Puerto Rico’s Debt Crisis: Spiraling Towards Statehood?

ANNELISE DEL RIVERO—The United States’ favorite territory is in trouble: Puerto Rico is currently sinking fast under a crippling debt of over $70 billion dollars. Puerto Rican leadership admitted in 2015 that the territory will be unable to pay its debts and is running out of money.  The outlook on the island is bleak—unemployment is at over 12 percent, the poverty rate is at 45 percent (a dramatically higher rate than the rest of the U.S.), and a large portion of the population is on Medicaid. The level of financial distress has reached such a high that a potential humanitarian crisis looms on the horizon if Puerto Rico is not bailed out. The territory has “no cash left” and may face difficult choices between providing health-care services and funding schools and police, or paying its debt. Puerto Rico’s own constitution has placed it between a rock and a hard place: it must satisfy government debt before it may engage in public spending or provide services to its people.

The island’s struggles are particularly unique. Because it is a commonwealth, Puerto Rico is treated like a state and cannot file for bankruptcy to alleviate its debt burden. Among its other pleas, the Puerto Rican government is asking Congress to allow Puerto Rico access to U.S. bankruptcy laws so that it may manage its debt more easily and rehabilitate its economy. This issue is currently being debated in Congress.

Interestingly, the changing face of the Supreme Court may help tilt the bipartisan debate on the issue. There is currently a case before the Court where Puerto Rico is seeking to revive a law that would allow it to restructure its debt. If the island wins on this case, it will strengthen the position that bankruptcy protection should be extended to Puerto Rico. Conservatives generally oppose the extension of bankruptcy protection to the island. However, Justice Scalia’s death and Justice Samuel Alito’s recusal from this case creates the possibility that the courts remaining liberal majority will find in favor of the restructuring law and, thus, generate support for bankruptcy protection for the island.

While Washington deliberates on the bankruptcy issue, the Puerto Rican government has taken its own drastic measures to alleviate the economic crisis, such as closing down local schools and raising sales taxes and prices on utilities. The result has been an exodus of Puerto Ricans to the American mainland. Citizens have relocated to Florida and other states seeking more stable economic environments. Those heading for the mainland are trying to get off what they perceive to be a sinking ship.

The proposed solutions to Puerto Rico’s debt crisis have been wide in range: allowing the territory access to bankruptcy protection, creating a Washington-based control board to oversee the island’s finances, and amending its constitution to allow it to continue paying for public services without satisfying its debt. Another proposed solution is accelerating Puerto Rico’s path to statehood and finally making the territory the 51st state. If it were a state, the island would have access to the same protections that states do and it would help improve the “economic death spiral” the island is currently on. While this issue is still developing, the financial situation on the island has reopened the possibility that Puerto Rico itself and not just its people may soon join the mainland.

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