A Commonwealth in Crisis
As Puerto Rico reaches another debt cliff, political dysfunction on the mainland spells disaster.
On Sunday, Puerto Rico will likely default again on some of its debts, which now total over $70 billion. The island will struggle to provide vital public services like water and electricity if it can provide them regularly at all. Its economy has not grown in over a decade, and there is a $28 billion gap in funding over the next five years alone. Over the next decade, many people will face very real consequences from the developing crisis, and as always, the pressure to emigrate to the continental United States remains high. For many, the situation is fight-or-flight.
No state has recently faced such dire straits as Puerto Rico, even during the Great Recession. But Puerto Rico is not a state. It is an entity that is often almost completely at the whim of Congress, the most dysfunctional body in national politics today. Congress has toyed with policy on the island for decades, leaving a confusing and contradictory set of legislation and precedents behind. Today, gridlock politics in Congress threaten to deny Puerto Rico the very tools it needs to fight its battle.
For much of the rest of the country, congressional deadlock is at worst an infuriating reality of the current partisan divide. It may be an enemy of progress, but not necessarily its sole determinant. The American economy has rebounded despite years of bitter fighting and sequesters and budget showdowns, and for most Americans, life has improved, despite a political environment that favors inaction and bluster. In Puerto Rico, however, the crisis will approach life-or-death if it is allowed to continue. Public hospitals and health-care facilities may close, exacerbating an ongoing crisis that already sees Puerto Rican patients receiving far worse health care than their mainland counterparts. Many of those who remain on the island after the mass exoduses of the past half-decade are the poorest, the sickest, and the oldest, and the island’s population and tax base are still plummeting. To add injury to injury, Puerto Rico has become the primary American front in the public-health fight against Zika, just as the health, economic, and social infrastructure needed to fight the virus are eroding.
Puerto Rico has few political mechanisms to solve its own problem, and the crisis is far beyond the reach of most of the tools that it does have. Raising taxes on a declining and impoverished tax base can’t close its massive deficit. Vague proposals to spur economic growth and industry seem unrealistic given the nature of the challenges ahead, and the island has lost many of the tax incentives that once made it such an attractive destination for business subsidiaries. Puerto Rico has attempted to solve its debt issues by granting itself bankruptcy powers under rules that grant service providers in the states the ability to seek relief, but that decision remains under Supreme Court review and has been opposed in no uncertain terms by the federal government. With even its power of self-determination under review, Puerto Rico has only one real option for assistance: Congress.
However, the existing plans in the House and the Senate seem designed to underwhelm, if they can even garner enough support to pass in the first place. Responding to public pressure from the popular playwright and actor Lin-Manuel Miranda, House Speaker Paul Ryan said that his plan would help the island. But it refuses to grant a bailout, instead offering a byzantine process to install an appointed financial-oversight board for Puerto Rico that could vote to allow it to restructure its debts and would control its finances. Essentially, the solution is soft colonialism by a new name. The plan also exempts Puerto Rican workers under 25 years old from the labor protections of a federally-mandated minimum wage and overtime regulation, with the goal of making Puerto Rico’s job market more competitive in comparison to its neighbors. This provision alone might make the legislation difficult to pass in Congress, and even if it is removed the plan is still very much at risk of falling victim to ordinary partisan obstructionism.
So far, a bailout or any real injection of funds into Puerto Rico has been deemed a non-starter, even though the territory has always been much poorer and in much worse financial straits than states. Even without any bailout provisions, the bill still stalled after being introduced in the GOP-led Natural Resources Committee by Republican Chairman Rob Bishop. Democrats have expressed reservations about the sweeping powers of the oversight board and its minimum wage provisions, but the real hold-up seems to be complex wrangling between the Republican leadership and multiple other constituencies, including the conservative Freedom Caucus and groups representing different bondholders. Some of the most conservative legislators see the bill as a path towards a bailout or oppose assistance to the territory in any terms. Representatives of those who hold the territory’s general obligation bonds oppose the bill as well, because it would allow Puerto Rico to restructure its debts and delay payment, as well as limit the ability of bondholders to sue if it defaults. The concerns of ordinary Puerto Ricans, by contrast, have largely been ignored.
Congress isn’t new to this debate; its past actions helped create the issues that have culminated in Puerto Rico’s current crisis. After the island was taken as a possession after the Spanish-American War, the Supreme Court decided in a series of “Insular Cases” that the totality of citizenship rights and state powers only applied to states and people living in so-called “incorporated territories,” which were retroactively defined as Alaska and Hawaii. Puerto Rico was left as an “unincorporated territory,” despite Congress establishing a formal independent government and constitution—actions which Puerto Rico’s highest court holds made it a de facto incorporated territory. That argument has gone unacknowledged by the Court, Congress, and the executive branch.
In the years since, the federal government has assigned and overridden territorial powers and burdens at whim. In 1984 Congress specifically carved Puerto Rico out from Chapter 9 municipal bankruptcy protections that it once had, offering no reason for singling out the territory. Also in 1996, Congress passed legislation to phase out Section 936 of the federal tax code, a law that exempted U.S. industries from taxes on income in Puerto Rico. With no replacement plan to promote development or growth, Puerto Rico’s economy suffered. Those two decisions have led almost directly to the current debt crisis.
Federal decisions have also eroded Puerto Rican finances and health care in other ways. Puerto Ricans have been required by Congress to pay Medicare payroll taxes like every other citizen, but Medicare spending has been cut in the island. Medicaid, the program that pays for much of the health care of poor and low-income people, has a cap at just 20 percent of true costs in Puerto Rico, an amount well below the national average and the rates set in the fifty states. The Medicaid underpayment deficit alone accounts for almost one-fifth of the current total deficit in the territory. A legislative medical-funding scheme could both help right the financial ship in Puerto Rico and help its crippled health-care system face the siege of Zika.
Congress, in essence, has kept from Puerto Rico the privileges of self-determination afforded to states, while refusing to use its expansive authority in the territory to lift its population up to the economic and medical standards enjoyed by those on the mainland. This is a political limbo. On the one hand, Puerto Rico clearly does not have the tools to handle its own affairs and Congress and the courts have been loathe to grant it additional powers of sovereignty. On the other, Congress keeps a hard line of minimal intervention and minimal support. As an end result, Puerto Ricans get a controlling power that dominates not through direct, overbearing intervention, but through its conspicuous absence.
Granted, the government of Puerto Rico is not blameless in this saga. Its public-services monopolies are extraordinarily inefficient; the territorial government has not been good with spending, budgeting, or long-term fiscal planning; and the two major parties––for statehood and the status quo––have supported some congressional reforms with the goal of forcing the other side’s hand, instead of promoting good governance. However, the federal government still has a certain responsibility to its citizens, regardless of the actions of their home state or territory. Whether this responsibility is taken seriously with respect to Puerto Rico will reveal whether the United States has truly moved on from its colonialist past.
As it currently stands, without swift federal intervention Puerto Rico will be left as a floundering, sinking no-man’s land, instead of a thriving home to millions of proud Americans. Congress’s dysfunctions might run so deep that they keep it from even addressing a humanitarian crisis in the country, a total failure of the body’s special duty towards Puerto Rico. Congress’s current plan might provide short-term relief, but it is a bit of a Hobson’s choice. The bill on the table could still further entrench a colonialist solution––less and less territorial oversight over finances––and may not even entirely fix the problem. But Puerto Ricans are at the mercy of Congress in finding some solution. Even if statehood is not the final answer, the people living in Puerto Rico deserve the same helping hand that would be given to the people of any state.