who think it rewards irresponsible spending and penalizes the investors who funded it, while Democrats feel that installing a board over elected officials would be too heavy-handed.

As the bill's fate remained uncertain this week, Republicans called off an expected committee markup. After the cancellation, Bishop blamed the White House for the impasse, implying it had not secured the support of those in its own party either.

“The Administration is still negotiating on provisions of the legislation, creating uncertainty in both parties,” Bishop said in a release. “This legislation needs bipartisan support, but Members need time to understand the complexity of the issue and the ramifications of any proposed changes."

For its part, the administration encouraged lawmakers to hammer out a deal.

“Only bipartisan Congressional action can end this crisis, and we encourage members to continue to work to improve this bill and to act without delay,” Brandi Hoffine, assistant White House press secretary said in an email to POLITICO.

Meanwhile, House Minority Leader Nancy Pelosi (D-Calif.) blamed ads calling the bill a “bailout” of Puerto Rico for the tumult around the measure.

Ryan downplayed the effect of the ads during his weekly news conference, saying he didn’t think they affected the process.

“Everyone is acting in good faith,” Pelosi said, in a rare moment of praise for her Republican counterparts in the House, “except for the hedge funds that took out those ads.”

A group called the Center for Individual Freedom placed the ads, which have aired in the districts of select Republicans on the Natural Resources Committee, as well as in the Beltway.

It’s unknown who funds the group’s campaign — it does not disclose donors and has not acknowledged interview requests from POLITICO, nor an invitation from Bishop's panel to testify — but hedge funds holding billions in general obligation debt stand to benefit from killing a deal. In addition to protecting their investment, several funds bought into a bond offering that would allow them to sue the Commonwealth in New York, where they might find a more favorable judge than in Puerto Rico.

Multiple members from the committee said they heard frequently from constituents about the ads during their district work period.

Asked whether House Republicans, including a majority on his committee, could support the bill Bishop said: “I hope so. I can’t predict what the future will be or see into people’s hearts.”

During the special conference meeting on Friday morning, Bishop and committee staff will try to win the hearts and minds of their fellow conservatives by emphasizing that while their bill does not use federal funds to bail out Puerto Rico, alternative solutions could be worse if the legislation does not pass.

“If we don’t act quickly, then the chances of a bailout are astronomical,” Bishop said. That was a message Ryan echoed during his weekly news conference.

The bill, officially introduced by Ryan ally and fellow Wisconsinite Rep. Sean Duffy, is “the best possible way to prevent a taxpayer bailout and bring order to the chaos,” Ryan said on Thursday.

What remains unclear is whether Ryan and others in leadership will try to whip their own members on the vote or move the language more toward what Democrats want and rely on them to carry it out of committee and through the House.

It’s an early test of Ryan’s leadership to keep his conference in line on an issue most agree must be dealt with soon. The island has little constituency in Congress because it’s represented by one non-voting delegate. Persuading Republicans to act — quickly — will likely be difficult.

Puerto Rico’s government bank will default on $422 million of debt payments next month after its governor signed an order to place a moratorium on payments, and nearly all agree that Puerto Rico doesn’t have the money to pay the $2 billion it owes in July. Opponents of the bill say it will shake confidence in municipal markets, though market data shows millions of dollars worth of bonds changed hands during the Natural Resources Committee’s legislative hearing yesterday. At more than $70 billion in outstanding obligations Puerto Rico would represent by far the largest default on municipal debt in American history, the next largest being Detroit’s $18 billion municipal bankruptcy in 2013.

Some Republicans on the Natural Resources panel said it could gain support from a majority of conservatives on the panel if language were tweaked to prevent a taxpayer-funded bailout of Puerto Rico down the line.

“It’s really pretty [much] up in the air,” as far as Republicans on the panel supporting the bill, said Rep. Doug Lamalfa (R-Calif.), though he thought he would support the bill if it made explicit no taxpayer funds could go toward digging Puerto Rico out of its debt hole.

Still, if a majority of Republicans on the Natural Resources panel had supported the bill, the markup likely would not have been pushed back.

“The Republicans didn’t cancel today’s markup of the bill because Luis Gutierrez didn’t like it,” said Rep. Luis Gutierrez (D-Ill.). “They didn’t mark it up because they don’t have the votes for their deal. If this is a Republican deal and they don’t have the votes, I’m not going to vote for a deal that carries the water for the Republican proposal.”

“He promised,” Grijalva said, referring to public and private commitments on Puerto Rico that Ryan made to Democrats during omnibus negotiations last year. “We’re having to pull the fat out of the fire for him. He needs to accommodate us before we do that.”

Rachael Bade and Jake Sherman contributed to this story.