Puerto Rico's Debt Woes Play Into Statehood Debate

Puerto Rico is racing against the clock to resolve a massive debt crisis that has left its government in a lurch. As leaders scrape for a way out, the island is at an economic and political crossroads that also looks to intensify the familiar, heated debate over its political status and intermittent push for U.S. statehood.

Puerto Rico’s finance officials warned in April the government could run out of funding and face a shutdown in three months unless it secures a financing deal. Atop outstanding debt of $73 billion -- $9 billion of which is owed by the government utility company -- the island is grappling with a public-pension shortfall and a 13 percent unemployment rate. And last month, the Standard & Poor’s credit-rating agency downgraded its bond rating to CCC+ from B. Gov. Alejandro Garcia Padilla has attempted to push through unpopular tax reforms, while the U.S. Congress is weighing options it hopes will help the commonwealth stave off default.

Some statehood supporters have tied the island’s dire economic straits to its murky political status as a commonwealth of the U.S. Puerto Rican municipalities and public agencies don’t have access to the same protections similar entities in the states are provided under Chapter 9 of the U.S. Bankruptcy Code, which has struck a sour note among statehood proponents who already decry Puerto Rico’s lack of representation in the U.S. Pedro Pierluisi, Puerto Rico’s nonvoting representative in Congress, introduced a bill this year to authorize some government-owned companies on the island to restructure their debts under Chapter 9 -- in addition to reintroducing another bill for Puerto Rican statehood.

In a letter to the New Yorker last week, Pierluisi said Puerto Rico’s political status was the “root cause” of the economic problems that have compounded over the past decade. “Each year, Puerto Rico loses out on billions of dollars in federal spending and tax credits that Congress sends to the states. To compensate for the shortfall in federal funding, Puerto Rico’s government has borrowed heavily in the bond market,” he wrote.

Jose Aponte-Hernandez, former speaker of Puerto Rico’s House of Representatives, penned an op-ed in the Hill newspaper in March that linked the economic situation with a call for statehood. “Because of the uncertainty of what would happen to our island and the restriction placed upon her by what can only be described as a ‘colonial government,’ Puerto Rico has not been able to promote itself, to use its resources to better the quality of life of its residents,” he wrote.

Padilla opposes statehood, and he has said before it would turn the island into a “Latin American ghetto.” As the territory hurtles toward a $630 million bond-payment deadline in July, Padilla’s been focused on pushing through an overhaul of the tax system -- and facing plenty of resistance from the territory’s House of Representatives, including some in his own party.

But the long-standing stalemate between supporters of the status quo and supporters of statehood isn’t about to shift anytime soon, said Amilcar Antonio Barreto, an associate professor of political science at Northeastern University who has specialized in Puerto Rican politics. The current debt crisis will only dim the prospects for the pro-statehood camp, he said.

“An economic crisis of this magnitude makes it a lot easier for those who oppose statehood to just wash their hands of the whole thing,” he said, noting that Congress hasn’t engaged the statehood idea seriously for decades. “For better or worse, Puerto Rico is going to muddle along as a commonwealth with no consensus and no change in status, and Congress can breathe a sigh of relief.”

Statehood supporters have long championed the cause as a matter of civil rights, saying that Puerto Ricans deserve the same representation in the U.S. political system and the same access to federal programs that states do. Opponents say the financial burden of statehood -- including billions of dollars in federal taxes -- would be a serious economic blow to the island.

In 2012, Puerto Rico held a referendum on its political status, with 54 percent of respondents showing support for some change from its existing commonwealth status. But it drew a polarized response, as critics said the secondary question of what alternative status respondents would favor didn’t include any options for an “enhanced commonwealth,” which politicians such as Padilla favor. About 24 percent of respondents left their ballots blank for that question, leaving an inconclusive result on where the island stands on statehood. Last year, the federal government granted Puerto Rico $2.5 million to hold another plebiscite on the issue, which Padilla said could happen by 2016.

Meanwhile, the political calculus could shift in a different way as thousands of Puerto Ricans have migrated from the island in recent years and continue to do so. The Pew Research Center projects the population of Puerto Rico will decline from its current 3.7 million to about 3 million by 2050, with Florida -- frequently a key swing state in U.S. presidential elections -- as the top destination for those who depart. While Puerto Ricans can’t vote for president from the island, they are perfectly able to do so once they establish residency in a U.S. state, and their swelling presence in Florida is drawing some predictions that the Puerto Ricans’ influence in the state could rival that of Cubans.

It’s unclear whether the mainland migration will shift the statehood debate as it draws closer to Washington’s ears. But the presidential candidates are keeping an eye on Puerto Ricans’ growing clout in Florida. Former Florida Gov. Jeb Bush, who hasn’t yet officially announced his candidacy for president, gave a speech in Puerto Rico in April that he employed to tout his long-standing support for statehood. “I think statehood is the best path, personally,” he said. “To get the full benefits and responsibilities of citizenship, being a state is the only way to make that happen.”