For all the comparisons to Greece’s debt crisis, there’s one simple solution that many Puerto Ricans and mainland policymakers are prescribing to solve the commonwealth’s own financial crisis — and it’s not available to Greece or any other eurozone members.
Puerto Rico could simply become the 51st American state.
For the past 63 years, it’s been an estado libre asociado — a self-governing commonwealth that lies uncomfortably between a state and a territory, with bespoke elements unique to Puerto Rico, both good and bad.
Republican presidential contender and former Florida governor Jeb Bush supports statehood and in 2012, both US president Barack Obama and his rival, former Massachusetts governor Mitt Romney said they would support it if a clear majority of Puerto Ricans want statehood — Puerto Rico held a status referendum in the same election year. Pedro Pierluisi, Puerto Rico’s Democratic-affiliated non-voting delegate to the US House of Representatives, made the case for it in an op-ed in The New York Times earlier this month.
* * * * *
* * * * *
It’s true that both the Greek and Puerto Rican crises share much in common. Both governments are tethered to monetary policies that aren’t necessarily optimal. Functionally, that means neither Athens nor San Juan have a currency that they can depreciate to spur exports. Neither the European Central Bank nor the Federal Reserve can realistically be expected to tailor monetary policies to local needs. That, in turn, has exacerbated the effects from the economic forces of the past decade — the 2008-09 subprime crisis in the United States and the 2009-10 sovereign debt crisis in Europe, along with the economic pain of a nearly decade-long recession, rounds of tax increases and spending cuts, and accompanying rises in unemployment and downward pressure on wages. Lower growth, of course, means lower revenues and higher budget deficits — and more borrowing means higher yields that are now sucking Puerto Rico into a downward spiral. Alejandro García Padilla, its governor, made clear in late June that he believes the island’s $72 billion in debt is unsustainable.
In both scenarios, Greeks (through the Schengen zone) and Puerto Ricans (through the universal grant of US citizenship made in 1917 to allow Puerto Ricans to fight in World War I) can relocate to more economically prosperous European and American regions with ease. Migration means that fewer Puerto Ricans are left to service the growing debt — or build businesses and communities that can provide the revenues to fund schools and infrastructure. The island’s population is creeping downward; from a peak of 3.83 million in 2004, it was down to just 3.55 million last year. The pace of emigration is rising — to about 50,000 annually.
There are key differences as well between Greece and Puerto Rico.
Puerto Rico’s status is a relic of the late colonial era, and the United States acquired the island in 1898 as a result of its war against Spain (in Cuba, the Philippines and elsewhere). From the beginning, full-fledged independence has never been a popular option among Puerto Ricans. But nationalist sentiment rose so strongly by 1950 that two pro-sovereignty activists, Oscar Collazo and Griselio Torresola, attempted to assassinate US president Harry Truman.
The US policy response, Operation Bootstrap, adopted throughout the following decade to industrialize the island, transformed Puerto Rico into a more modern, urban place, even as American businesses consolidated the island’s farmland. But it never whisked Puerto Rico into a miraculous Caribbean Singapore, and it decimated small-scale agriculture.
Puerto Rico also suffers from the classic ‘island effect’ that economists sometimes describe of countries where dependence on imports and higher transport costs artificially increase the cost of living — a condition that’s often found throughout the Caribbean and islands, but that also affects Israel, a country surrounded by hostile Arab states with virtually no cross-border trade.
Most important of all, there’s no real talk of ‘PRexit,’ because no one believes that Puerto Rico could just abandon the ‘dollarzone.’ There’s no plan sitting in US treasury secretary Jack Lew’s desk that outlines the potential steps because it’s so much more implausible than a ‘Grexit.’
García Padilla is right that the crisis, decades in the making, is due to political factors as well as economic. Default may come soon — the Puerto Rican government says it doesn’t have enough cash to make a scheduled August 1 payment of nearly $170 million. That could launch a messy years-long default process, with the island trying to force haircuts on its bondholders. If San Juan can’t demand debt relief, protracted litigation might result in court rulings forcing Puerto Rico’s government to prioritize creditors over the salaries of public servants — galvanizing so much economic suffering that it would draw international condemnation over America’s neocolonial version of Greece.
There’s no effective Chapter 9 process for Puerto Rico, unlike for US municipalities, so the alternative of an orderly Detroit-style restructuring, isn’t available. The Obama administration, moreover, has made it clear that it doesn’t support a bailout — and it’s not clear that Republicans in Congress would be willing to provide the funds for any bailout.
So calls for statehood, in both Puerto Rico and on the mainland, and on the left and right, are on the rise, and predictably so. But as genuine as those calls might be, it’s a very, very unlikely result– and that will likely be true for a long time.
1. Statehood will do nothing to solve the immediate debt crisis.
Even if Puerto Rico were admitted to the United States tomorrow, it would do absolutely nothing to change the underlying nature of the debt crisis. Chapter 9 bankruptcy, though available to cities like Detroit and Stockton, California, is neither available to territories nor states. Becoming a state wouldn’t open any magic doors for Puerto Rico.
Moreover, while European and international institutions hold the vast majority of Greece’s debt, Puerto Rico’s debt is spread among a far wider group of investors. Under US federal tax law, municipal bonds are exempt from federal income tax universally, though municipal bonds are not necessarily exempt from state and local taxes. Puerto Rican municipal debt, however, is universally ‘triple exempt.’ So while eurozone yields converged in the mid-2000s and allowed Greece to borrow huge sums of money at low rates, favorable US tax treatment artificially inflated demand for Puerto Rican debt. Even if the Obama administration and the US Congress wanted to ‘wipe the slate clean’ for Puerto Rico upon statehood, it would be forced between two unappealing options — finding billions of dollars in the federal budget or forcing losses on millions of everyday US retirement accounts.
Most of the arguments for statehood have to do with long-term benefits, and proponents point to the rapid post-1959 development of Hawaii and Alaska. Puerto Rico would immediately become the poorest state, and it would likely benefit from transfer payments from relatively richer US states in the form of federal welfare, health and education spending. Federal spending on Medicaid, for example, would no longer be capped for Puerto Rico. As a full state, Puerto Rico would vote in US presidential elections and would elect voting representatives in Congress, giving it a stronger role in crafting federal legislation.
All of that may be great. But none of those benefits will make Puerto Rico solvent — that’s why so many policymakers, including many Republicans and the Obama administration, favor the more immediate step of extending Chapter 9 protection to Puerto Rico, as if it were just like a municipality.
2. García Padilla doesn’t want it.
In November 2012, when Puerto Ricans may have edged closer to statehood, García Padilla (pictured above) also (narrowly) defeated the pro-statehood governor Luis Fortuño.
Politics on the island divide chiefly on status, not necessarily left/right ideology. So García Padilla’s Partido Popular Democrático (PPD, Popular Democratic Party), historically the strongest party, has always been pro-Commonwealth, while Fortuño’s Partido Nuevo Progresista (PNP, New Progressive Party) is pro-statehood and the much smaller Partido Independentista Puertorriqueño (PIP, Puerto Rican Independence Party) favors complete independence. The PIP has far-left roots, and the PPD typically allies with the US Democratic Party. While Fortuño is closer to the US Republican Party, the PNP’s affiliations traditionally split as between the two major US parties.
So while Fortuño may have tried to leverage the referendum results into a demand for Congressional inquiry or an additional in/out referendum, García Padilla has chiefly ignored the results. He might have good cause because the ballot question was so convoluted. It asked first whether Puerto Ricans favored the current commonwealth status (only 46% did). It also asked whether they favored independence, statehood or another ill-defined option of ‘free associated state.’ While statehood won 61% among those who responded to the second question, it won only 44% of all votes cast in the referendum altogether.
Even if the 2012 vote returned a stronger mandate for statehood, García Padilla would have probably done little to advance it — in 2013, he said that statehood would transform Puerto Rico into a ‘Latin American ghetto.’
3. Culturally, Puerto Ricans have never clearly embraced it.
If Puerto Ricans proved ambivalent about their status in the 2012 vote, that’s certainly nothing new. It was the fourth in a series of status referenda:
- In 1967, 60.4% favored commonwealth status (39% supported independence).
- In 1993, voters supported the status quo by a margin of 48.6% to 46.3% (independence won 4.4%).
- In perhaps the oddest vote of all, in 1998, 50.5% chose ‘none of the above’ in a referendum that featured four non-commonwealth options, including statehood and independence.
The inconvenient fact for statehood proponents is that Puerto Ricans just don’t seem enthusiastic about it.
That it’s part of the US political system is due to a fluke in world history. It’s true that boriqua culture is now very much a thriving part of American culture from Los Angeles to New York City, and decades of shared destiny have created important ties between Puerto Rico and the mainland. But the island is still a very, very different place than the mainland. If some Puerto Ricans seem excited about embracing the ‘Hawaii model’ of statehood-related development, many others fear that it could augur the homogenization of Puerto Rico.
That begins and ends with the language of Puerto Ricans — Spanish. Though the United States’ Latino population is expected to rise to nearly 25% in the coming decades, and though it has today more Spanish-speaking citizens than any other country worldwide (except Mexico), Puerto Rico would be the only state with a Spanish-speaking majority. Many social conservatives, who have long advocated that English become the official language of the United States, might demand that a Republican-controlled Congress institute English as the official language of Puerto Rico upon statehood. In the poisonous culture-war politics of the United States today, that fight could get very ugly very fast.
Accordingly, with no recent precedents for statehood, many Puerto Ricans seem wary of giving up the current perks of commonwealth status in exchange for unknown, intangible benefits. Islanders currently pay no US federal income tax (though they pay Medicare taxes), and the island benefited (until 2006) from special tax credits for businesses located in Puerto Rico.
4. Republicans and Democrats have no
political impetus to embrace statehood.
Though some pro-business Republicans like Bush (pictured above), who speaks fluent Spanish and whose wife was born in Mexico, enthusiastically embrace Puerto Rican statehood, other Republicans fear that giving the 51st state two senators and five* representatives would skew the chamber to Democrats. There’s some truth to that, given the wide Democratic electoral advantage among the Latino electorate. Still, Fortuño and other center-right politicians have thrived in Puerto Rico, and preferences can change over time. In 1959, Hawaii was thoroughly Republican and Alaska was thoroughly Democratic — today, it’s the opposite. For now, it’s easy for Republican leaders like Bush and Romney to demur to the politically convenient answer that statehood is best left to the Puerto Rican electorate. Faced with the reality of enacting statehood for what would be, initially, a new Democratic electoral stronghold, right-wing opposition will certainly mount.
More immediately, however, the financial crisis gives Democrats an incentive to slow-roll statehood as well. For many migrants who leave Puerto Rico, their first stop is Florida — a key battleground state in presidential contests. In 2012, Obama won the state (and its 29 electoral votes) by a margin of just 50.01% to 49.13%. In 2008, he won it with 50.91% versus 48.10% for US senator John McCain. In 2004, US president George W. Bush won it with 52.1% versus 47.1% for US senator John Kerry and, in 2000, the entire presidency fell to Bush over a handful of disputed ballots in a recount morass ultimately decided by the US supreme court.
As more Puerto Ricans abandon San Juan for Miami, Orlando and Tampa, the voter pool for the Democratic nominee will be strengthened, so long as Latino voters skew so strongly leftward.
* The populations of Connecticut and Oklahoma are closest to Puerto Rico; each state currently elects five members to the House.