Puerto Rico's Debt Crisis Clouds GOP Primary

Puerto Rico's Debt Crisis Clouds GOP Primary
Story Stream
recent articles

SAN JUAN, P.R.—The sun is warm, the surfers are expecting a nice swell at Rincon’s beaches any day—and Puerto Rico is holding a presidential primary on Sunday.

Yet, here’s what’s scarce in this capital city—candidates. With the exception of a Saturday night appearance in the San Juan suburbs tacked on to Marco Rubio’s schedule, the 2016 presidential wannabes have essentially ignored Puerto Rico.

Also missing: candidate debates, town-hall meetings, campaign rallies, and coffee klatches. The island’s bars aren’t full of journalists schmoozing party activists, as was typical in Manchester, N.H. The airwaves aren’t saturated with campaign ads and the local economy hasn’t been given a quadrennial jolt—though it could certainly use one.

Welcome to the un-New Hampshire.

If location is everything in real estate, timing is everything in presidential primary politics. Puerto Rico has the same number of delegates as New Hampshire. They are ripe for the plucking, at least for a candidate not named Trump.

Here, the Trump brand is synonymous with bankruptcy. Then again, that’s the word that arises whenever Puerto Rico comes up in the national conversation these days. That’s the biggest problem for the Republican candidates: Much of the reason they haven’t courted this island’s electorate is that they’re afraid of what they might have to say.

Let’s start with Donald Trump. Last July, a month after he launched his campaign, Trump made news in Puerto Rico—and not in a good way. “I’m really rich,” he’d said in his announcement speech. “It’s not bragging. That’s the kind of mindset you need for this country.”

Just four weeks later, the Trump International Gulf Club Puerto Rico announced that it was declaring bankruptcy. Which led people here to ask an obvious question: Why is bankruptcy an option for billionaires and not beleaguered U.S. territories?

Officially, Puerto Rico is “commonwealth,” but it is not a state. It will send voting delegates—23 of them—to the Republican National Convention, but voters here have no say in the November elections.

This system has creaked along over the years, but with the economy in free fall and Washington proving to be a stingy stepparent, it’s not working now.

The most obvious manifestation of the island’s financial problems is a staggering $73 billion public debt. This has been caused by the usual suspects—and some unusual factors, as well. Invariably, it includes the burden imposed on taxpayers by bloated local and state governments, along with absurdly generous public employee pension programs. It also includes shortsighted governance going back years. The profligate policies were of the bipartisan variety, although the office of the current governor, Democratic Gov. Alejandro Garcia Padilla, can’t provide basic financial information to Capitol Hill about where the money has gone.

For its part, Congress is reluctant to acknowledge its role. Policies enacted with good intentions had unintended consequences. The first, dating to 1917, was a provision exempting bonds sold here from local or federal taxes. This led to the temptation, rarely resisted, to cushion hard times by borrowing money for operational expenses.

To lure manufacturing jobs, Congress also acquiesced to a scheme exempting companies from paying taxes on profits earned here. The system was gamed, and Congress rescinded the tax break in 2006. Many companies promptly closed up their Puerto Rican manufacturing plants—just as the financial crisis was about to hit.

What happened since then has been a perfect storm. A stagnant real estate market, spiking unemployment, exponentially increasing public debt, and an ensuing mass exodus of young workers in search of jobs. Testifying recently before Congress, Gov. Padilla called it “a death spiral.”

Some 70 percent of those still here rely on Medicaid and Medicare for their health care. This is making everything worse, not least because Puerto Rico is scheduled to receive a sharp reduction in Medicare reimbursement rates at a time all 50 states are receiving increases.

The Obama administration belatedly asked Congress to change that formula, which it will probably have to do, but Republicans are chary about a second request, which is to allow Puerto Rico to use bankruptcy to restructure its debts. States can do this. Cities and counties, too. Donald Trump does it all the time. But territories cannot.

At a recent congressional hearing, U.S. Treasury official Antonio Weiss stressed the urgency of letting Puerto Rico access this type of debt relief. “This is not a Band-Aid,” he said. “This is a lifesaving procedure that we are discussing.”

Republicans are dubious, both about whether Puerto Rican officials have learned their lesson—and about the precedent it might set. “If we rewrote the rules on Puerto Rico’s sovereign debt now, what would that do to the sovereign debts of the 50 states?” asked California Republican Rep. Tom McClintock.

“I’m afraid the credit markets are going to say, ‘Wait a second. If they can do that to the Puerto Rican debt, they can do that for California and Illinois and New York,’” he added. “Markets will respond to that by assessing this additional risk, and increasing interest costs to reflect that risk. That could sink a state like California.”

But fiscal prudence can come off as political tone-deafness. At a Feb. 25 CNN debate in Houston, Rubio was asked about his skepticism over bailing out Puerto Rico.

“Bankruptcy doesn’t work unless you change the way you’re operating,” Rubio responded. “The problem with Puerto Rico is its economy is not growing. ... It's too expensive to do business there. The tax rate is too high. I think the leadership on the island has to show their willingness to get their house in order.”

Padilla, who didn’t appreciate being blamed, promptly called on Puerto Ricans to vote against Rubio on Sunday. But he’s a Democrat, and it seems unlikely Republicans on this island will listen to him. Jeb Bush was poised to win this primary—and all the delegates here—as Mitt Romney did in 2012 and John McCain did in 2008. The apparatus, the much-maligned GOP “establishment,” promptly switched their support to Rubio. John Kasich and Ted Cruz don’t really fit the profile of a preferred Republican here.

So the question going into Sunday’s primary is whether past form still holds or whether this island’s economic crisis—and the insane environment of a political campaign that has devolved into a discussion of the size of the front-runner’s sex organ—is a one-two punch that has utterly altered the equation. There’s another question for Rubio, too: Hundreds of thousands of Puerto Rican expats have settled in Florida, which votes on March 15. What do they think Washington should do to help their home island?

Carl M. Cannon is the Washington Bureau Chief for RealClearPolitics. Reach him on Twitter @CarlCannon.

Show commentsHide Comments