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Fiscal board asks court to invalidate $6 billion of Puerto Rico's ballooning debt

Puerto Rico: The exodus after Hurricane Maria

The oversight board established by Congress to manage Puerto Rico's fiscal crisis asked a federal court to invalidate $6 billion of the island's ballooning public debt, which is estimated to be nearly $74 billion.

The seven-member board — created by the 2016 Puerto Rico Oversight, Management, and Economic Stability Act, known as PROMESA — filed a motion to the federal judge overseeing the U.S. territory's debt restructuring, requesting the multi-billion dollar amount be declared "null and void." The board argued the amount stemmed from general obligation bonds issued in 2012 and 2014 that were "in clear violation" of the debt limits outlined by Puerto Rico's Constitution.

The board added the "invalid debt" also violated the Constitution's balanced budget requirement because "proceeds of the debt" were utilized to fund deficit spending.

"As the representatives of Puerto Rico in the Title III restructuring, the Board has the duty to act in the best interests of Puerto Rico and all of its creditors," the board said Tuesday in a statement to CBS News. "Challenging improperly issued debt is consistent with that duty."

The request is the board's first major move to slash some of the island's debt. If the judge nullifies the chunk of debt, some bondholders would loose their investments. 

Democratic Rep. Darren Soto, who represents parts of Orlando and its large Puerto Rican community, said the board should continue to challenge some parts of the island's debt in court. 

"I've consistently urged the PROMESA fiscal board to do a full audit of the debt, to ensure any debts owed have been verified, and debts validated under law be challenged in the bankruptcy court," Soto wrote in a statement to CBS News Tuesday. "It is absolutely critical for the future of Puerto Rico's economy that we promote economic development, provide critical disaster relief, and reduce their insurmountable debt."

For years, Puerto Rico, home to approximately 3.2 million U.S. citizens, has been plagued by economic woes, exacerbated by a worsening debt-crisis. Since its inception, the fiscal board has directed the local government to make budget cuts to several welfare and educational programs — austerity measures that have become deeply unpopular on the island.

On Saturday, Mayors Carmen Yulín Cruz and María Meléndez — who represent the two largest cities on the island, San Juan and Ponce, respectively — told the largest congressional delegation to visit Puerto Rico the fiscal board is an undemocratic institution that has hindered the reconstruction of the island following hurricanes Maria and Irma by ordering deep austerity cuts the Puerto Rican government has no power to stop.

The board, known locally as "la junta," is made up of seven members appointed by the White House.

"You must eliminate the fiscal control board. It doesn't work," Yulín Cruz told lawmakers.

"After two years of trying to get a grip, the board has not accomplished anything," she said. "They have not audited the debt. And so, they are literally flying a plane without a control panel."

Rep. Tony Cárdenas, one of the Democratic lawmakers who was part of the delegation, told CBS News he was concerned about the board's power to "override" the local Puerto Rican government and suggested the Democratic-controlled House could look to "restructure" the institution.

Award-winning playwright and musician Lin-Manuel Miranda, who brought his Broadway hit "Hamilton" to Puerto Rico last week, told CBS News' David Begnaud the federal government needs to grant the island "debt forgiveness" for the U.S. territory to recover.

"It's gonna take a lot. It's gonna take Congress really investing in the rebuilding effort on a scale commensurate to other hurricane relief that has happened in the United States, on the mainland," Miranda said in an exclusive "CBS This Morning" interview on Friday. "It is going to take debt forgiveness on the island."