Hurricane relief in times of austerity

The 2017 hurricane season is proving to be brutal for Puerto Rico. This week, Hurricane Maria, a category 3 storm, is boring down on the island, which was sideswiped by Hurricane Irma last week.

Although Puerto Rico avoided the worst of Irma’s wrath, it crushed the island’s electricity grid, already weak from lack of maintenance. In some areas it will need to be rebuilt from scratch. On top of that, property damage is estimated to cost $600 million—nearly one percentage point of GNP. The grid’s collapse should be a warning sign of Puerto Rico’s lack of resilience in the face of natural or man-made disasters.

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Right now, Puerto Rico needs to rebuild and significantly upgrade its infrastructure not only to fix some long-neglected problems, but also to boost construction and create hundreds of good jobs. But that’s not possible because of the law Congress passed in 2016 that restricts how much money the government can spend, and what it can be spent on.

After a decade of a recession, a short-term economic stimulus would be a welcome jolt to the economy. Unfortunately, the Puerto Rican government cannot finance this effort because it is currently shutout from the capital markets. Moreover, the enactment of the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) in 2016 complicates these recovery efforts. PROMESA imposed a Fiscal Oversight Board over Puerto Rico’s elected government and it has broad power over the island’s fiscal and economic policies.

The Fiscal Oversight Board also has approved both a 10-year fiscal plan and a 2018 budget that impose significant austerity measures on an already weakened Puerto Rican economy. It is likely that implementing these measures will be further contract Puerto Rico’s economy leading to a vicious cycle of economic contraction. Unemployment and poverty will increase; more people will leave; the tax base will shrink; and there will be calls for more cuts in government services. That, in turn, will lead to an even lower quality of life and living standards and result in yet more “push” migration to the mainland. 

What Puerto Rico needs is a strong economic stimulus, not the austerity program imposed by the Fiscal Oversight Board.

In short, Puerto Rico is paralyzed. The board ordered the island’s government to implement large spending cuts and tax increases without providing access to any short-term financing. Puerto Rico, due to its political status, cannot devalue its currency to boost exports nor seek financing from multilateral institutions.

The U.S. Congress can step up and implement a comprehensive short-term economic recovery program for Puerto Rico to remedy this absurd situation. This program could include treating Puerto Rico fairly and equitably in any tax reform and infrastructure proposals made by the Trump administration; increasing Federal procurement spending; augmenting the SBA’s presence and activity in Puerto Rico; providing Department of Energy technical assistance to the Puerto Rico Electric Power Authority (“PREPA”); promoting the effective use of Workforce Development Programs; and granting a partial exemption from the Jones Act.

In addition to short-term growth Congress could address Puerto Rico’s untenable health care situation. The cost of the Puerto Rico Government Health Plan is one of the principal drivers of Puerto Rico’s budget deficit. Yet, federal funding for Medicaid in Puerto Rico is arbitrarily capped. Furthermore, while Puerto Rican workers and employers pay the same payroll taxes as workers and employers in the mainland, federal law unfairly rations Medicare reimbursements to Puerto Rican medical service providers.

Moreover, the island faces the potential adverse consequences of the repeal and replacement of the Affordable Care Act, as well as other proposed changes to the funding for the CHIP, Medicaid and Medicare programs. Over half a million beneficiaries could lose their access to Puerto Rico’s public health insurance program. Providing Puerto Rico equal treatment in these Federal programs would grant the Commonwealth much-needed fiscal space and address a long-standing injustice inflicted on Puerto Ricans.

Finally, Congress cannot continue to ignore the fact that Puerto Rico has reached the limits of its development within the multiple constraints imposed by its subordinate political status, which is both humiliating to Puerto Ricans and unworthy of the United States.

The time has come for Congress to finally assume its full share of the responsibility for Puerto Rico’s 3.4 million U.S. citizens.

Sergio M. Marxuach is the Policy Director for the Center for a New Economy.