The Federal government is looking very closely at the financial problems that Puerto Rico is grappling with, but can only offer advice but not money, Treasury Undersecretary for Domestic Finance Mary Miller said at the Bloomberg State & Municipal Finance Conference in New York on Wednesday.
Miller stressed she wanted to dispel two myths around about the situation: that the federal government doesn’t know what’s going on Puerto Rico and that there is a lot of federal aid right around the corner for the commonwealth.
“Puerto Rico has been fantastic in terms of communicating and providing a lot of transparency and disclosure about their economic and fiscal problems. And I think they have taken a lot of tough decisions to try and right the ship,” she said. “We all appreciate that these problems didn’t occur in the short term and they’re not going to be solved in the short term. And there is a lot of work ahead in Puerto Rico.”
But Miller added there is only so much the U.S. government can legally do.
“We would like to be as attentive and supportive as we can. But at the same time, we have to work within the confines of what the federal role is for state and local governments. And there is no Congressional authority for direct financial assistance to Puerto Rico,” she said.
Detroit
Turning to Detroit, Miller said that while Detroit has a very weak economic base there is also a strong political will in the city to get something done.
“You do need to focus on the economic base and bringing back economic activity back to Detroit,” she said. While there are many unanswered questions about the city’s future as it moves through Chapter 9 proceedings, “They’re making the right decisions and looking at the longer-term fiscal health of the city and making sure they can address some of their problems.”
Miller cited the retooling of the “Hardest Hit” program as one way the federal government has adapted programs to help a distressed city. Created under the Troubled Asset Relief Program, it was designed to send money to 19 states with the worst housing meltdowns.
“We recently worked to repurpose some of those funds (sent to Michigan), specifically to help Detroit,” she said. The money was originally designed to help homeowners with troubled mortgages. But in Detroit, “they needed to demolish vacant homes that no longer have homeowners in them with troubled mortgages to try and clear neighborhoods that have been subject to severe blight. We were able to repurpose those funds to allow Detroit to use the money for demolition.”
“And I think that’s an example of how we’re using existing federal resources in a way that is helpful to a specific locale,” she said.
State and Local Government Recovery
Speaking about the economic recovery in United States, Miller sees signs of progress at the state level even as things at the local government level improve more slowly.
“If we look at the state sector in particular, we see a recovery in revenue at the state level. And we’ve seen same type of progress in the Federal picture,” Miller said, adding that “If I look at tax collections and I look at the recent news on the deficit for Fiscal ’13, we’ve shown a lot of improvement, particularly in the last year. “
But she sounded a note of caution, tinged with optimism, about what’s going on in the localities.
“At the local level I think the recovery has been a little slower,” Miller said. “Localities are more dependent on things like their property tax base and because of the deep recession that particularly hit the housing sector and the commercial property sector, that’s been slower to recover. But we’re very heartened by what we’re seeing in the housing market and the recovery that we’re seeing there and we think that’s quite important to the broader economic recovery.”
She said her sense of the broader economy is positive.
“We continue to see economic growth. We’ve had 19 straight quarters of growth in the private sector and the public sector is also showing very important signs of health,” Miller says. “So I think the picture is pretty good.”
Tax-Exemption Debate
On the topic of tax-exemption in America, Miller said that in terms of fiscal reform and changes to the federal budget that a long-term view is needed and that everything must be up for debate.
“I think that President Obama did put everything on the table and that included a lot of tax exemptions including things like mortgage interest deductions and the tax-exemption on municipal bonds, that are very important to a broad swath of players in the economy. I have no idea how these things are going to play out but I do think that it is important to put everything out there for discussion.”
But she said she was unsure as to when that debate on reform would take place.
“I think there is a very good understanding of the importance of tax-exemption to the state and local sector and I think that will get a full airing if that goes forward,” she said. “Having said that, I have no insight into whether that will be a detail in the budget negotiations in December, which are very near-term But I think that seems like a pretty big issue to tackle in a matter of weeks, so we’ll see what the conferees go over in December.”
