No Need to Reinvent the Wheel to Help Puerto Rico

In a new article, “Let’s not reinvent the wheel in Puerto Rico,” Michael Madowitz, an economist at the Center for American Progress, makes the case that while the challenges facing Puerto Rico are complex, possible solutions exist that have already been tested, proven and are in place throughout the county in the fifty states.

Citing as an example the Obama administration’s plan to address Puerto Rico’s fiscal problems, he writes:

[T]he Obama administration’s plan to deal with Puerto Rico is straightforward because it consists of steps previously taken in cities and states across the United States.

No new special relationship has to be contemplated. No new laws have to be drafted for all U.S. territories. No changes in the constitution are required. Puerto Rico can simply be treated as a state in a few more ways than it currently is.

Puerto Rico’s debt situation is complex, with many different kinds of debt and multiple creditors. Allowing Puerto Rico to use bankruptcy protection already available to states under Chapter 9 of the U.S.  bankrutpcy code would be a single solution that could simplify much of the complexity. Without it, Puerto Rico will have to negotiate special deals with many different groups… and so far, attempts at such negotiations have failed.

HR 870, the Puerto Rico Chapter 9 Uniformity Act, adresses this problem by making it possible for Puerto Rico to use federal Chapter 9 protection to allow its municipalities to reorganize their debts.  The legislation’s list of congressional supporters has recently grown to include 28 Members of Congress. Under this proposal, and its companion Senate bill, S.1774, Puerto Rico would be treated just as states are under the bankruptcy code.

While sponsorship of bankruptcy legislation pending before Congress is limited to Democratic sponsors, broader support is more mixed, includinlg Republican leaders and conservative thought leaders.  Economists who have made the case for expanding Chapter 9 to Puerto Rico include conservative commentator Ramesh Ponnuru in the National Review. Former Senator and Presidential contendor Bob Dole has also come out in favor, as have Puerto Rico’s former Governor Luis Fortuno and current Presidential candidate Jeb Bush.

Madowitz also makes the case that Puerto Rico should be treated just as the states when it comes to Medicaid and Medicare and writes about the EITC and Child Care tax credits:

Tax policies such as the Earned Income Tax Credit and Child Tax Credit have a proven track record of raising incomes, reducing poverty rates, and putting people to work on the U.S. mainland, but they do not currently apply to Puerto Rico. Extending these programs to Americans living in Puerto Rico, an issue the Government Accountability Office has already studied, would not only address these problems but would also provide more incentives for work in the formal sector, where worker protections and tax collection are easier to enforce.

In each of these cases, covering Puerto Rico in a way equivalent to the way states are covered will make great strides toward improving the Island’s economic position. “All that is needed,” concludes Madowitz, “is for Congress to pass legislation that ensures Puerto Rico has access to the tools that the nation has already developed.”