Puerto Rico appears on the verge of tipping over — financially, that is, not in the Hank Johnson sense. The island’s governor has ordered a default on Puerto Rico’s main development bank, a move that could signal the start of a long collapse:

Gov. Alejandro Garcia Padilla announced that Puerto Rico’s government will not make a $420 million bond payment due Monday, after a failure to negotiate a legal or political solution to the U.S. territory’s public debt crisis.

Garcia said Sunday that he had issued an executive order suspending payments on debt owed by the island’s Government Development Bank, a default that will likely prompt lawsuits from creditors and could hurt future access to capital markets.

Island officials spent the weekend trying to negotiate a settlement that would have avoided the default but apparently came up short. The development comes as Congress has so far been unable to pass a debt restructuring bill for Puerto Rico.

“Let me be very clear, this was a painful decision,” Garcia said in a speech. “We would have preferred to have had a legal framework to restructure our debts in an orderly manner.”

The GDB has already been one center of controversy in the Puerto Rican debt crisis. Creditors had sued the bank to keep it from allowing withdrawals while it struggled to make payments. Those withdrawals kept government agencies operating, which is why Garcia Padilla drew the line on the debt crisis with the bank. He claims that any further payments would essentially shut down government services, a claim creditors say is overblown.

Who gets hurt? According to Bloomberg, the larger share of those holding Puerto Rico municipal funds are fixed-income investors — pensions, retirement trusts, and the like. Noting that this default applies to only one specific debt load and not the entire Puerto Rico debt, John Herrmann still calls this “the canary in the San Juan coal mine”:

Other analysts see the situation as more grim:

Puerto Rico owes investors about $70 billion in total and is reeling from 10 years of economic stagnation and population decline. The island began defaulting on debt in August, but there have so far been no defaults by the GDB, which provides liquidity to Puerto Rico’s government agencies.

A GDB default could escalate Puerto Rico’s crisis because the GDB plays such an essential role in keeping cash flowing on the island, said Matt Fabian, a partner at Municipal Market Analytics.

“This is where Puerto Rico’s unwinding begins,” he said in an interview Sunday night. “This is the beginning of the real crisis.”

The GDB reached an agreement late Friday with Puerto Rico’s state-chartered credit unions to exchange $33 million worth of debt due Monday for $33 million of debt due a year from now. The other $389 million is still due Monday.

Congress has been working on a law that will give Puerto Rico some room to restructure without tying taxpayers in the US to its debt woes. This crisis will likely accelerate the migration from Puerto Rico in to the US proper, a relatively easy transition as those born in Puerto Rico are already US citizens. That will put pressure on Florida especially, where the largest ex-pat communities already exist — and that means it puts pressure on presidential elections. Speaker Paul Ryan has been struggling to find a majority in the House that will approve of such an action, but another $780 million payment due on July 1, this time on the island’s general-obligation bonds– which its constitution requires it to make. That looks like a hard deadline to contain the damage, as the Washington Post reports:

Congress has focused on a July 1 deadline, when the commonwealth and its agencies are likely to default on another $2 billion of principal and interest, including $800 million for general obligation bonds, generally the safest.

“Most people think July 1 is atomic bomb day,” said Sergio Marxuach, public policy director of the Center for a New Economy in Puerto Rico. “May 1 is still significant.”

Ryan’s proposal shields US taxpayers from the crisis, but opponents accuse Ryan of crafting a bailout:

Meanwhile, the impasse on Capitol Hill has come down to one politically loaded word — “bailout.” Opponents of the current House draft of a rescue plan, which could ultimately give a judge the power to reduce the island’s $72 billion in public debt, are trying to lump it in with the bank, insurance and auto industry rescues during the 2008-2009 economic crisis.

Leaders of both parties who have tried to forge a consensus in Congress have bristled at the characterization, noting that the draft legislation does not authorize any taxpayer dollars for the island.

Rep. Rob Bishop (R-Utah), chairman of the House Natural Resources Committee, which is crafting the bill, called the use of the word “cynical and disingenuous.”

“For me, I think to any human being, ‘bailout’ means you’re going to get money to solve your problem,” he said. But Puerto Rico is not getting any money as part of the deal, he said. “So to say it’s a bailout, it’s obviously not just a stretch of the meaning of the word, there has to [be] an ulterior motive.”

This is the kind of panic that happens when the ship begins to sink. If people want to rearrange deck chairs, it’s their prerogative, but a general default in Puerto Rico will end up sending lots of economic refugees to the US — which will end up being a bailout of another kind. Access to restructuring with an oversight board on future spending decisions might not be the most elegant solution, but it has the chance of being the least costly to US taxpayers.