Congress Team Going to Puerto Rico for Statehood ‘Cost’ Study

Congressional researchers plan to travel to Puerto Rico next month to gather information for a study intended to make it more difficult for the territory to obtain statehood.

A Puerto Rico plebiscite last November petitioned the Federal government to begin a transition of the islands to statehood. Earlier this month, President Obama sent legislation to Congress for another vote in the territory to confirm the political status aspirations of Puerto Ricans.

The purported purpose of the study is to estimate the Federal budgetary impacts of Puerto Rico statehood — but the report may well provide a misleading picture of a net cost.

The goal of the study request is to discourage Congress from granting statehood at a time when the Federal government is wrestling over how to get an excessive budget deficit under control.

The request was made by the chairmen of the lead U.S. House of Representatives committee and subcommittee on territories issues: Natural Resources Committee Chairman Doc Hastings (R-WA) and Fisheries, Wildlife, Oceans and Insular Affairs Subcommittee Chairman John Fleming (R-LA).  In 2010, Hastings said that statehood for Puerto Rico “would come with significant costs.” He also released his own calculation of the cost of treating Puerto Rico equally with the States in 10 Federal programs. The estimate ranged between $4.5 billion and $7.3 billion a year. (See chart below.)

The Government Accountability Office (GAO), a respected, non-political investigative arm of Congress, is conducting the study. GAO does reports at the request of leaders of congressional panels — but it is limited to researching what it has been asked to do.

In this case, the Hastings’ initiated inquiry was originally only to calculate the budgetary costs of equal treatment of Puerto Rico in selected Federal programs, similar to Hastings’ 2010 calculation. After it was pointed out that such a report would be misleading, however, GAO obtained approval to also estimate increases in Federal revenue from statehood.

But the eventual report is still likely to be misleading on a net budgetary cost.

• Because Puerto Rico is treated very unequally in some major programs and in most tax laws, it has always been recognized that there would need to be a multi-year transition for the territory to become a State. This would enable economic changes in the islands and impacts on the Federal and territorial budgets to be more easily accommodated through phase-ins of equal treatment. It has not been planned for the GAO report, however, to illustrate a real-world progression of budget costs and benefits. Instead, the study is to provide a static, one-year estimate that will suggest a much more immediate, substantial budget impact.

• GAO is not factoring the cost to the Federal and State governments of the massive relocation of Puerto Ricans to the States because of greater Federal and State program benefits and other greater economic opportunities in the States than in the territory. The States are now home to some 1.6 million citizens born in Puerto Rico and approximately 4.6 million people of Puerto Rican heritage.

• The study is not examining how statehood could be implemented on a budget-neutral basis. In 1989-90, U.S. Senate committees approved a bill that would have implemented statehood for Puerto Rico with no cost to the Federal government by adjusting program and tax laws and providing for a transition.

• GAO is not using current program and tax data because it is difficult to obtain. The older numbers being used would overstate costs and understate revenues because of reductions in Federal spending and increased taxation that began to take effect this year.

Critically, GAO has also been having a hard time in obtaining information necessary to calculate increased revenue from equal taxation, particularly the income of manufacturing operations in the territory owned by companies in the States but headquartered in foreign tax havens. Most of the manufacturing in the islands is done by such companies — and manufacturing accounts for 42-48% of Puerto Rico’s Gross Domestic Product.

The study, additionally, needs more information to project changes in Puerto Rico’s economy that would result from statehood. Statehood resulted in transformative investments in the economy of Hawaii, the last State to enter the Union and, like Puerto Rico, islands separated from the rest of the country by many miles of ocean.

Hastings initiated the study request last year anticipating that statehood would win Puerto Rico’s plebiscite.

He plans a Committee hearing this year on the plebiscite. It is likely that he would use the GAO report in the hearing.

In addition to cost, Hastings has questioned whether a State of Puerto Rico should have Spanish as well as English as an official language — as the territory of Puerto Rico does now and similar to Hawaii’s Hawaiian and English official languages.

Despite Hastings’ opposition, however, the House of Representatives overwhelmingly approved legislation in 2010 including statehood as an option for Puerto Rico.

cost of Puerto Rico statehood

 

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