The government of Puerto Rico is expecting a funding gap of $3.4 billion through fiscal year 2022, before any debt service is paid, as the bankrupt island deals with hurricanes Irma and Maria that devastated Puerto Rico in September 2017.
In the previous fiscal plan in March 2017, Puerto Rico's government was expecting a cash flow surplus of $3.7 billion for debt payments through fiscal year 2022. According to a revised fiscal plan, the government will post a deficit before debt service for four years, with a $27 million surplus in fiscal year 2022.
In addition to disaster relief assistance, Puerto Rico will need an external liquidity facility to bridge the gap through fiscal year 2021 until fiscal measures are fully implemented. The availability of this funding source is "a critical risk" to the success of the new fiscal plan and the long-term viability of Puerto Rico, the government said.
The island's debt burden is higher than the average of 10 states with the highest debt burden, with a debt to gross domestic product ratio of 55.1%, compared to 6.0% for the highest 10 states average.
Real gross national product for fiscal year 2018 is projected to contract by 11.2% due to the economic impact of the hurricanes but is expected to bounce back in the subsequent year to a 7.6% growth, before easing to a 1.5% growth in fiscal year 2022. The prior fiscal plan projected a 3.9% decline in fiscal 2018, which was due to improve to a 1% fall in fiscal 2022.
Puerto Rico increased the estimate of inflation for fiscal year 2018 to 2.1% from 1.2%.
Every morning her brother wakes up at 2 a.m. to wait in line for gas with the rest of the island. After the 10 or 12 hour wait he moves to another line for five to 10 more hours for two bags of ice, which he brings home for drinking water. Then he proceeds to drive around the island to look for food to feed the entire family including his sisters, mom, dad and cousins. Finally, he comes home to wake up the next day to do it all over again.
“They still, to this day, have no electricity,” said Lt. Col. Iris Ortiz Gonzales, 55th Dental Squadron clinical flight commander and a Puerto Rico native.
When Ortiz Gonzales heard Hurricane Maria would pass through her home town of Aibonito, she envisioned all the hurricanes growing up that closed the school for a couple days, brought rain and a little light flooding.
“In the days leading up [to] the hurricane, everyone was asking me, ‘how is your family,’” Ortiz Gonzales said. “I laughed it off because they knew what to do and it was no big deal. Well it was a big deal. I never in my wildest dreams would think of a hurricane of this magnitude and power.”
To her knowledge, the last hurricane even close to its degree was in the early 1900s, but it wasn’t until the next day when she saw videos of the destruction that it hit her.
“I was still working and I would cry, take a patient, then come back and cry more,” Ortiz Gonzales said. “I couldn’t get through to my family for days and that increased my anxiousness. My team kept checking on me, and I tried my best to put on a good face.”
Ortiz Gonzales heard reports from friends of friends that half the houses in her hometown, tucked away in the mountains, were gone, and the floods had destroyed the main roads, blocking them with mud and trees. It would be weeks before anyone could get to them.
When she finally heard from her brother, all the rumors she heard were confirmed. She knew she had to do something.
Ortiz Gonzales reached out to a friend from dental school, who was also from Puerto Rico. Together, they worked with a church in Florida and chartered a private plane. It wasn’t cheap, but the price did not deter her. She personally funded the mission and got to work gathering supplies to fill the entire plane – from all the fixings for a massive Thanksgiving dinner, to water, to generators and solar lamps. No space would go unfilled.
“It wasn’t just me,” she said. “It was a whole community working together. I flew to Florida to help load the plane, but didn’t go.”
This left more room for much-needed goods.
She said she is hesitant to return home.
“My husband has been back, but I haven’t, and he said it was best I didn’t go because I would have been crying the whole trip,” said Ortiz Gonzales. “He said as soon as you begin to land, everything you see is blue tarps over homes that are gone.”
She said it will take decades to restore Puerto Rico to its former beauty, which she remembers as paradise.
“We had the only [tropical] rain forest within the United States called El Yunque and now it is gone,” Ortiz Gonzales said. “They estimate it will take 50 years to grow back. There were so many flowers and trees and animals only found there.”
She suggests if others want to help, to find a church that is working in the community because the aid goes directly to the people or to support a reconstruction mission.
While Ortiz Gonzales continues to look for ways to help, the Airmen around her are in awe of her humility and kindness.
“Although she is not someone that likes recognition, Lt. Col. Ortiz [Gonzales] is very selfless whether it be with her Air Force family, her own family or a complete stranger,” said Tech Sgt. Kari Torres, 55th DS. “She deserves recognition because she is a silent hero. Her work ethic and involvement with the community are unmatched and something to be very proud of.”
Every day, Ortiz Gonzales said she continues to hope, but some days are harder than others.
“It’s hard when you want to talk to you mom or your brother and you can’t because you know they won’t answer,” she said.
Lt. Col. Iris Ortiz Gonzales, 55th Dental Squadron clinical flight commander, performs a dental exam on Tech. Sgt. Audrey Hernandez, 55th DS, Jan. 18, 2017, in the Ehrling Bergquist dental clinic at Offutt Air Force Base, Neb. Ortiz Gonzales has been serving as a dentist in the Air Force for more than 12 years. (U.S. Air Force photo by Tech. Sgt. Rachelle Blake)
Puerto Rico Gov. Ricardo Rosselló says he is moving to sell off the U.S. territory's public power company, as nearly a third of the island's electric customers remain without power four months after Hurricane Maria struck the island on Sept. 20.
Rosselló said Monday that it might take 18 months to privatize the insolvent Puerto Rico Electric Power Authority, or PREPA, the largest U.S. public utility measured by the number of customers – 3.3 million.
"The Puerto Rico Electric Power Authority does not work and cannot continue to operate like this," Rosselló said in a televised address. "With that PREPA, we cannot face the risks of living in an area of high vulnerability to catastrophic events."
Even before the hurricane, PREPA has had its problems. Its power generation plants burn expensive and polluting oil and its infrastructure averages about 45 years old, compared to about 18 years for utilities on the U.S. mainland, according to The Associated Press.
The AP notes: "Many also wonder who, if anyone, would be willing to buy a power company that has a $9 billion debt load, filed for bankruptcy last year and faces longstanding accusations of mismanagement and corruption. But Puerto Ricans in a flurry of exchanges across social media after Monday's announcement seemed to agree that any change would be a good one, though they remained wary that the utility could fall into the wrong hands."
We're returning now to Puerto Rico's efforts to recover from Hurricane Maria. While the focus on immediate needs is still there, now the U.S. territory's leaders have also decided that a new push for statehood should be part of the recovery effort. This week, a bipartisan shadow congressional delegation comprised of distinguished former officials went to Capitol Hill to lobby Congress to make Puerto Rico the 51st state.
Alfonso Aguilar is one of the Republican shadow representatives. He's also the president of the Latino Partnership for Conservative Principles and a former chief of the U.S. Office of Citizenship. He served under President George W. Bush. He was kind of stopped by our studios in Washington, D.C., to tell us more. Alfonso Aguilar, thanks so much for speaking with us.
ALFONSO AGUILAR: Thank you so much for having me. It's a pleasure.
MARTIN: Now, this was an issue even before the hurricane, I want to say. I want to note that the official party platforms of both the Democratic and Republican Party in Puerto Rico support statehood. So what are you doing differently now, and why now?
AGUILAR: Well, you know, I think now it's become very evident after the devastation caused by Maria, we are at the mercy of Congress. We have no political clout in Washington, and that certainly affects us in terms of getting help from the federal government. So when we have a hurricane like we just had that devastated the island, and we're talking about a supplemental bill to provide funding - emergency funding for recovery efforts in the states - Texas, Florida, they have the appropriate representation to ensure that they get the money that they need.
In the case of Puerto Rico, again, we're at the mercy of Congress. We're hoping that they're going to be merciful, but perhaps they will provide something that really doesn't respond to the needs of the island. That's why representation or democracy, it's just so basic, the very basic right of a citizen is the right to vote.
MARTIN: You and the other delegates were selected by the governor of Puerto Rico. And I do want to mention, again, this is a very distinguished group - a baseball Hall of Famer, three former governors. So it's three Republicans, three Democrats and an independent. You were all appointed. So do you think that these members have any reason to seat people who were not elected?
AGUILAR: Well, you know, this is a tool. We recognize this. We have been appointed. Eventually, we will have an election. And we'll have an elected delegation. But this is the first face of the effort to push statehood.
MARTIN: Let me ask you this, though, why should they care? Why should they care? Given that - this is - you're talking about extending federal recognition or the same voting rights to other people. And for people who already have those rights, why should they care?
AGUILAR: Well, first of all, it's a question of principle, right? Our forefathers created a republic that guarantee equal rights to everyone. And we know that that wasn't the case. But with time, citizenship has expanded to include absolutely every single citizen. So if we care about the Constitution, if we want to ensure that we have a country that guarantees every single citizen full rights, then I think we have to address the issue of Puerto Rico. That's a question of principle.
In terms of practical matters, look. The situation right now in Puerto Rico, we have a fiscal crisis - large debt, over $70 billion. The economy is in a deep recession. And all of this has been exacerbated by Maria. The federal government is going to have to continue sending money to Puerto Rico. Under statehood, we're going to be paying into the system. Financially, we're going to do much better. And eventually, in five, 10 years, Puerto Rico's going to be paying more into the system than the money that they send to Puerto Rico.
MARTIN: Before we let you go, I do want to ask a sticky question, which is there are those who argue and will say that they think that the hesitation to address this issue, both with Puerto Rico and the District of Columbia, is that these are predominately non-white and that's what the objection is?
AGUILAR: In the case of Puerto Rico, I don't believe that. I don't believe that people oppose statehood for Puerto Rico because its a Hispanic population. There is a consideration about their ethnicity, but it's not racism. I think there's this perception that just because they're Hispanic, they would largely vote for Democrats. And we have to explain to them that is just not the case. Puerto Ricans, like the majority of Hispanics, are very conservative on social issues, when it comes to the issue of right to life, it comes to marriage. But at the end, there will be swing voters. If Republicans cannot convince Puerto Rican voters in future elections, they're going to have a very hard time convincing Hispanic voters at the national level.
MARTIN: That's Alfonso Aguilar, Republican shadow representative for Puerto Rico. He and fellow members of this delegation are in Washington, D.C., lobbying, once again, for statehood for the U.S. territory. Alfonso Aguilar, thanks so much for coming in.
AGUILAR: Thank you so much for having me. Transcript provided by NPR, Copyright NPR.
The Puerto Rico Electric Power Authority has suspended three employees without pay as it investigates 25 cases of possible bribery that occurred in the wake of Hurricane Maria.
A spokesperson for the power authority — known as PREPA or AEE — told NewsHour that all of the cases involve field employees responsible for restoring power. The employees under investigation are accused of requesting money in exchange for energizing houses or businesses. More than 500,000 of the island’s 1.5 million energy subscribers lack power nearly four months after Maria hit, and PREPA is the territory’s sole electricity provider.
El Vocero, a San Juan-based newspaper, wrote that the employees under investigation for bribery had requested as much as $5,000 to reconnect power. PREPA declined to provide specific details about the cases, given the ongoing nature of the probes, but the authority is encouraging witnesses to come forward when incidents occur. Anyone found complicit in bribery will face criminal charges, a PREPA spokesperson said.
PREPA received the first three complaints around mid-November, less than two months after Hurricane Maria. The employees involved in those complaints who are now suspended, work in Ponce, a major hub in south Puerto Rico. Since then, more bribery complaints have appeared across the island.
The disclosure of this probe comes less than a week after officials discovered an overlooked PREPA warehouse that contained materials needed for the recovery. But the spokesperson said the bribery cases had no connection to the warehouse.
PREPA told NewsHour in a statement that local and stateside workers have been using materials from the warehouse since Hurricane Maria passed. But officials for the U.S Army Corps of Engineers said the warehouse was missing from PREPA’s computer inventories. A PREPA spokesperson said the warehouse contained materials acquired for capital improvement projects, outdated surplus supplies from previous projects and recycled parts.
José Román Morales, president of Puerto Rico Energy Commission, argues such mismanagement by PREPA made the island’s energy infrastructure prone to the devastation wrought by Hurricane Maria. PREPA’s financial woes — including $8.9 billion of debt — stifled simple maintenance operations, like tree trimming near power lines, and prevented system upgrades.
“[PREPA] ran out of money so they were on a reactive maintenance type of schedule,” Morales said. So even if PREPA wanted to repair an aging piece of equipment, they couldn’t address it until the equipment broke down, he said.
Cars drive under a partially collapsed utility pole, after the island was hit by Hurricane Maria in September, in Naguabo, Puerto Rico, on Oct. 20, 2017. Photo by Alvin Baez/Reuters
This backlog caught up with Puerto Rico and led to an extended blackout after Hurricane Maria, said Morales, whose commission is the sole oversight regulator of PREPA.
PREPA is no stranger to fielding accusations of corruption. In 2016, Puerto Rico’s Senate held hearings about the energy authority’s purchasing office, which bought and burned dirty oil sludge for 25 years while charging customers the higher prices associated with refined distillates. A class action lawsuit, filed by Puerto Ricans who said they were harmed by the burnt sludge’s fumes, estimated that customers overpaid more than $1 billion into the purchasing office’s slush fund.
Then in November, PREPA’s chief executive stepped down after Congress began reviewing a $300 million contract awarded to Whitefish Energy Holdings, a small private company from Montana. PREPA had agreed to pay Whitefish linemen $319 per hour, when the average salary in Puerto Rico for such work is $19 per hour.
Morales told NewsHour that PREPA did not share the Whitefish contract with his energy commission for evaluation prior to signing it. He said the energy commission has opened an investigation into PREPA’s post-hurricane response, but he could not comment on what the commission has identified so far.
“What is definitely a fact is that we have a lot of people without power, and we need a lot of help,” Morales said.
Carmen Perez, of the SEC's Miami Regional Office, spent her first night in Puerto Rico sleeping on a cot and missing her family. But she was happy to help where she could, from finding a home for a mother and newborn baby to arranging for a bridge repair. Says Perez: “through it all, my native land, Puerto Rico, still takes my breath away with its beauty and resilience. I am very grateful and blessed to have been able to experience this firsthand.”
We were welcomed everywhere we went." – Helen Rosier, Atlanta Regional Office | Deployed to Puerto Rico "The people who come to the centers I work range from being unscathed by the storm to being homeless and destitute overnight, more people in the latter category ..... after weeks without power, financial assistance, or income the people I see are still civil, dignified, patient, but also desperate. The center I work at receives ~400 premade meals per day and people come for food assistance. Every day we run out.” – Howard Kaplan, Division of Enforcement | Deployed to Puerto Rico Hurricane Relief Effort: Carmen Perez, of the SEC's Miami Regional Office
With their island devastated by Hurricane Maria and treated like a foreign competitor in the new tax law, Puerto Rican political leaders have concluded that politely awaiting an invitation to become the 51st state is no longer the way to go.
Instead, advocates of statehood for the often overlooked United States territory plan this week to intensify their push for Puerto Rico to be made part of the union, allowing residents to reap political and economic benefits they have been denied for the past century despite their American citizenship.
“We definitely want to be much more aggressive,” said Alfonso Aguilar, a former Bush administration official just named to the Puerto Rico Statehood Commission and one of five shadow House members who, along with two senators, intend to demand to be seated in Congress. “It is time to try to change the dynamic.”
That dynamic has been long stacked against Puerto Rico — a government stepchild if there ever was one. Its distance, Caribbean vibe and Hispanic heritage have kept it a foreign presence in the mind of many Americans who, to this day, remain unaware that Puerto Ricans are their fellow citizens.
Critics of statehood fear that admitting Puerto Rico would upend the current political balance and saddle the rest of the country with a debt-laden jurisdiction. The route to statehood seems as impassable as some of the island roads in the aftermath of the unimaginably fierce hurricane last September.
But those behind the statehood movement say they will not be deterred and acknowledge it will take dedication and perseverance to overcome the resistance and inertia standing in the way of statehood for Puerto Rico. The debilitating storm that has left some parts of the island still without power has had the benefit of raising American awareness about the island. The statehood push was planned before the hurricane, but the storm has given it new impetus.
“What we want to impress upon Congress and, quite frankly, the whole nation is that Puerto Ricans want a change from their second-class status that Puerto Ricans have experienced and has been exposed in the path of Hurricane Maria,” Gov. Ricardo A. Rosselló of Puerto Rico said in an interview Tuesday.
The new efforts are scheduled to begin Wednesday when seven members of a congressional delegation appointed by Mr. Rosselló after a successful statehood referendum last year are to present their credentials to the House and Senate in a bid to be recognized. They will hear a speech by the nonvoting representative of Puerto Rico endorsing statehood on the House floor and meet with statehood supporters.
Later in the week, statehood advocates intend to demonstrate their potential political clout with a town hall in Central Florida to showcase the growing numbers of Puerto Ricans capable of influencing domestic elections, including tens of thousands who have moved to the mainland since the hurricane.
Mr. Rosselló said he intends to try and harness the political power of about 5 million Puerto Rico-born citizens scattered around the country to help the statehood push by pressing and evaluating candidates on their support for that effort.
There is no chance that Congress will accept the credentials of the shadow delegation and seat them as representatives of Puerto Rico, which currently has a nonvoting resident commissioner who can participate in congressional debates. But it is a way of making a point. It is also following a well-traveled historical path to statehood.
In 1796, the residents of Tennessee decided to force the issue of statehood by holding a convention, drafting a constitution, electing members of the House and Senate and then demanding that the other states let Tennessee in. The state eventually prevailed, and that hardball path to statehood came to be known as the Tennessee Plan. It has been copied by others, most recently Alaska, and Puerto Rico is now utilizing the technique.
With an eye toward worries about political realignment, the shadow delegation includes three Democrats, three Republicans and an independent. While they may not share the same view when it comes to assessing the quality of the federal response to the hurricane, they would agree that Puerto Rico’s recovery would have been handled differently if it was a full-fledged state.
The new tax law, coming on the heels of the hurricane and a debilitating financial crisis, seemed to Puerto Ricans to be an especially cruel step. The legislation instituted a new tax on intellectual property held by foreign corporations that Puerto Ricans say will eliminate a main incentive for businesses to locate on the island and puts Puerto Rico on the same level as a foreign nation. “We are American citizens and these are American jobs,” the governor said. “It just doesn’t make sense.
He and other statehood backers say the island of nearly 3.5 million people — it would be the 30th largest state by population — would have fared much better with full representation in Congress and the right of residents to vote for president.
“Because we don’t have political power, because we don’t have representatives, senators, no vote for president, we are treated as an afterthought,” said Mr. Rosselló. “When it is time to vote, there is not accountability.”
He and his allies equate the push for statehood with past American civil rights movements, an attempt to remedy an undemocratic remnant of colonial government in a nation that considers itself the world standard in democracy. They also intend to emphasize the contribution that hundreds of thousands of Puerto Ricans have made and continue to make by serving in the military.
“The message is very clear,” said Mr. Aguilar, the former Bush administration official. “If you are thinking of the long-term recovery of Puerto Rico, you have to support statehood. We have reached bottom and there is only one answer.”
Honored to be part of the #PuertoRico Shadow Delegation to the U.S. Congress in support of statehood for our Island. We are just beginning our work. There should be no doubt: we will perserve and we won’t relent until we achieve our goal. @PRSC51
Ever since the first detailed outlines of a U.S. move to territorial taxation surfaced in 2005, many were surprised that the bed of roses made for multinationals would contain thorns. Properly disallowing U.S. deductions allocable to income free of U.S. tax and necessarily tougher base erosion protections meant the move could actually raise taxes on multinationals.
Well, the tax bill signed into law December 22, 2017, by President Trump disregarded the matching principle. It did, however, include some significant anti-base-erosion rules. While the provisions of the new law generally provide significant tax cuts for individuals and domestic businesses, the international provisions raise revenue. (See Figure 1.) True, much of that revenue comes from deemed repatriation of cash taxed at 15.5 percent and noncash assets taxed at 8 percent, which is really tax relief that raises revenue only inside the 10-year revenue window. But the minimum tax on foreign profits of U.S. multinationals (referred to as the global intangible low-taxed income tax) and the minimum tax on multinationals’ income in the United States (called the base erosion antiabuse tax) can take a considerable bite out of multinational after-tax profits. (See Figure 2.)
Although the details largely remained a mystery until the end, the general contours of the legislation’s anti-base-erosion measures were understood years in advance. And this caused a lot of heartburn for the government of Puerto Rico and members of the Puerto Rico Manufacturers Association. (See table.) Although Puerto Rico is part of the United States and its residents are U.S. citizens, for most income tax purposes the territory is considered a foreign jurisdiction. This has given it a tax-advantaged status relative to the rest of the United States. But under the widely anticipated international tax reforms, U.S.-headquartered operations in Puerto Rico will pay a lot more U.S. tax. That could result in the already economically troubled island suffering even more job losses on top of those lost since the expiration of generous U.S. tax benefits in 2006.
Some Large Public Companies in Puerto Rico (ranked by number of full-time employees in Puerto Rico)
Company
Full-Time Employees in Puerto Rico
Medtronic PLC
4,015
Johnson & Johnson
2,801
Pfizer Pharmaceutical LLC
2,270
Amgen Manufacturing Ltd.
1,800
Lily de Caribe Inc.
1,600
Eaton Corp.
1,500
General Electric Co.
1,400
Baxter International Inc.
1,285
St. Jude Medical P.R. LLC
1,214
Stryker P.R. LTD
1,094
Coca-Cola Puerto Rico Bottling
981
AbbVie Ltd.
971
Bristol-Myers Squibb Manufacturing Co.
795
Becton Dickinson Caribe Ltd.
780
Boston Scientific Corp.
750
Zimmer Manufacturing BV
545
Pepsi-Cola P.R. Distributing LLC
500
Source: The Caribbean Business Book of Lists, 2017 edition.
In 2014 former House Ways and Means Committee Chair Dave Camp released his fully documented tax reform proposal. It included a new category of subpart F income called foreign base company intangible income. That foreign income (calculated as the amount of profit in excess of a normal return on tangible capital, similar to the rules for global intangible low-taxed income) would be subject to a 15 percent U.S. minimum tax if it were inadequately taxed by foreign governments. Worse still, that foreign income would be subject to a 25 percent U.S. tax if it were attributed to sales into the United States. Puerto Rico’s then-Gov. Alejandro García Padilla and then-Resident Commissioner (the island’s nonvoting representative in the U.S. House) Pedro Pierluisi lobbied hard for an exception to this rule, which would have given Puerto Rico a considerable competitive advantage over other tax havens and would no doubt have given the Puerto Rican economy a considerable boost. But, despite the island then being in its sixth year of recession (from which the mainland had already recovered), there was no special provision for it included in the Camp bill.
The success of the Republican Party in the 2016 U.S. elections raised the odds for passage of major tax legislation that would include territorial taxation. However, the simultaneous election in Puerto Rico of Ricardo Rosselló as governor and of Jenniffer González-Colón as resident commissioner muddled the message Puerto Rico was sending to Capitol Hill. Their predecessors — Padilla and Pierluisi — were members of the left-leaning Popular Democratic Party, which has historically favored retaining Puerto Rico’s commonwealth status for several reasons, not the least of which is the retention of favorable tax rules not available to businesses operating in the states. Rosselló and González-Colón, on the other hand, are members of the right-leaning New Progressive Party, which favors the island becoming a U.S. state.
From Bad to Worse
On June 30, 2016, President Obama signed the bipartisan Puerto Rico Oversight, Management, and Economic Stability Act to address Puerto Rico’s debt crisis. On May 3, 2017, Puerto Rico sought what is essentially bankruptcy relief in federal court. The Puerto Rican government and its agencies have accumulated about $74 billion in bond debt and $49 billion in unfunded pension obligations. In a two-week period in September 2017, category 5 hurricanes Irma and Maria laid waste to the island, and in November Rosselló requested $94.4 billion in aid from the federal government. The Chicago Tribune reported on December 25 that an engineering study conducted December 11 estimated that about 50 percent of the island’s 3.3 million people remain without power.
To be sure, both Rosselló and González-Colón opposed anti-base-erosion measures included in the various incarnations of what eventually would become the newly minted tax reform law. The governor took a more strident approach, demanding relief for Puerto Rico and threatening to mobilize the millions of voting Puerto Ricans who have migrated from Puerto Rico or are of Puerto Rican descent against those legislators, including Sen. Marco Rubio, R-Fla., who voted for the reform package. Consistent with views on statehood, Rosselló has often said he wants Puerto Rico treated like any other state. What he really wants (though it doesn’t often make it into his sound bites) is for Puerto Rico to be treated like a U.S. state when it comes to the anti-base-erosion rules. But unlike businesses in U.S. states, he doesn’t want Puerto Rico operations being subject to U.S. corporate tax, even at the new reduced rate of 21 percent. He also wants exemption from the deemed repatriation taxes if Puerto-Rico-based affiliates of U.S. companies invest unrepatriated funds in Puerto Rico.
González-Colón took a more conciliatory approach to the threat of lost tax advantages. She has a good relationship with House Speaker Paul D. Ryan, R-Wis., who arranged for her to work with Ways and Means Committee Chair Kevin Brady, R-Texas, on tax relief for Puerto Rico as part of the reform package. Along with Ways and Means member Carlos Curbelo, R-Fla., the goal was to get “opportunity zone” tax benefits included for Puerto Rico. That effort initially failed.
On December 15 Brady said it had been the intention of conferees to make Puerto Rico eligible for opportunity zone designation, but that the proposal was dropped because it violated the Byrd rule (although it was adopted by the full Senate on December 2 without violating the rule). As a result, Brady said he and Ryan decided to add the provision to the supplemental appropriations bill.
The House passed an emergency supplemental appropriations bill (H.R. 4667) on December 21 that designated $81 billion of disaster relief for damages resulting from hurricanes Harvey, Irma, and Maria, and the California wildfires. And, as promised, section 3004 of the reform package allows each census tract in Puerto Rico that is a low-income community to be designated as a qualified opportunity zone. The emergency supplemental appropriations bill has stalled in the Senate, where it cannot be acted on until January at the earliest.
Even if portions of Puerto Rico are automatically designated as opportunity zones, the benefits conferred are small beer compared with those that were available before the reform package went into effect, and so are unlikely to have any appreciable impact on the devastated Puerto Rican economy. “Empowerment zones” were first enacted after the 1992 Los Angeles riot as part of the Omnibus Reconciliation Act of 1993: They provide an array of benefits including employer wage credits, additional expensing of small business capital expenditures, and expanded eligibility of tax-exempt bond financing for 10 years. In 2009 the Joint Committee on Taxation reviewed economic studies on empowerment zones and found the results to be ambiguous, or that they gave scant evidence of a positive effect from the zone benefits.
If the empowerment zones did not work in the 50 states, it’s hard to see how they would work in Puerto Rico. The only benefit given to opportunity zones in the reform package is deferral and possible elimination of gain recognition if gains are invested in qualified investments within the designated zones. Even before bankruptcy and the widespread storm damage, Puerto Rico’s competitiveness was diluted by high electricity costs (because generators are fueled by petroleum), high shipping costs (because the Jones Act requires that U.S.-owned and U.S.-operated ships be used to transport between U.S. ports), and the costs of U.S. labor regulations, including the federal minimum wage.
Domestic Politics
In a December 20 Orlando Sentinel op-ed, Florida Republican Gov. Rick Scott claimed that more than 264,000 people have traveled from Puerto Rico to Florida since October 3. One study estimated that between 41,000 and 83,000 Puerto Ricans would migrate to Florida after Hurricane Maria (Edwin Meléndez and Jennifer Hinojosa, “Estimates of Post-Hurricane Maria Exodus From Puerto Rico,” Hunter College Center for Puerto Rican Studies (Oct. 2017)). That migration, plus widespread dissatisfaction within the Hispanic community with the federal government’s response in Puerto Rico, could affect Republicans in future elections in the nation’s largest swing state. But according to at least one unnamed source with ties to the GOP, Republicans aren’t worried about the domestic implications of lost tax incentives for Puerto Rico: “I think all the craziness that the governor had created saying that people are going to leave in droves is not flying on the Hill; let’s just say cooler heads are prevailing,” the source told Caribbean Business on December 14.
