With Ohio hosting the GOP convention, first presidential debate and a key U.S. Senate race, residents have little reason to care about faraway Puerto Rico. But Ohioans, and all Americans, should, as the small island could have a big impact on their state and country.

Puerto Rico has a huge debt problem. The U.S. territory has amassed around $72 billion in liabilities, more than 100 percent of its gross national product — and that does not even include its pension obligations.


Any hope of paying that debt back has steadily faded due to a heavily regulated economy unable to offer sufficient opportunity to its residents, who, in recent years, have been fleeing Puerto Rico. Since 2005, over 340,000 people have left the island of fewer than 4 million. Of those remaining, the unemployment rate is over 12 percent and the labor force participation rate is more than 20 percentage points below the U.S. average.

Rather than deal with the root cause of the problem — out-of-control spending by its government — Puerto Rico is turning to the U.S. government as a savior.

On June 9, the U.S. House of Representatives passed what is effectively, though not technically, a bailout. It's likely the U.S. Senate will act on the Puerto Rico Oversight, Management and Economic Stability Act, or PROMESA, next week.

Unfortunately, the House's policy proposal does too little to kick-start Puerto Rico's economy, which is the real long-term solution to getting its debt under some control. Rather, it changes the rules of the game when dealing with government debt, which will undoubtedly have spillover effects in the United States.

In recent years, numerous U.S. cities have gone bankrupt, with Detroit being the most publicized. Meanwhile, cities like Chicago continue a deep slide toward insolvency with no end in sight. More broadly, the market value of unfunded pension debt of state and local governments tops $3 trillion, for which few have proposed any realistic pathways to fully closing that yawning chasm.

If a governmental entity that is not even a state can get a special deal, why shouldn't states in the U.S. get at least as good of a deal? No doubt those unable to control their spending, such as Illinois, will see this as a green light to do exactly that. Once the genie is out of the bottle, it will prove next to impossible to put it back.

As this happens, the most likely scenarios are that investors will demand higher interest rates on government debt to remain willing to buy such instruments. In turn, this will mean less taxpayer dollars being spent on core government needs and more being spent to pay debt. So either taxes rise or services get cut.

And speaking of investors, PROMESA also blocks litigation by Puerto Rico bondholders, eliminating their right to legal remedy should the government default on its payments. PROMESA allows Puerto Rico to prioritize payments for its underfunded pensions before its bondholders, leaving those who invested, likely including some retirees, out to dry.

Although there are salutary attempts in PROMESA to create greater fiscal accountability in Puerto Rico, the measure as it stands risks setting a precedent for putting Ohioans, and other U.S. taxpayers, on the hook for solving future problems not of their making. It also undermines the basic security of government bonds and opens the floodgates for other bailouts across the country.

With the national spotlight on the Buckeye State in the coming months, Ohioans are in a special position to sound an alarm on this precedent-setting quasi-bailout. Otherwise, should Puerto Rico's irresponsibility be rewarded by the U.S. government, they and other Americans eventually could pay.

Lawson is a senior policy analyst at the Buckeye Institute for Public Policy Solutions.