Strong economic growth is Puerto Rico's only hope

Strong economic growth is Puerto Rico's only hope
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The tragic images coming from Puerto Rico, America’s largest U.S. territory, illustrate the sheer magnitude of the devastation from Hurricane Maria that continues to inflict human suffering and physical damage almost beyond imagination.

Tens of thousands of families have lost their homes and almost 3.5 million U.S. citizens are without water, electricity, telephone service and even food. Damage to the electric system alone has prompted predictions from federal and island officials that it will take many months — and maybe a year — to fully restore electric service across the Island.

In the coming days and weeks, Congress and the Trump administration will decide funding levels to address the short-term needs for disaster assistance and the longer-term reconstruction of critical infrastructure. The amounts to be allocated to Puerto Rico’s recovery are already under serious debate. While billions are needed, some are suggesting that this amount should be constrained to the maximum extent practicable. 

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As we debate this question, it might be extremely useful to note that, since 2001, American taxpayers have spent more than $160 billion to rebuild Iraq and Afghanistan. It seems very fair to ask whether Puerto Rico and its 3.5 million U.S. citizens are a lesser priority than the peoples of Iraq and Afghanistan.

 

Puerto Rico, in its capacity as a U.S. territory, has had its economy subject to federal policy since World War I. For nearly 90 years, U.S. tax policy incentivized manufacturing companies to place their factories on the island. Since the end of these incentives in the 1990s, Puerto Rico’s economy has been hit hard, contracting almost 16 percent and leading to the emigration of more than 500,000 citizens from the Island. Despite the economic shrinkage, manufacturing by U.S. companies still comprises nearly half of Puerto Rico’s GDP.

The devastation caused by Maria, especially to the electric infrastructure, will make this activity difficult to sustain. Many more companies and many people are likely to leave the island for good.

One way for Congress to prevent this tragedy is to give priority to stabilizing Puerto Rico’s health care system by preventing the impending “Medicaid Cliff,” created by the Affordable Care Act, in the hurricane relief package. Without a change, the Medicaid cliff created by the ACA will cost the island 80 percent of its federal Medicaid funding as early as February 2018 — just four months from now. Without quality health care, it will be even more difficult to recruit and retain employees, especially those with families.

As mentioned earlier, Puerto Rico’s government-run power utility, PREPA, has suffered terrible damage. Congress can also act to ensure that the electric monopoly (responsible for charging the highest rates in the U.S.) is replaced by a modern electrical sector utilizing renewables provided by independent generators and promoting competition to keep costs down. Given PREPA’s history, it is also clear that private companies can be up and running much faster than the government’s utility.

Tax reform can also contribute to ensuring that Puerto Rico’s manufacturing sector remains viable by creating a competitive differential against foreign competitors in the region. Let’s not forget that Congress created a special enterprise zone for the District of Columbia back in the 1990s as a key component of its strategy to bring D.C. back from the brink of financial collapse. The results of that strategy are very evident today, as we see many thousands of new residents moving into D.C. each year.

Economic growth will be the only true long-term solution to Puerto Rico’s challenges. The sooner these important steps are taken, the better for the island and for all Americans. 

Former U.S. Rep. Jerry Weller (R-Ill.) now serves as an advisor to the Private Sector Coalition of Puerto Rico and is a founder of NWG Public Affairs, a Washington-based lobbying group.