A rescue package for debt-stricken Puerto Rico was approved in the U.S. Senate Wednesday, just two days before the island is expected to default on a $2 billion debt payment.

  • Puerto Rico expected to default on $2B debt payment
  • Board would oversee Puerto Rico's finances, debt restructuring
  • Package passed 68-30 in the Senate

The White House-backed measure would create a control board that would oversee the U.S. territory's finances and supervise some debt restructuring. The bill passed the package, 68-30.

Leaders of both parties urged their colleagues to support the legislation, saying that Congress needs to step in and prevent financial and humanitarian chaos on the island.

"We must act now to prevent matters from getting worse," said Senate Majority Leader Mitch McConnell.

Puerto Rico is in a decade-long recession and has $70 billion in debt. In addition to the control board, the bill would require the territory to create a fiscal plan and fund public pensions, which the government has shorted by more than $40 billion. The bill would also lower the minimum wage on the island.

The bill now goes to President Obama, who is expected to sign it. The White House issued this statement Wednesday:

"I commend Democrats and Republicans in the Senate for voting to address the economic crisis in Puerto Rico, providing the support it needs to restructure its debt, safeguard vital public services, and provide protection to public pensions. This bill is not perfect, but it is a critical first step toward economic recovery and restored hope for millions of Americans who call Puerto Rico home. I look forward to signing the bill into law, and remain committed to working with Congress and the people of Puerto Rico to return to lasting economic growth and opportunity."

The control board would be similar to one that oversaw the District of Columbia in the late 1990s. Its seven members would oversee negotiations with creditors and the courts over reducing some debt. In addition to creating the board, the bill would require the territory to create a fiscal plan and fund public pensions, which the Puerto Rico government has shorted by more than $40 billion.

Gov. Alejandro Garcia Padilla has warned the U.S. territory would face multiple lawsuits if the bill is not approved, especially following Friday's anticipated default on $1 billion in general obligation bonds. The legislation would temporarily block creditor lawsuits from being filed until February 2017.

The general obligation bonds are backed by the island's constitution, but Garcia has said the government has no money to honor that debt despite the implementation of new taxes and recent increases in utility rates. Garcia hasn't said if the island will default on the other $1 billion that is due.

"Puerto Rico cannot endure any more austerity," Garcia said in an editorial published Wednesday.

Treasury Secretary Jacob Lew visited Capitol Hill on Tuesday in a bid to persuade some reluctant Democrats concerned that the board would be too powerful. Democrats have also opposed a provision that would allow the island's government to lower the minimum wage for some younger workers.

Lew urged senators to vote for the bill even though it isn't perfect, saying that if the island defaults, the government may be forced to shut public transit, close a hospital or send police officers home.

Democratic Sen. Bob Menendez of New Jersey was staunchly opposed to the bill, monopolizing the Senate floor for more than four hours Tuesday evening, arguing that the bill adopts a colonial approach.

Sen. Bernie Sanders, I-Vt., also opposed it.

"In my view we need austerity not for the people of Puerto Rico, but for the billionaire Wall Street hedge fund managers who have exacerbated the crisis on the island," Sanders said on the floor.

In the days before the vote, some bondholder groups worked to turn senators against the bill, arguing it doesn't sufficiently protect creditors and is tantamount to a bailout for the territory. Several labor unions also lobbied against the measure, arguing that a lower minimum wage could take money out of the Puerto Rican economy.

The legislation is needed because Puerto Rico cannot declare bankruptcy under federal law. Mainland municipalities and their utilities can, while municipalities and utilities in Puerto Rico cannot.

Some Republicans who opposed the bill said the bill could set a bad precedent for financially strapped states.

"They'll say, 'if a territory can receive unprecedented authority from Congress, then why shouldn't a state?'" said Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa.