Why Puerto Rican Statehood Matters So Much Right Now

Six words: the ability to file for bankruptcy.

Alvin Baez / Reuters

If Ben Carson becomes president, he plans to add one more star to the American flag.

During a New Progressive Party rally in Puerto Rico, Carson said, “Mis hermanos Americanos, my campaign is built around the premise of ‘We the People,’ and through such lens, I view the statehood question in Puerto Rico as settled."

Carson isn’t the first, or only, Republican candidate to support granting statehood to Puerto Rico. Both Marco Rubio and Jeb Bush have previously voiced their support, likely in hopes that it will endear them to the growing numbers of Hispanic voters within the U.S.

As a commonwealth, the island of Puerto Rico exists somewhere between belonging and not. Puerto Ricans are U.S. citizens, but they’re exempt from paying federal taxes, and they are not allowed to vote in presidential elections.

But for Puerto Rico, full political integration at this precise moment is about more than voting. The most immediate and profound effects of being fully folded into the United States would be economic: specifically the ability to file for bankruptcy.

Earlier this year, the Government Development Bank reported that Puerto Rico’s economy was in much worse shape than previously thought. Governor Alejandro Garcia Padilla then announced that there was no way the country could pay its $72 billion of debt. Because of its in-between status, Puerto Rico’s agencies and cities are left without the ability to file Chapter 9 bankruptcy (entire states can’t file for bankruptcy), a strategy that has saved cities like Detroit from complete default and ensuing economic meltdown in recent years. The ability to file for Chapter 9 could lessen some of the economic turmoil Puerto Rico is going through now. Municipal bankruptcy allows cities and municipal services (like water or light utilities) to negotiate with creditors to write-down debt, lower interest rates, or extend repayment terms. That breathing room can allow cities to continue providing important services while they work on restructuring and repaying.

In addition to the ability to file for bankruptcy, many supporters hope that statehood could mean a significant boost for the island’s economy, which struggles with rampant unemployment and poverty. Puerto Rico has been steadily losing residents for years, as they move to the mainland in search of work and better opportunities. Even as the economy has continued shrinking, debt has grown, as the island borrowed heavily to finance everything from pensions to government services.

Statehood would also come with increases to safety-net services like disability benefits and broadened Medicaid funding. Such measures may bring more trouble than benefit: The federal minimum wage, for example, is far above prevailing basic wages on the island, and is often cited as a deterrent to entering the workforce at all. So while statehood might help the current debt debacle, it won’t solve the island’s economic woes.

But statehood isn’t the only path for Puerto Rico to cope with its debt mess. Congress could still vote to allow the island to have access to Chapter 9 protections, even without becoming the 51st state. It’s a plan that has been endorsed by both Jeb Bush and Hillary Clinton, but vehemently opposed in the House. Padilla has also asked for what is called “Super Chapter 9”—a bankruptcy that would allow Puerto Rico itself to discharge its debts, a hotly contested and unprecedented move.

According to the Government Development Bank, such a drastic move, be it Super 9 or something else, is the only thing that stands a chance at improving the island’s critical debt crisis. It faces a projected revenue gap of nearly $30 billion between 2016 and 2020. “Any debt restructuring would be challenging as there is no precedent of this scale and scope,” the organization found in a recent study. But even drastic measures meant to deal with the debt would only be a band-aid, buying time for the country to try to figure out what to do going forward.  Statehood or not, there won’t be an easy fix to the large, and far-reaching economic problems facing Puerto Rico.