Puerto Rico Could Lose More Funding than 40 States in Budget Cuts

Puerto Rico could lose more in Federal spending over the next nine and a half years than 40 States, the District of Columbia, and the other four territories of the United States under reductions in funding for most Federal programs that took effect March 1st.

The potential loss would be disproportionate in comparison to the U.S. territory’s population: Puerto Rico has more people than all but 21 States.

The cuts are mandated by an August 2011 Federal budget law compromise. But the “sequester” is really taking effect because Congress and the President have not agreed on how to reduce the Federal government’s budget deficit beyond the tax increases adopted this past New Year’s Day, which are expected to generate less revenue than required under the 2011 law.

When the President and Congress could not agree on spending cuts along with the tax increases January 1st, they delayed the 2011 law’s spending reductions until March 1, still hoping for an agreement.

One major reason for their hope was that the 2011 law’s cuts in defense spending are proportionately larger than the reductions for other programs, raising national security concerns.

Another reason for the hope was that program cuts will be one of five different percentages, depending on the type of program and not necessarily based on priority or the ability of programs to withstand cuts.

There are different cut percentages for: defense programs requiring annual funding by Congress; defense programs automatically funded on an annual basis; non-defense programs requiring annual, discretionary appropriations; non-defense programs that receive automatic funding; and Medicare.

The non-defense program reductions are a primary concern for Puerto Rico. These will reduce funding for Federal Fiscal Year 2013, which began October 1st, 2012, by an average between the annually appropriated and automatically funded programs of five percent. Because the reduction will all come out of funding for the last seven months of the fiscal year, the programs can have about nine percent less money for the seven months.

Puerto Rico will also feel the affects of the mandatory 2% accross-the-board cuts to Medicare and, to some extent, defense spending reductions.

The cuts continue through Fiscal Year 2022 — unless another budget agreement is reached.

Programs exempt from the sequester include many programs important to Puerto Rico: the Nutrition Assistance Program for Puerto Rico, a program similar to the Former Food Stamps program; meals in schools; Medicaid; Children’s Health Insurance; Pell Grants for post-secondary education tuition; transfers to the territory of Federal taxes on rum produced in the islands and in foreign countries; Veterans Administration; Temporary Assistance to Needy Families; and some highway and airport construction funding.

Exactly how much Puerto Rico and other jurisdictions will lose is uncertain. While the budget cuts have begun, the Federal Executive branch does not have to fully explain how the cuts in each program are being made until March 30th.

If the cuts are made from grants to State and territorial governments equally, Puerto Rico would lose about $120 million, more than all but 10 States.

The loss would be disproportionate to the territory’s share of the national population because the islands receive relatively large amounts of funding under programs that are being cut due to the relatively low income of its population.

Ironically, Puerto Rico is funded far less than equally in relatively large programs for low-income people that are exempt from the cuts, such as Nutrition Assistance, Medicaid, and Assistance for Needy Families.

Although Federal agencies have to reduce spending in each budget account by the same percentages, they have discretion on how to implement the savings within each account. In most cases at least, they will not take all of the cuts out of the program’s grants to States and territories. Most of the savings will come from reducing Federal costs in the programs. This will, in many cases, reduce services but not be identifiable on a State-by-State (or territory) basis.

A preliminary White House report issued on February 25th listed losses for Puerto Rico as:
* $4.9 million from primary and secondary education grants, ending services to 5,280 students and approximately 15 schools;
* Post-secondary tuition assistance for 342 students;
* 2,313 Work-Study jobs for post-secondary students;
* Services for about 2,400 children in Head Start and Early Head Start programs;
* $312,000 for fish and wildlife protection;
* $567,000 less for locating jobs for the unemployed, affecting 17,700 people;
* Child care for up to 300 children;
* Vaccinations for 1,610 children, costing $114,000;
* $356,000 for handling public health threats such as infectious diseases and natural disasters;
* $1.1 million for substance abuse treatment providing services to 300 people;
* HIV tests for 7,390 people, costing $269,000; and
* $79,000 for domestic violence, denying services to up to 300 victims.

If alternative deficit reduction measures are implemented– as many Republicans and Democrats want – Puerto Rico will have to primarily depend upon the generosity of representatives of the States to be treated fairly. It will not have the five votes in the U.S. House of Representatives and two senators in the decision-making that it would have if it were a State. Unlike the District of Columbia, the territory of 3.67 million people — with all born in the islands being U.S. citizens — did not even have votes in the election of the president.

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