How Did Puerto Rico Get Here?

Today, Puerto Rico is expected to default on its debts again. How did this happen?

The territory’s government has to take responsibility for borrowing more than they could afford, and spending more than they had. But this could never have happened in Mississippi, simply because Mississippi is a state.

“There is no question that status is vitally important,” said Antonio Weiss, earlier in the discussions that led to the passage of PROMESA. “I mean, why are we proposing that restructuring authorities, and EITC, and fair Medicaid treatment be provided to Puerto Rico? Well, as a territory, Puerto Rico’s status does not afford it adequate tools in those three areas… [O]ver a long period of time, status has contributed to this crisis.”

How has Puerto Rico’s status led to its crisis?

  • Puerto Rico gets less support from the federal government than the states. For example, Oregon gets $5 billion from the federal government every year for Medicaid. Puerto Rico, which has about the same population numbers as Oregon, gets about $1 billion. Puerto Rico has to come up with that $4 billion to provide healthcare for its people. $4 billion each year over a period of many years adds up. Add in the other differences in support, and you’re looking at real money.
  • Puerto Rico is excluded from anti-poverty programs that encourage work, like the Earned Income Tax Credit. Unemployment is rampant on the Island, and programs like these would bring more money into Puerto Rico for families and for government obligations.
  • Instead of equal treatment, Puerto Rico got special things like triple tax exempt bonds. While this and other special tax tricks made it easy for Puerto Rico to amass debt, it did nothing for the economy of Puerto Rico. Huge amounts of money left the Island for debt service, rather than staying in Puerto Rico to provide essential services and create jobs.  The same is true of other “special deals” — these deals brought money into corporate coffers, instead of bringing jobs to Puerto Rico.

It may be tempting to make Puerto Rico the villain in the piece. Plenty of news sources have run articles with headlines like “Puerto Rico’s Liberal Mismanagement Should Not Be Rewarded by Congress” or “Puerto Rico’s Debt Crisis: We can’t reward fiscal failure with a bailout.” The implication is that putting a fiscal oversight board in charge of Puerto Rico’s finances is a reward or even a bailout. Nothing could be further from the truth.

Puerto Rico has been a territory for far too long. As a state, Puerto Rico would have more federal support. It would have equal access to the tools states use to manage their finances. It would have the voice in political decisions that it should have as part of American democracy.

Puerto Rico should be a state. This is the only way that Puerto Rico, home to 3.5 million U.S. citizens, will have equality with the 50 states. It shouldn’t have to wait until the problems caused by territorial status have been solved. It shouldn’t have be “rewarded” or punished. Puerto Rico voted for statehood, and Congress should take action to move toward that status as quickly as possible.  Tell your representatives so.

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