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Puerto Rico Votes For Statehood in Non-Binding Referendum

23% of Puerto Ricans voted today for a statehood referendum, and 97% of them cast a vote in favor of it. 1.5% percent voted for independence from the United States, according to Decision Desk HQ, while 1.3%  voted to keep the current status of a territory of the United States.

The catalyst for this vote for statehood — the first one since 2012 — was the declaration of a form of bankruptcy in early May.  Many did not vote because the vote actually did nothing. Congress would still have to formally agree to statehood, which is highly unlikely due to its crippling debt.

Last month, Puerto Rico sought financial relief in federal court, “the first time in history that an American state or territory had taken the extraordinary measure. The action sent Puerto Rico, whose approximately $123 billion in debt and pension obligations far exceeds the $18 billion bankruptcy filed by Detroit in 2013, to uncharted ground.”

I have written numerous times on Puerto Rico in the past due to business there over the years. My take has always been about reduction; reducing the size and scope of government is a major key part of getting Puerto Rico back on track.

Puerto Rico’s debt crisis is the result of years of government mismanagement. Dozens of agencies and publicly owned corporations have run deficits year after year, making up the difference by borrowing from bond markets, though there was a brief respite during the year of Governor Fortuño. Puerto Ricans must have to first experience tough reforms and cutbacks help Puerto Rico thrive once again.

An Open Letter to Speaker Ryan About Puerto Rico

Dear Speaker Ryan,

I write to you today to ask about why the Jones Act amendment proposed by Rep. Gary Palmer and the reasonable minimum wage exceptions were left out of the Puerto Rican assistance act (PROMESA). If the purpose of the fiscal rescue bill was to aid the Puerto Ricans suffering from a fledgling economy and corrupt government, these two items would have greatly helped the Puerto Rican people.

The Jones Act, as you know, requires that all cargo shipped between U.S. ports be carried by U.S.-built, U.S.-crewed, U.S.-owned ships. The J0nes Act puts an unnecessary burden on our U.S territories; exempting Puerto Rico from this provision would have provided a much-needed burst of commerce and lower the cost of living. As it is now, the Jones Act limits international competition for competition for imports and creates higher taxes on basic necessities such as energy and food. This recent article in the National Interest, which covers the history and impact of the Jones Act, is a must-read.

In a similar way, allowing Puerto Rico to be exempted from federal minimum wage requirements would give businesses a chance to compete without artificial wage impediments. How can it be acceptable to deny the Puerto Rican people this tool to help aid recovery, when it once allowed American Samoa to be exempted as a favor to Nancy Pelosi because of her constituent operations there? When the favor was discovered and the exemption rescinded, the damage to the American Samoa people had already been done; the amount of subsequent layoffs and hiring freezes prompted delays in phasing in the minimum wage requirements in 2010, 2012, and most recently in 2015. Why in the world would not then make a minimum wage exemption for the Puerto Rico in order to help spur more rapid job creation and economic growth?

This would be the right time for Congress to enact stand alone law exemption US territories for laws such as the Jones Act and federal minimum wage. In that way, our territories can not only manage to survive, but actually thrive.

Obama Pitches a Bailout-type Plan for Puerto Rico


I have written numerous times in the past few months of the fiscal distress in Puerto Rico. I have discussed how Puerto Rico’s debt crisis is the result of years of government mismanagement, and a major key to getting Puerto Rico back on track is to reduce the size and scope of government.

Now, President Obama is calling on Congress to directly aid Puerto Rico, with a plan that is very near a bailout. I’m reprinting the NYTimes article in full below, so to keep the details about the plan intact. I will write my analysis in a separate article.
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“Looking for a way to help debt-ridden Puerto Rico, administration officials on Wednesday proposed an ambitious — if politically perilous — plan that stops short of a direct federal bailout but that its backers hope is sweeping enough to keep the island from becoming America’s Greece.

The plan would create a new territorial bankruptcy regime and impose new fiscal oversight on Puerto Rico, which is mired in the depths of a decade-long recession, running out of cash and struggling to make payments on $72 billion of debt. It represents an urgent bid by President Obama to offer a way forward. But it requires cooperation from a Republican-led Congress bent on imposing spending restraint.

In describing the package on Wednesday, administration officials emphasized that they had exhausted the limits of their own authority to help Puerto Rico, and needed quick action by Congress to avoid a catastrophe.

“Administrative actions cannot solve the crisis,” Jacob J. Lew, the Treasury secretary, said in a joint statement with Jeffrey D. Zients, the National Economic Council director, and Sylvia Mathews Burwell, the health and human services secretary.

“Only Congress has the authority to provide Puerto Rico with the necessary tools to address its near-term challenges and promote long-term growth,” the statement said.

The situation in Puerto Rico “risks turning into a humanitarian crisis as early as this winter,” one senior administration official said, speaking on condition of anonymity because the person was not authorized to speak publicly. Antonio Weiss, Mr. Lew’s counselor, will explain the administration’s plan in Capitol Hill testimony on Thursday.

The Puerto Rican government has already “done a lot” to restore fiscal order, the official added, but “Puerto Rico cannot do it on its own, and the United States government has a responsibility to 3.5 million Americans living in Puerto Rico” to step in with additional help.

The plan was shared late Wednesday with The New York Times and Agencia EFE, a news organization in Puerto Rico. On the same day, the island’s Government Development Bank said it had ended weeks of fruitless negotiations with certain creditors, aimed at persuading them to voluntarily accept lower bond payments. The bank has a bond payment of about $300 million coming due on Dec. 1.

Virtually all of the administration’s proposed plan would have to be refined and approved by Congress. It would create a special territorial bankruptcy regime — something that does not now exist — to give Puerto Rico a place to restructure all of its $72 billion in debt, which it says it cannot hope to repay.

The new regime could ultimately be a new chapter of the bankruptcy code, available only to Puerto Rico and other American territories. A senior administration official said the specifics would be left up to Congress.

In a nod to Republicans in Congress, who have resisted even limited bankruptcy access for Puerto Rico, the administration also proposes to establish an independent body to monitor the island’s fiscal affairs. Its role would be to improve Puerto Rico’s credibility by policing the imposition of structural economic reforms; it would also demand better financial disclosures.

Officials said the oversight body might resemble one that Congress established for the District of Columbia in the 1990s.

At the same time, the package would seek to bring Puerto Rico, where unemployment tops 12 percent and 46 percent of citizens qualify for Medicaid, the federal health program for the poor, into parity with the federal health programs and tax credits available in the states.

The proposal calls for a Medicaid overhaul in Puerto Rico that would expand coverage and access to important services in the short term, and eventually remove a cap that currently applies to the island’s Medicaid program. The effect would be more federal dollars for the Medicaid program in Puerto Rico. Administration officials also said they believed Puerto Rico’s health care facilities needed to be brought up to standards on the mainland.

The administration is also proposing to extend the earned-income tax credit, a refundable credit for the working poor that is payable even to people who earn too little to owe income tax. It is not currently available in Puerto Rico.

Officials said that extending that type of tax credit would help increase the labor participation rate on the island, now a paltry 40 percent, the lowest in the United States and its territories. A fact sheet compiled by the administration said it would provide an “added incentive for formal participation in Puerto Rico’s economy.”

The tax credit, invented by conservative economists, already enjoys some degree of bipartisan backing. Administration officials who detailed the proposal offered no estimate of the cost of extending it to Puerto Rico, nor did they have a cost projection for the Medicaid expansion.

The legislative proposal will be presented on Thursday to the Senate Committee on Energy and Natural Resources, which has jurisdiction over all of America’s territories. It is led by Senator Lisa Murkowski, Republican of Alaska, which was itself a territory until 1959, when it became the 49th state.

Puerto Rico is now barred from seeking any form of relief under Chapter 9, the type of bankruptcy that municipal governments use. The administration’s proposal for a territorial bankruptcy regime represents a bolder approach than the bankruptcy bills that Congress has considered since the island’s debt crisis began.

Federal law allows for cities, counties, special districts and the like to seek bankruptcy protection if their states agree, but the states themselves are excluded. There are concerns that if Puerto Rico gains access to bankruptcy, fiscally troubled states like Illinois might try to follow suit.

Puerto Rico’s creditors have been arguing that the island’s government has been portraying its financial situation as beyond repair, hoping to force the administration and Congress to give it access to Chapter 9 bankruptcy. The recent bankruptcies of distressed cities like Detroit showed them that bondholders can emerge with just pennies on the dollar, and they believe the same thing will happen if Puerto Rico is allowed to declare bankruptcy.

The legislation introduced so far would make bankruptcy relief available only to Puerto Rico’s municipalities and its government enterprises, not to the government itself. Even those limited bills have failed to gain support from Republican lawmakers.

There is some willingness, particularly among top Senate Republicans, to work out a compromise on the bankruptcy issue, according to a person briefed on the matter who was not authorized to speak publicly about it. But the Republican leadership appears willing only to grant Puerto Rico limited access to the bankruptcy courts and only with strings attached, like a federal “control board” to oversee the island’s finances.

Control boards have been used in cases of severe municipal distress to take the power to spend public money out of the hands of elected officials. They do not generally have the powers that bankruptcy judges do to abrogate contracts, such as labor contracts and promises to repay debt.

Both Democrats and Republicans are under pressure to respond to the Puerto Rico crisis. Largely because of the island’s economic problems, Puerto Ricans are flooding the mainland United States, particularly central Florida, and are becoming an increasingly important voting bloc in the 2016 presidential race.

In the hearing, Puerto Rico’s governor, Alejandro García Padilla, will offer his first congressional testimony since his announcement in June that Puerto Rico’s debt had become “unpayable” and he would seek a “negotiated moratorium” with its creditors. His most recent appearance was in 2013, when he accused advocates of statehood of skewing a 2011 plebiscite to make it appear that a majority wanted Puerto Rico to become a state.

“That is a great example of how you can lie with numbers,” he told the same Senate panel at the time.

Another scheduled witness is Pedro Pierluisi, Puerto Rico’s nonvoting member of Congress and the statehood advocate who designed the 2011 voting process that the governor disputed. Mr. Pierluisi introduced the House bill to to give very limited bankruptcy access to Puerto Rico. In September, he testified before the Senate Finance Committee, challenging the governor’s handling of the debt crisis and saying that general-obligation bonds “must be paid — period.” The third witness is to be Mr. Weiss, the special adviser to the Treasury Secretary.”

Puerto Rico Proves Liberal Policies Destroy the Economy

If a higher minimum wage, higher regulations, the Jones Act, and other protectionist rules are actively destroying Puerto Rico’s economy, how can those same policies not also be harming the United States? Can Puerto Rico be considered the experiment proving this?

On June 28th, Puerto Rico announced that it was unable to pay back the $72 billion in public debt that it owed, money that was borrowed repeatedly to bolster an anemic economy for the last decade. Puerto Rico’s GDP has contracted an average of 1.7% yearly since 2005. Much of that can be attributed to the repeal of the IRS Code 936 which had encouraged specific industries to headquarter on Puerto Rico. The subsequent loss of business has resulted in tepid revenue collection which has not been enough to cover the government’s social programs and bloated government payroll. You can read the Puerto Rican Debt Report here.
In order to help Puerto Rico back on a path to economic recovery, it is imperative that more systemic changes are needed. The Manhattan Institute outlined some major ideas, such as repealing the Jones Act. For a more in-depth discussion on the Jones Act in relation to Puerto Rico, check out their article. Other suggestions include “offering Puerto Rico an exemption to the federal minimum wage, loosening territorial labor laws, and reducing benefits that disincentivize work.”

These very policies have impeded the economy’s ability to grow and recover from the fiscal woes that began last decade. When minimum wage requirements are high relative to the local average, employers hire less workers. And when receiving benefits can be more generous and lucrative than working full-time, less people participate in the workforce.

These types of policies have been shown to be extremely detrimental to Puerto Rico, and yet our country continues to expand them here. We see the effects in our own sluggish recovery, yet the Obama Administration ignores it, and then deflects the blame elsewhere. Puerto Rico should be a wake-up call for the U.S., but it’ll likely be ignored too.