Courtesy of Tribune News Service

Column: Puerto Rico still needs our help

The power is finally back on in Puerto Rico – well, sort of. 11 months after Hurricanes Irma and Maria struck the island and knocked out power to the majority of its residents and killed roughly 1,400 American citizens, power has been restored to the last customers of PREPA, Puerto Rico’s government run power company. 

However, many of Puerto Rico’s problems are still around and, if anything, have only been exacerbated by both the hurricanes and U.S. government policy. The island, an unincorporated territory of the U.S., is still tens of billions of dollars in debt, is still facing an infrastructure crisis and still has no concrete plan on how to get out of this mess.

Things might be changing, however. In July, Senate Democrats Bernie Sanders and Elizabeth Warren introduced legislation that would effectively wipe out a large part of Puerto Rico’s debt through intervention by the U.S. government. This would give Puerto Rico more flexibility in addressing a variety of crises within its jurisdiction and, simultaneously, would help investors (including many Puerto Ricans) whose money is tied up in the nation’s debt. While nobody wants to foot the bill, nearly everybody is in agreement the Puerto Rician government is unable to handle it on their own.

But this only fixes one part of the larger problem. Even with this government intervention, Puerto Rico is still going to struggle. It will still have debts it’s unable to pay, infrastructure it can’t afford to update or replace, an economy still in decline and a standard of living far below that of the mainland. Frankly, this intervention, while a welcome development, is merely a stopgap solution. Puerto Ricans are American citizens (something 51 percent of Americans didn’t know) and they deserve better. 

But what is better and how do we get there?

For a start, we have to know how things got this bad in the first place. Puerto Rico’s economic situation hasn’t always been that atrocious. Investment in the island was massive during the last century, in part due to its tax-exempt status on government bonds and a constitutional obligation for the Puerto Rican government to guarantee all these bonds.

In short, buying Puerto Rican debt became a great way to make a buck. You wouldn’t pay federal taxes on it and the government would be obligated to pay out the entirety of the debt. However, this combination was a time bomb. In 1996, the U.S. government eliminated Puerto Rico’s tax break and it fell into a recession in 2006. Both of these factors, in other circumstances, might have encouraged the state to slow down its spending, to raise taxes and to stop issuing as much debt as revenues fell. This didn’t happen.

You see, these bonds were extremely profitable for banks, who made massive amounts of money in fees and went out of their way to encourage Puerto Rico to continue issuing them in higher and higher numbers. This may have been fine if the economy recovered, but, as the years went by, it didn’t. Government debt ballooned as the island decided to pay the bills coming due with even more bonds. 

This was much like taking out a payday loan to cover your rent. It covered your rent and now you have to pay the bill. But instead of paying the bill, you took out another loan to cover the first one and another to cover that one and so on and so forth. However, given that all bills come due at some point, Puerto Rico was in a precarious position. Eventually, banks would want their money and Puerto Rico would be unable to pay. 

In 2013, that nightmare became a reality. Bond prices collapsed, and Puerto Rico was between a rock and a hard place. That didn’t stop the government and the banks from making one last bond deal, which collapsed when Puerto Rico announced it was unable to pay its debts. As a result, Puerto Rico was forced to shut down desperately needed infrastructure projects, hospitals and government programs in an attempt to pay its debts, which, if you remember, was required by its constitution.

Now, if Puerto Rico was just another state, it could’ve declared bankruptcy much, much earlier. However, federal law barred Puerto Rico and other unincorporated U.S. territories from declaring bankruptcy. While this was augmented in 2016 with the introduction of Promesa (the government’s plan for helping Puerto Rico), Puerto Rico still can’t declare bankruptcy and only has some protection from its creditors.

Under Promesa, Puerto Rico is at the mercy of the federal government in dealing with its debt crisis. This puts Puerto Rico in a precarious position – unable to pay its debts, unable to just eliminate them and unable to deal with the growing list of problems with its infrastructure, healthcare and standard of living.

That’s where we are today, a hurricane ravaged island rapidly collapsing around itself and a federal government unwilling to make moves to really improve the situation. 

Even if Sanders and Warren’s plan for helping Puerto Rico out of some of its debt comes to pass, the island still needs far more than that. The cost of repairing the power system alone was nearly $4 billion and, for the island to fully recover, the Puerto Rican government estimates it will cost an additional $139 billion. This, on top of its existing debt of $73 billion, puts Puerto Rico so insanely far in the red that it may never fully recover. To add to that, hurricane season has already begun, raising fears that another storm could wipe out recovery efforts. That is, unless we take immediate and substantial action.

First things first, Puerto Rico’s debt should not be a factor in fixing and improving its infrastructure. Currently, the island is receiving support to fix what’s broken, but this won’t be sufficient help against future storms. Given that climate change is going to make hurricanes and tropical storms more frequent and drastically more powerful in the coming decades, maintaining the status quo will only result in recurrent costs to fix what’s broken. 

The government must, for the sake of the American citizens inhabiting the island, take steps to increase infrastructure investment and development in Puerto Rico. This includes modernizing existing infrastructure to harden it against more powerful storms in the future. 

At the same time, other efforts should be made to lessen Puerto Rico’s reliance on oil to keep the lights on. The majority of Puerto Rico’s electricity comes from powerplants that burn oil. Given that fluctuations in the oil market are a major contributing factor in the high cost of electricity in the territory, updates to a more sustainable energy grid could lower costs for everyone on the island. Furthermore, the government should take on this task regardless of Puerto Rico’s debt obligations – they can’t afford it after all.

Another problem that Puerto Rico is faced with that we can do something about is its cost of living. The cost of living in Puerto Rico is much higher than on the mainland. At the same time, Puerto Rican average incomes fall far below that of their mainland counterparts and many more people live in poverty. 

The answer to this is two-fold. Grant Puerto Rico an indefinite Jones Act waiver and restore Puerto Rico’s tax break. The Jones Act requires that all internal shipping of goods within the U.S. be done by U.S. shipping companies. Given that this gives U.S. shipping companies a captive market, the cost of goods imported is much higher than if the prices were decided by a free market. This free market solution should help lessen the artificially high costs of living in the territory. 

The next step, a tax break, could serve to reinvigorate the economy. Before the original tax break was removed in the 90’s, Puerto Rico was a haven for various industries, especially pharmaceutical manufacturers, who saw the obvious advantage of remaining in America while simultaneously while paying very little in taxes. 

These companies brought a ton of money, investment and jobs into Puerto Rico, bolstering its economy. After all, while federal taxes were waived, taxes imposed by Puerto Rico itself remained in place, allowing the territory to collect substantial taxes. If we restored this tax break, jobs and investment would be enticed to return to Puerto Rico – improving its economy, tax revenues and cost of living.

Puerto Rico needs our help; American citizens need our help. If this was anywhere else in the U.S., I guarantee that something would’ve been done long ago. Even Flint, it seems, received more help, more media attention and more concern from our federal government than has Puerto Rico. 

These are American citizens who are languishing in conditions that would be unrecognizable, unacceptable and wholly abhorrent in the mainland U.S., and it really doesn’t seem like our government gives a damn. President Trump himself has said that government aid response cannot stay in Puerto Rico “forever” and has placed the blame for the crisis on the Puerto Rican government. 

Of course, both of these things hold some truth, but he has made no significant efforts to alleviate the problems that have caused the need for aid and the financial crisis to continue. Perhaps even worse, he hasn’t done anything to prevent a similar crisis from occurring in the future. Congress doesn’t seem to care either, with few willing to bite the bullet and save lives. 

Puerto Rico and Americans, it seems, will suffer until the federal government learns to care. 

Comments powered by Disqus

Please note All comments are eligible for publication in The Daily Gamecock.