BIPP: Puerto Rico’s domestic situation worsens after Hurricane Maria

Charles Wen, Contributing Writer

Hurricane Maria is Puerto Rico’s worst natural disaster in nearly a century. “The human pain and suffering and tragedy is really significant,” James Spiotto, managing director at a Chicago-based Chapman Strategic Advisory LLC, said. The National Guard is assisting in restoring power, as residents are nervous about not being able to communicate with their families, including Governor Ricardo Rosselló himself, who said that the communication system has collapsed in general and the current key priority is to reopen the port in San Juan to bring in food and water.

Moreover, all of the Puerto Rican towns have lost electricity, following the inability of the government-owned Puerto Rico Electric Power Authority (PREPA) to overcome the nationwide blackout. It may take four to six months for power to be restored. The loss of electricity constitutes a severe backlash on Puerto Rico’s already dire financial situation, which involves many legal battles between governmental agencies seeking bankruptcy relief and creditors yearning to recover their monetary damages.

The operation inefficiency of PREPA is not a coincidence. As a government owned corporation established during the New Deal Era, PREPA has a debt of about $9 billion. Poor bill collection practices makes it possible for PREPA to improperly give away $420 million worth of electricity for free and leave the government $300 million delinquent in payment, based on estimates from FTI Consulting.

Before the hurricane, Puerto Rico had experienced catastrophic economic recession for decades, with more citizens and corporations moving out to seek opportunities in the continental United States because of a halt of federal subsidies and governmental inefficiencies. Due to its political status as a territory and in an effort to stimulate a manufacturing economy, Puerto Rico was subject to favorable U.S. tax laws. Beginning in 1976, a tax break was enacted that allowed U.S. manufacturing companies to forego paying corporate income taxes for profits made in the United States and its territories, including Puerto Rico. By 1996, the tax break began to be viewed as a form of corporate welfare in addition to the unintentional consequence of becoming a tax burden on domestic Puerto Rican companies. This led to former President Bill Clinton signing legislation that phased out the favorable parts of the federal tax code, resulting in companies fleeing and tax shortfalls. The effort put forth by the government to make up this monetary vacuum by issuing more debt has created such a burden  that the government was unable to pay interest on issued bonds.

Additionally, some newspapers, such as El Vocero, state that the main problem is governmental inefficiency rather than lack of funds. As an example, the Department of Treasury of Puerto Rico is incapable of collecting 44 percent of the Puerto Rico Sales Taxes, which is about $900 million.

By mid-January 2017, the bond debt had reached $70 billion and the cash-strapped government was having difficulty maintaining health care funding.

“Without action before April, Puerto Rico’s ability to execute contracts for Fiscal Year 2018 with its managed care organizations will be threatened, thereby putting at risk the health care of up to 900,000 poor U.S. citizens living in Puerto Rico,” a letter sent to Congress by the Secretary of the Treasury and the Secretary of Health and Human Services said. It also states that “Congress must enact measures recommended by both Republicans and Democrats that fix Puerto Rico’s inequitable health care financing structure and promote sustained economic growth.”

It is impossible for Puerto Rico to recover from such a catastrophe within a short time. The disastrous effects have not only exacerbated the existing financial situation, but have created new social, economical, and political problems. The Secretary of Education has announced the closing of 179 schools following the modification of bankruptcy provision from the Oversight Board deployed since the Obama Administration. This announcement has heavily affected poor areas and working-class families. As a result, large scale protest and civil unrest is inevitable.

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