U.S. House of Representatives Democrats took steps in June towards providing Puerto Rico with $2.2 billion to $4 billion a year in more funding beginning this October 1st. The grants to the territorial government would be for three programs for low-income individuals.
With Congress returning from its August recess next week, it remains to be seen how far and how quickly each of these proposals will advance.
The PROMESA Financial Oversight and Management Board formally supported the efforts even though the funding would cause the Board’s Fiscal Plan for the territory to understate the insular government’s resources by billions of dollars a year and should require changes in: that plan; the debt reduction plan for the government that the Board has said it will submit to the PROMESA bankruptcy court by mid-July; and the budget for the fiscal year beginning July 1st that the Board will, presumably, impose on the government.
The most concrete action was taken by the Ways and Means Committee. On June 20, it passed a bill authored by Committee Chairman Richard Neal (D-MA) that would expand the Earned Income, Child, and Child and Dependent Care Tax Credits more than $101.7 billion over 10 years with nearly $45.8 billion of that coming in Federal Fiscal Year (FY) 2020 and almost $39.2 billion in FY 2021.
The bill would provide grants to the local governments all five U.S. territories for Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) costs. In the case of Puerto Rico, the EITC grant would be a $612 million match of the territory’s revived this year $204 M local EITC.
The CTC grant would be for an estimate of what the Federal CTC would provide, with the grant replacing the current limited Federal direct CTC payments to workers with three or more children in the territory (whereas workers with any number of children are covered in the States and the District of Columbia). Estimates from the Congress’ Joint Taxation Committee (JCT) suggest that this could provide Puerto Rico with an additional $633 million in Federal FY22, increasing to $659 million in FY25, before decreasing to $333 million in FY27 and continuing at that level.
The funding would start in FY20 but the JCT’s estimates for fiscal years 20 & ’21 include the territories amounts in approximately $23 billion in national increases for those years. The funding would decrease after FY25 because the 2017 Federal tax reform provided for a temporary increase in CTC benefits.
Chairman Neal has more constituents of Puerto Rican origin in his district than almost any other Member of the House of Representatives. Many are relatively recent migrants.
The vote on the bill was 22-19, with three Democrats voting against it. A key issue was that the legislation did not provide offsets for its costs.
Chairman Neal had earlier floated two ideas for funding the bill: increasing corporate and estate taxes cut in the 2017 Tax Reform but he dropped the ideas due to opposition. He said that provisions to pay for the cost of the bill without increasing the Federal deficit would be added to the measure before full House consideration.
The EITC grant was suggested by the Obama Administration in announcing its package to assist Puerto Rico that ultimately became PROMESA. The U.S. Treasury Department, however, made almost no effort to obtain passage of the EITC grant in or along with PROMESA.
Equal treatment of Puerto Ricans in the CTC was the biggest concrete recommendation of PROMESA’s 2016 bipartisan, bicameral Congressional Task Force on Economic Growth in Puerto Rico.
The Task Force divided on party lines on extending the EITC to Puerto Ricans, with Democrats in favor and Republicans wanting to explore the idea further.
Another major Task Force recommendation was to prevent Puerto Rico and the other territories from falling off a Federal Medicaid funding cliff in 2017 and establish a more “sustainable” financing arrangement for territorial programs with more “equitable” Federal contributions. The precipitous drop in Federal funding has since been postponed by appropriations until the end of next March.
Although the Federal share of Medicaid costs in territories is ostensibly 55%, permanent law limits the grant to Puerto Rico to an amount indexed for inflation that this year is about $380 million, about 14% of the territory’s $2.669 billion in Medicaid costs this year. The costs are expected to rise to $2.789 billion next Federal fiscal year.
Energy and Commerce Committee Chairman Frank Pallone (D-NJ) told a hearing of his Committee’s Health Subcommittee on Medicaid in the territories that he hoped a bill introduced by seven Democrats and Puerto Rico’s Resident Commissioner Jenniffer Gonzalez-Colon (R-PR) would be “the roadmap” for “a long-term solution” to the issue of funding Medicaid in the territories. His words were echoed by Subcommittee Chairwoman Anna Eshoo (D-CA), who declared that “we must resolve” the issue “once and for all . . . It would be a form of negligence to allow this to continue.”
The bill, which has as lead sponsors Nydia Velazquez (D-NY) and Energy and Commerce Committee Member Darren Soto (D-FL), both of Puerto Rican origin, would provide Puerto Rico with up to $15.095 billion for 83% of the costs of its Medicaid program over five years beginning in Fiscal Year 2020. The Federal grant beginning October 1st would be $2.823 billion. The amount would increase to $3.226 billion in FY24. After that, there would be 10-year phase-in to equal funding with the States.
The senior Republican on the Committee, Greg Walden (R-OR) said that the territories should not all be treated the same as each other in increased Medicaid funding legislation, and the senior Republican on the Health Subcommittee, Michael Burgess (R-TX), said that controls to ensure proper use of the monies need to be part of the legislation.
The hearing followed by a few days a report to the Congress from its Medicaid and Children’s Health Insurance Program Advisory Commission (MACPAC) on Puerto Rico’s Medicaid funding needs in response to a request from the then Republican-controlled House Appropriations Committee. MACPAC reported that the territory needs an additional $1.01 billion for Federal FY20 and suggested that larger amounts would be needed in subsequent years.
President Trump has opposed increased funding for Medicaid in Puerto Rico primarily because the PROMESA Financial Board’s Fiscal Plan for the islands calls for the territorial government to make up the drop in Federal funding with local revenue and Federal funding would, therefore, free up territorial revenue now planned to be spent and increase the surplus that bondholders could claim.
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