There is a crisis afoot: Puerto Rico’s economy is collapsing. The territory owes about $73 billion in bond debt and $49 billion in unfunded pensions. In May, the Governor of Puerto Rico, Ricardo Rosello, filed for a protection ‘similar’ to bankruptcy hoping to restructure the territory’s massive debt.

However, since filing for the protection, things have only gone downhill.

The territory’s budget has still not been approved by the Federal Oversight Board, it’s attempting to sell its ports to private contractors in order to raise capital, and its power utility (the Puerto Rico Electric Power Authority) just filed for bankruptcy after it was unable to restructure its $9 billion debt.

It is still unclear at this moment how this economic crisis will be solved. But here’s what you need to know about Puerto Rico as it makes its way into the national debate.

How Puerto Rico Got To This point?

Puerto Rico’s economic status has always been in limbo. Its precarious situation as a U.S. territory made it the island with the highest per capita income in the Caribbean.

However, in 1996, President Bill Clinton decided to phase out longstanding tax incentives for companies located on the island, which helped stimulate economic growth for decades. Once the rollback of those exemptions ended in 2006, corporations and jobs left the island and economic growth stagnated while unemployment rose.

This is compounded by two unique aspects of Puerto Rico’s situation as a territory. For one, tax rates are incredibly low–exempt from federal income taxes, residents only need to pay a 4 percent tax on income earned on the island. Additionally, citizens of Puerto Rico are also U.S. citizens, granting them the ability to freely move to the mainland. When it became clear that jobs were no longer coming to Puerto Rico, many residents left the island, depleting workforce and leaving smaller tax base to draw from.

With a lack of tax revenue, Puerto Rico’s government needed revenue to balance its budget. Instead of raising taxes or cutting spending it issued government bonds to raise money for much of the difference. The bonds are incredibly valuable to investors from outside Puerto Rico. Its status as a territory means the bonds are exempt from local, state, and federal taxes. But due to the long recession, the government could not generate enough the revenue to pay the bonds back, and in 2014, its bonds were downgraded to “junk” status.

Furthermore, island’s government is incredibly inefficient. For example, the island’s main power company has accrued a debt worth more than $9 billion, partly by providing free electricity to municipal building and projects that barely generate any profit for the government. For instance, the utility company provided free electricity to an ice-skating rink built in the city of Aguadilla (it’s expensive to keep ice cold in the tropics!).

Falling corporate interest in investing in the island, low tax rates, attractive government bonds, and an inefficient government all led the territory to accumulate a massive debt that it couldn’t escape.

Pension Problems

Not only does Puerto Rico owe billions to its creditors, but it also owes a large sum to its own people in the form of unfunded public pension programs. In addition to Puerto Rico’s bond debt, it has about $49 billion worth of unfunded pension commitments.

Since the 1990s, Puerto Rico has slowly but surely reduced payments to its employee retirement program, to the point where its public pensions became significantly underfunded. Furthermore, the population in Puerto Rico is getting older, with 14.2 percent of its residents above the age of 65. As the local workforce shrinks and the population ages, the territory’s unfunded pension commitments will become an even larger issue.

But the owners of Puerto Rico’s bonds are demanding that they are paid their debts first even if that means further cuts to public programs such as education and healthcare.

Is A Solution Possible?

The situation is dire for the citizens of Puerto Rico, they are almost completely out of money and President Trump has stated that he will not bail out the island.

One solution that could enhance the government’s financial situation is for the territory to seek statehood. Gov. Rosello recently held a referendum to gauge public interest in statehood. If Puerto Rico becomes a state, the economic recovery from the debt crisis could be a lot quicker with the backing of the federal government. The result of the referendum was an overwhelming 97 percent in favor of statehood, but only 23 percent of voters participated. Critics have said that despite the vote’s margin, the plan is not favored among the entire population.

Experts have pointed to debt forgiveness as the best possible solution to solving Puerto Rico’s debt. If austerity measures are put in place, Puerto Rico will need to pay off its debts to creditors first, which would mean the people who rely on the publicly funded programs such as schools, health care, and pension payments suffer. Furthermore, cutting back on public spending will only make for a longer and more painful economic recovery.

James Levinson

James Levinson is an Editorial intern at Law Street Media and a native of the greater New York City Region. He is currently a rising junior at George Washington University where he is pursuing a B.A in Political Communications and Economics. Contact James at staff@LawStreetMedia.com

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On Sunday, June 11, Puerto Rico voted in a non-binding referendum to become the 51st U.S. state. While that doesn’t necessarily mean much–it certainly does not in any way guarantee that Puerto Rico will actually become a state–it does fit into the overall conversation about the island’s relationship with the United States. Puerto Rico has been a U.S. territory for just over 100 years, and discussions about its relationship with the United States have been constant since then. Read on to learn about Puerto Rico’s potential bid for statehood and what could be next for the territory.

A Brief History of Puerto Rico’s Status

Puerto Rico officially became a territory of the United States on March 2, 1917, when President Woodrow Wilson signed the Jones-Shafroth Act. This act made the people of Puerto Rico citizens of the United States and made Puerto Rico an American territory. The island had been in U.S. possession for about 20 years prior to that point. Spain had ceded the area, as well as Guam and the Phillippines, to the U.S. with the Treaty of Paris that ended the Spanish-American War.

The Jones-Shafroth Act set up a government in Puerto Rico and defined the relationship between the island and the United States. In 1952, Puerto Rico officially became a commonwealth, meaning that it has its own constitution.

But despite such a long history, the relationship has remained contentious. While Puerto Ricans are American citizens, the region doesn’t necessarily enjoy the same privileges as a state. For example, Puerto Ricans don’t have a voting representative in Congress, nor are they able to vote for President (although, interestingly enough, they can vote in primary elections).

Statehood Votes in the Past and Present 

Puerto Rico has voted on the question of statehood four times prior to this weekend’s vote. The first time was in 1967; in that vote, only 39 percent of Puerto Ricans voted for statehood. In 1993, 46 percent voted for statehood. Next, in 1998, 46.5 percent voted in favor of statehood. In 2012, a majority of Puerto Ricans voted for statehood for the first time. At that point, 61 percent of Puerto Ricans said “yes” to the statehood question–although the validity of that number is actually contested.

In the referendum held on June 11, 2017, 97 percent of Puerto Ricans voted in favor of statehood. But it’s important to note that the vote is actually under some criticism. It had a very low turnout–only 23 percent of registered voters participated. That’s the lowest turnout in an election in Puerto Rico since 1967. And that low turnout was largely due to a boycott organized by parties that opposed statehood, which claimed that the vote was “rigged” in favor of statehood. They complained that the ballot question had been phrased in a way that made not voting for statehood seem negative. Although there was a huge majority that voted in favor of statehood, the criticisms of the referendum may mean that it’s not regarded as a legitimate vote.

The video below goes into more detail about the recent vote:

Arguments in Favor and Against Statehood

The debate is complicated–rife with historical, political, and cultural concerns. But here are some of the most popular arguments for and against Puerto Rican statehood.

Arguments in Favor of Statehood 

Those who want to see Puerto Rico become a state claim that it will be better for the area. Currently, the economic situation on the island is dire. Puerto Rico is bankrupt, and as a result, the government has had to implement austerity measures, including closing some public schools. The tax situation in Puerto Rico is also complicated–people who live there don’t have to pay federal taxes on the money they make on the island. But that means that it also doesn’t reap the financial benefits of being a state, like its share of income and corporate tax revenue. According to Frances Robles of the New York Times: “If Puerto Rico had been a state in 2011, it would have received up to $3 billion in additional funding for Medicaid and Supplemental Security Income payments alone, according to a federal Government Accountability Office report.” Statehood advocates claim that with that money, Puerto Rico wouldn’t be in such dire straits.

There’s also a political argument to be made. While Puerto Ricans can vote in party primaries, they are not able to vote in the presidential or vice presidential elections. Additionally, they have no voting representatives in Congress. Advocates of statehood argue that Puerto Rico won’t be able to effectively advocate for itself or its 3.5 million people until it has political representation on par with the rest of the United States (minus other territories and the District of Columbia). Some Puerto Ricans believe they are being treated as “second-class citizens.”

The current governor of Puerto Rico, Governor Ricardo Rosselló, supports Puerto Rican statehood. After the vote on June 11, he stated:

It will be up to this new generation of Puerto Ricans to demand and claim in Washington the end of the current improper colonial relationship, and begin a transition process to fully incorporate Puerto Rico as the next state of the Union.

What Are the Arguments Against Statehood?

There is also a range of arguments for why Puerto Rico should not become the 51st American state. Some argue that it doesn’t make sense to grant statehood to Puerto Rico because of its financial situation. It could be a burden on the rest of the United States to help the island out of its economic struggles.

There’s also an argument that Puerto Ricans don’t actually want it to become a state. The first three times the question was posed–the 1967, 1993, and 1998 votes–Puerto Ricans rejected statehood. While the 2012 vote is cited as the first time that Puerto Ricans voted for statehood, that conclusion is contested, because votes that were essentially abstentions were included. And the most recent vote, the one that garnered 97 percent in support of statehood, remains hotly contested because of the boycotts against it.

There are cultural arguments against statehood as well, including that Puerto Rico’s culture could be watered down if it is fully incorporated into the United States. Puerto Rico has some unique features as a territory of the United States–for example, it sends its own delegation to the Olympics and its own beauty queen to Miss Universe. Some argue that the island will lose part of its identity if it becomes the 51st state.

Conclusion: What’s Next?

Probably not that much. The vote that Puerto Rico held over the weekend is non-binding. Congress has the final say on making Puerto Rico a state. Puerto Rico could follow something called the “Tennessee Plan.” In that situation, Puerto Rico’s governor would appoint a delegation proportional to its population–two Senators and five Representatives–to go to Washington, D.C. and demand to be seated. This is the process by which Tennessee became recognized as a state, as well as Michigan, Iowa, California, Oregon, Kansas, and Alaska.

While the Republican Party has long supported Puerto Rican statehood, the addition of seven new colleagues on Capitol Hill, all of whom are likely to be Democrats because they will be appointed by the Democratic governor, would likely not sit well. Additionally, it’s unclear how the Republican Party’s current standard bearer, President Donald Trump, feels about potential statehood. He has tweeted negatively about not wanting to “bail out” Puerto Rico. Long story short, it seems very unlikely that there’s going to be a big change anytime soon when it comes to Puerto Rico’s lack of statehood.

Anneliese Mahoney

Anneliese Mahoney is Managing Editor at Law Street and a Connecticut transplant to Washington D.C. She has a Bachelor’s degree in International Affairs from the George Washington University, and a passion for law, politics, and social issues. Contact Anneliese at amahoney@LawStreetMedia.com.

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President Obama stirred up an old debate recently by becoming the first sitting president to endorse statehood for the District of Columbia. Obama expressed his full support: “I’m in DC, so I’m for it…Folks in DC pay taxes like everybody else. They contribute to the overall well being of the country like everybody else. There has been a long movement to get DC statehood, and I’ve been for it for quite some time.”

Here’s what you need to know about Washington DC’s contentious battle for statehood, what it would mean for District residents, and what impact it would have on the country.

Why was the District of Columbia created?

To understand the arguments for statehood, you have to understand the history of Washington, DC. The District of Columbia was specifically created to house the federal government. The authors of the Constitution wanted to house the federal government in its own jurisdiction after witnessing the problems of having the nation’s temporary capital in Philadelphia. The decision was made in 1787 following an incident in which the governor of Pennsylvania refused to disperse rioters threatening Congress in Philadelphia. The framers did not want the federal government to be subject to any decisions of a specific state or governor. So, the delegates wrote Article 1, Section 8 of the U.S. Constitution to outline Congress’ control over the district:

“[The Congress shall have Power] To exercise exclusive legislation in all cases whatsoever, over such District (not exceeding ten miles square) as may, by cession of particular states, and the acceptance of Congress, become the seat of the government of the United States.”

Congress moved to a new federal capital in 1800, and the District still stands today on land ceded by Maryland. Residents of the District face a number of unique circumstances because it is not a state.

Originally, DC residents were barred from voting for president. It was not until 1961 that the passage of the 23rd Amendment finally secured three electoral votes for the District. DC residents also elect one non-voting member to the House of Representatives.

The District of Columbia has operated under a system of Home Rule since 1973 as a way to better govern local affairs. Home rule means that DC is allowed a local government, including a directly elected mayor and city council. Still, Congress has the ultimate authority and the power to overturn any laws passed by the local government.

Why do people push for DC statehood?

Right to Vote

Residents of DC express outrage that they pay federal and local taxes, are subject to the same laws as everyone else, fight in wars, and serve on juries, yet they lack the same Congressional representation. The argument is also made that this disenfranchisement comes from a legacy of racism aimed at the District’s majority African-American population. Those in favor of statehood want the full rights of being an American citizen, which includes full representation in Congress as well as full control over local affairs. In addition to lacking voting power, DC’s representative in Congress is denied a federal salary and an office. License plates in DC decry residents’ lack of status with the slogan “Taxation without Representation.” Watch President Obama’s remarks on DC statehood below:

Local Control

Many citizens are fed up with the limitations of DC’s Home Rule. Since Congress can overturn any law, it has exerted its power on a number of issues passed by DC residents. Congress has intervened to restrict abortions, to prevent restrictions on firearm ownership, and even to control marijuana issues. Congress has also barred DC from using local tax dollars on specific things, such as statehood advocacy and needle exchange programs.

Taxes

Citizens claim they do not have enough financial resources to pay for high-quality public services. Although DC is not a state, it has all the financial burdens of one. It provides local services, like public schools and a police force, but it also provides services typically dealt with at the state level, like mental health and Medicaid. DC has limited taxing powers. The District cannot tax income earned within its borders by non-residents, even though all other states have that power. Two-thirds of income in the District is made by people who do not live in the District, yet they pay no income tax.  Additionally, the federal government, embassies, and non-profits that occupy most of DC pay no property, sales, or income taxes. The small size of the city and disproportionate number of low-income workers with higher needs for public services strain the District financially. Still, DC residents pay the highest federal taxes per capita.

Growing Population

Washington DC’s fast-growing population of approximately 650,000 — larger than Wyoming or Vermont — is large enough to make it a state. According to the Washington Peace Center, DC as a state could bring in more than $2 billion a year in additional revenue. This would allow the local government to cut taxes and better fund schools and services. Freeing itself from Congressional oversight would also make the district more efficient. Watch more about the DC statehood movement below.

Shutdowns

The 16-day federal government shutdown during Fall 2013 illustrated issues with DC dependency on federal funds and approval. DC Mayor Grey did not shut down local services but suspended some payments so the city could remain operational. Mayor Grey warned that vital city services were dangerously close to ending as the city’s emergency funds were depleted. Allowing DC the autonomy of statehood would prevent these issues in the event of a federal government shutdown.

Legally, how would statehood be achieved?

Despite President Obama’s supportive statement, making DC a state is unfortunately not within his power. There are a couple of avenues that the District of Columbia could take to obtain statehood.

Constitutional Amendment

There is some debate as to whether an amendment could make DC an official state, but it could definitely give DC’s residents much greater rights and further define the area of the federal district. Two-thirds of Congress would have to approve a matching constitutional amendment. Alternately, two-thirds of state legislatures could call a Constitutional Convention. The amendment would then be sent to the states for ratification by three-fourths. Naturally this process would be very difficult. A proposed amendment in 1985 to give DC more voting power was only ratified by 16 states in the allotted seven-year span. Further, critics point out that any constitutional amendment could later be repealed.

Law

Article 4, Section 3 of the Constitution outlines the creation of new states.

“New States may be admitted by the Congress into this Union; but no new States shall be formed or erected within the Jurisdiction of any other State; nor any State be formed by the Junction of two or more States, or parts of States, without the Consent of the Legislatures of the States concerned as well as of the Congress.”

Under this section, an act of Congress could make DC its own state with a simple majority vote and signature from the President. This was the same process followed by Hawaii and Alaska as recently as 1959. There is some question as to whether Maryland would need to approve statehood, since DC was formed on land from Maryland. Still, bills are introduced to Congress nearly every year, but none has been brought to a vote since 1993. Most Congressional leaders like the idea of admitting states as pairs, so there is a good chance any vote to make DC a state would also include a bid of statehood for Puerto Rico.

Proposals for giving DC Congressional representation are much more common than bills for complete statehood. These bills have not been met with success. Some contend that giving District residents the right to vote may not even be within Congress’ power.

What are the current proposals?

Previous campaigns for statehood have referred to the new state as “New Columbia,” and the name is still associated with the movement today. The New Columbia Admissions Act was introduced in 2013 before failing to make it out of committee. The Act closely follows the proposed constitution ratified by DC voters in 1982. The plan would create a new state while still keeping a much smaller area of DC a federal district. The area of the federal district would shrink substantially, but would include all important federal buildings like the Capitol, White House, and Supreme Court. The Constitution sets an upper limit on the size of the District at 10 square miles, but no lower limit is set. All of the other residential land currently in DC would then become the 51st state. New Columbia would be granted the same rights as any other state in the Union.

To advance its agenda, the District of Columbia still selects members to a shadow congressional delegation that lobbies Congress to grant statehood and voting rights. The positions were authorized by a “state” constitution in 1982 authorized by voters, but this delegation is still not recognized by Congress. Numerous groups in DC continue to lobby for statehood. Watch DC Congresswoman Eleanor Holmes Norton speak on statehood below.

What are the arguments against statehood?

In Federalist No. 43, James Madison argued that the District of Columbia needed to be independent for maintenance and safety concerns. Madison wrote,

“A dependence of the members of the general government on the State comprehending the seat of the government, for protection in the exercise of their duty, might bring on the national councils an imputation of awe or influence, equally dishonorable to the government and dissatisfactory to the other members of the Confederacy.”

Arguments against statehood today follow similar lines. Americans are concerned that the federal government would be dependent on a single state to cover its security and general operations. With such great power, a state could restrict the federal government in ways that would not be beneficial to the rest of the nation. However, the plan to keep important governmental buildings as a federal district largely mitigates these concerns.

The uniqueness of the DC area makes statehood very difficult politically. Some of the arguments opponents have:

• Similar to all states with relatively small populations, DC’s small size and population would give it an unfair influence in politics.
• The liberal area would be a stronghold for Democrats, and DC would always send Democrats to Congress.
• The interests of the District would be dominated by the federal government, since it would be the state’s largest employer by far.
• The state would be the only one without rural residents. This means the representatives would share none of the interests held by non-urban areas.
• A state could enact a commuter tax on non-residents who come to the state to work. Such a tax is currently banned under Home Rule.
• The constitutional question of whether the state of Maryland would have to consent to the new state, since the district was formed on land granted by Maryland.
• Some people flat out do not want to witness a strange-looking flag with 51 stars. But not to worry, numerous 51-star flags have already been designed, and they don’t look too bad.

Courtesy of jacobolus via Wikipedia

Are there any other alternatives to statehood?

Most citizens in favor of DC statehood oppose settling for anything less. Some propose bills to grant voting representation to members of DC, such as simply allowing DC’s representative in the House of Representatives the power to vote. Others worry these laws could be undone by the next Congress — and Congress may not even have the authority to make such a law.

Others propose some sort of tie with Maryland. This could mean parts of DC being given back to Maryland. However, neither Maryland nor DC really want to merge. A less drastic solution is Congress restoring the voting rights of District residents by allowing them to vote as a part of Maryland while maintaining the integrity of the District. Still, residents want voting as well as increased autonomy over local affairs.

Issues over DC statehood will not soon be resolved unless residents can be better provided some method of true representation. Most recently in the never-ending saga of DC residents, issues arose with DC driver’s licenses not being considered a valid form of ID by uninformed TSA agents. The good news is DC statehood would likely make the lives of TSA agents much easier.

Resources

Primary

Senate: New Columbia Admission Act

The District of Columbia: Statehood

Additional

Week: Obama Endorses Statehood for Washington, DC

Daily Caller: Obama Endorses DC Statehood

Huffington Post: Let’s Settle This Once and for All: DC Statehood is Constitutional

New Columbia: Vision

Brookings: If the District of Columbia Becomes a State: Fiscal Implications

Neighbors United for DC Statehood: FAQs

Mother Jones: DC: The 51st State?

Washington Post: Budget Deal Reminds DC That Congress is Still in Charge

Washington Peace Center: DC Statehood: A Primer

Brookings: A Sound Fiscal Footing for the Nation’s Capital

Hill: Denying DC Statehood Continues Federal Overreach

Smithsonian Magazine: Designing a 51-State Flag

Hill: DC Delegate to Meet with TSA

Leadership Coalition: Why DC Voting Rights Matter

Alexandra Stembaugh

Alexandra Stembaugh graduated from the University of Notre Dame studying Economics and English. She plans to go on to law school in the future. Her interests include economic policy, criminal justice, and political dramas. Contact Alexandra at staff@LawStreetMedia.com.

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