WASHINGTON – A group of 26 prominent economists is urging the Trump administration to support a massive infusion of federal aid to rebuild Puerto Rico’s economy.
“Puerto Rico now has a once-in-a-generation chance to rebuild its infrastructure and economic foundations” because of the severe damage caused by Hurricane Maria in September, the economists said in an open letter released Friday.
The group includes top economic policy advisory advisers from the Clinton and Obama administrations, including Nobel Prize winning economist Joseph Stiglitz, a professor at Columbia University who chaired the White House Council of Economic Advisers during the Clinton administration.
Stiglitz, along with letter co-signer Antonio Weiss, the U.S. Treasury’s point person on Puerto Rico’s debt crisis during the Obama administration, has already advocated that a court order a write-down of Puerto Rico’s massive debt. They joined Martin Guzman of the University of Buenos Aires, another letter co-signer, in a December opinion piece published in The Washington Post advocating that course of action.
“I think we have to try new measures. I think we have to try new approaches,” Mario Marazzi, executive director of the Puerto Rico Institute for Statistics who also signed the letter, said in an interview. “If the U.S. wants to have prosperous territories it has to do something about it.”
Other signers of the new letter include Jason Furman, who chaired the White House Council of Economic Advisers during the Obama administration, and Gene Sperling, assistant to the president for economic policy the Clinton and Obama administrations.
Puerto Rico endured a decade of a contracting economy and a debt crisis before Hurricane Maria struck in September. Forty percent of the island remains without electricity four months later.
“Puerto Rico might never recover and keep hemorrhaging in population,” Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington and a signer of the letter, said in an interview. “From my viewpoint, it’s even irrational from the creditors’ point of view.”
The letter does not weigh in on the quality of the federal hurricane disaster relief, Thea Lee, president of the Economic Policy Institute who also signed the letter, said in an interview.
“I think the politics have been delicate and it’s been hard to move forward,” she said.
The letter’s release comes while the Senate remains deadlocked over how much to increase an $81 billion disaster aid package approved in December by the House for hurricane victims in Puerto Rico, the U.S. Virgin Islands, Florida and Texas.
Senate Democrats led by Minority Leader Chuck Schumer of New York and Patrick Leahy of Vermont, the ranking member of the Senate Appropriations Committee, have criticized the House package as insufficient.
The disaster aid bill needs a 60-vote supermajority in the Senate for passage, meaning that the Republicans need the support of at least nine Democrats.
Puerto Rico alone has estimated it needs $94 billion in federal aid.
Both U.S. territories are requesting the federal government to temporarily pick up 100% of the cost of Medicaid health services for low-income families as was done for victims of Hurricane Katrina in Louisiana.
The House-passed bill failed to do that. Puerto Rico continues to pay a 45% share of the medical treatment of Medicaid patients.
And the tax law changes enacted last month failed to provide parity for the U.S. citizens living on Puerto Rico in claiming the child tax credit or earned income tax credit.
Although residents of Puerto Rico are not required to pay federal income taxes, they do pay federal payroll taxes for Social Security and Medicare that supporters of the tax credits say should be refundable to low-income families.
The economists' letter drew attention to the fact that the island’s economy “was already caught in a serious downward spiral” of contraction even before the hurricane.
Although Congress responded to Puerto Rico’s inability in 2015 to make debt payments with the enactment of the Puerto Rico Oversight, Management and Stability Act (PROMESA) in June 2016, “the law did not provide any additional federal funding,” the economists said.
PROMESA created the Financial Oversight and Management Board of Puerto Rico which approved a 10-year fiscal plan in March 2017 that “did not provide for economic recovery,” the economists said.
“As a result, the economy was not expected to return to growth for another decade, and probably substantially longer than that, because of a number of unrealistic assumptions,” said their letter. “These assumptions included a failure to take into account the full multiplier effect of spending cuts and the loss of tax revenues as the economy declines; an underestimation of expected out-migration (even without the hurricane); and an over-optimistic view of how structural reforms, such as pension and other spending cuts, or downsizing the government labor force might stimulate growth, when the most likely effect is the opposite.”