Puerto Rico, put economy before statehood

Puerto Rico should shed its status as a U.S. territory, either by becoming the 51st state or by establishing full independence. But that is a “some day” goal. Puerto Rico’s more immediate goal must be to shed its status as an economic disaster.

Puerto Rico’s new governor, Ricardo Rossello, was elected last November on a statehood platform. As soon as he was sworn in on Jan. 2, Rossello promised a referendum asking Puerto Ricans if they prefer statehood or independence. He also announced plans to let voters pick two senators and five representatives, who would be dispatched to Washington to demand seats in Congress. (Hint: If voters choose Democrats, don’t bother.)

Meanwhile, Puerto Rico’s non-voting representative in Congress, Jennifer Gonzalez, filed a bill that would pave the way for statehood by 2025.

The notion that statehood is the silver bullet to end Puerto Rico’s long economic nightmare is a fantasy useful primarily for political advantage inside Puerto Rico. There is virtually no chance that a Republican Congress and president would welcome a debt-ridden, dysfunctional Puerto Rico into the union. Puerto Rico can’t become a state unless Congress agrees.

And, despite Rossello’s victory, it is not clear that Puerto Ricans want statehood. A 2012 referendum on the topic seemed to give statehood the nod, but the ballot was so complicated — and political tactics that included boycotts so confusing — that the outcome is in dispute. Hence the need for a new referendum.

What’s really needed, of course, is a program to reform Puerto Rico’s economy. Republicans such as Florida Sen. Marco Rubio — who won Puerto Rico’s GOP primary during the presidential campaign — blame the island’s crisis on bloated government, high taxes and out-of-control spending.

There are elements of truth in that diagnosis; Puerto Rico’s governments have promised lavish pensions to public employees with no sustainable plan to pay for them. Retirees are in panic now as pensions face cuts. On the other hand, when Puerto Rico reduced government hiring to curb pension costs, the effect was to reduce employee contributions to the retiree fund, exacerbating the shortfall.

The island’s complicated plight could make Puerto Rico — for good or for ill — a kind of guinea pig for stock Republican economic theory. After all, many in the GOP’s conservative fiscal wing believe America is spending itself into the kind of crisis Puerto Rico already faces.

Rubio, who is on the congressional task force trying to rescue Puerto Rico’s economy, recently introduced a bill that provides a taste of the kind of approach that might be in store. The “Economic Mobility for Productive Livelihoods and Expanding Opportunity Act” would cut the minimum wage in Puerto Rico to $5 an hour but also provide a subsidy of up to $2.50 an hour for workers who don’t make at least $10 an hour.

If it worked, the measure would increase the number of people with jobs and actually increase take-home pay.

Would it work? That isn’t at all clear. What is clear is that something must be done. Puerto Rico is staggering under roughly $70 billion in debt and unemployment is in the double digits. About half of the island’s 3.5 million residents live below the poverty line.

There have been suggestions that Puerto Rico be allowed to declare bankruptcy and default on its debts. While that approach might seem to hit wealthy investors the hardest — and Republicans in Congress generally have opposed it — the issue is not perfectly straightforward. Ordinary investors also have invested in the bonds and would take a hit.

Puerto Rico’s economic crisis has spurred an exodus to the United States. Thousands have come to Central Florida. The jobs created under Gov. Rick Scott’s watch might not be that great, but they are better than no jobs at all.

Statehood? Independence? Continued territorial status? Those are big issues, and certainly Puerto Rico needs to settle them. Eventually. But in the current economic crisis, statehood is a distraction.

Puerto Rico is staggering under roughly $70 billion in debt and unemployment is in the double digits. About half of the island’s 3.5 million residents live below the poverty line.