Waking up to the crisis in Puerto Rico
Puerto Rico is entering its ninth year of deep recession, which presents the people with the injustices of sky-high unemployment, anemic labor force participation rates and mounting (crushing) public debt. Our response to the crisis, which impacts 3.5 million U.S. citizens, has been a collective shrug.
Puerto Rico recently entered the public consciousness when a winning Powerball ticket was sold there. Suddenly, the Internet was buzzing with controversy over whether the winner will pay federal taxes on the windfall. While the general public may be waking up to the notion that one can make money in Puerto Rico without paying federal taxes, municipal bond buyers have known this for quite a while. When the island’s government and power company issued bonds to fund operations, debt buyers took advantage of the tax-free bonds and interest. The debt is now a whopping $70 billion plus and the island is in crisis mode.
Under current law, Puerto Rico’s public agencies and instrumentalities cannot seek U.S. bankruptcy protection. This limits the options for an orderly debt solution. With its hand being forced, the Puerto Rico legislature passed a law last summer designed to allow the power company to seek the protection of a special Commonwealth court to restructure debt. However, in an opinion dated February 6, the “Recovery Act” was invalidated by the United States District Court for the District of Puerto Rico. The Court held that federal law preempted the legislature’s attempt to create a local bankruptcy-type law. The Court of Appeals for the First Circuit will review the decision but the Act, preempted or not, is not a panacea.
The island’s unemployment rate is improving but at end of 2014 it stood at 13.7 percent. That is more than twice the rate of most states. In comparison, Mississippi’s unemployment was the state high mark at 7.2 percent and the District of Columbia came in at 7.3 percent. Even more disconcerting is the percentage of island’s population that is participating in the economy. According to the Bureau of Labor Statistics, only 35.2 percent of Puerto Ricans aged 16 and older were employed in 2013 — the most recent year for which statistics were readily available. Across the United States, the employment participation rate for the same age group was 58.6 percent. Many residents have made the self-preserving decision to leave the island.
Similar to many locales across the globe, when the going got tough, the calls for austerity measures were loud and issued by those with economic clout. The two most recent governors dutifully instituted austerity – lowering government spending and eliminating government jobs amongst other things. Yet, the economy still sputters and the exodus has continued.
I understand that writing about Puerto Rico’s ongoing economic calamity is fraught with some peril. The island’s politics are complicated and wrapped up in the debate over whether the island’s territorial status should be modified and what type of change might be implemented – statehood, independence or something in between.
The reason I write anyway is simple. I fell in love with the island as a child and have now passed along that love to my children. Our home is filled with colorful paintings of the old city, plastic coqui frogs and photographs of my family in El Morro, the Spanish-built garrison at the point of San Juan Harbor.
With that background in mind, I urge our representatives in Washington, DC to respond with vigor, if we truly value our relationship with Puerto Rico. The people of Puerto Rico (our fellow citizens) need assistance and those 3.5 million people must be considered crucial stakeholders in the future of the island and the fiscal policies.
Some inside the beltway are paying attention. The island’s Resident Commissioner, Pedro Pierluisi, a non-voting representative to Congress, ensured some measure of awareness when he recently re-introduced a bill that would extend the chapter 9 municipal bankruptcy option to Puerto Rico’s public agencies. Pierluisi’s bill should provide an opening to expand the conversation to ways that promote long-term job growth and expansion of the tax base.
Moral indignation at public debts should give way to discussion of effective spending (with proper oversight) to create employment opportunities and put money in the pockets of the people. Our leaders must embrace that change is needed and be bold. Think of ways to incubate small businesses and encourage investment in education and children and young people. There are many initiatives that could bear fruit. Neglect is not one of them. It is time to get off the sidelines and do something.
Matt Vocci is a Temple Law School alum and an attorney in Baltimore.