How Puerto Rico’s “Autonomy Without Accountability” Led to Current Financial Crisis

On July 25, 1961, President Kennedy signed a “Memorandum of the President to Heads of the Executive Departments and Agencies,” regarding arrangements for conducting federal relations with Puerto Rico’s “commonwealth” regime of autonomous territorial government. Among other things, Kennedy’s directive declared that Executive Order 6726, signed by President Franklin Roosevelt on May 29, 1934, would “no longer apply to Puerto Rico.”

FDR’s 1934 order had transferred responsibility for Puerto Rico affairs from the Secretary of War to the Secretary of the Department of the Interior and its Division of Territories and Island Possessions. Instead of transferring DOI’s policy management responsibilities to another department Kennedy’s directive mandated “If any matters arise involving the fundamentals of this [commonwealth] arrangement, they should be referred to the Office of the President.”

This meant federal agencies providing programs and services retained accountability to Congress for operations in Puerto Rico, and the local government remained accountable for compliance with federal laws applicable to its operations. However, ad hoc first resort referral of federal policy matters to the President became the only form of federal Executive Branch strategic policy oversight for local territorial government operations, programs and services.

Yet, even that extraordinary avenue of federal policy review by the White House was subject to contingency that federal officials government-wide with no direct responsibility for Puerto Rico affairs would choose to refer random policy matters to the President. Referral of issues to the President were made even more unlikely given de facto co-equal ability of the local “commonwealth” regime and its allies in Washington to defend and promote within the White House its “autonomy” from federal policy oversight.

This transfer of federal oversight responsibility to local officials ignored the defining reality that U.S. citizens and governments in unincorporated territories can be treated “like states” under federal territorial law and policy, but have neither the sovereign rights of states nor the limits on state powers inherent in the American system of constitutional federalism. That is in part because for more than a century Congress has acquiesced in federal court jurisprudence holding that the U.S. Constitution applies to Puerto Rico only as determined by Congress under the Territorial Clause.

Thus, federal courts have recognized that territorial governments established under federal organic acts are more “like a federal agency” than a state government, and also can be treated like foreign jurisdictions or federal civilian or military reservations within states or overseas. In the current debate in Congress about the PROMESA fiscal recovery legislation for the “commonwealth” regime, members of Congress who insist the meltdown of the territory’s political economy is not a federal problem clearly do not understand federal territorial law and policy.

Kennedy’s presidential directive relieving the Department of the Interior of the authority to coordinate federal oversight and policy management for Puerto Rico institutionalized a policy allowing federally subsidized “autonomy without accountability” for the last large and populous U.S. territory. Yet, there was no constitutional or federal purpose served by segregation of Puerto Rico from the same local government public sector audits and inspector general reports by the Department of the Interior in other territories.

Ironically, Congress passively acquiesced in the exclusion for Puerto Rico from normative mechanisms of territorial government accountability. JFK’s directive stripped federal auditors of routine investigative responsibilities in Puerto Rico and left fiscal discipline to a local comptroller who is political appointee “principally responsible to the legislature.” Federal agency audits still detect rampant corruption and fraud by local federal employees, but generally regulation and investigation of local government spending, borrowing and financial policy in general is a local function.

Indeed, after Kennedy’s directive the Department of Commerce was designated as surrogate agency to buffer between the White House from Congress on Puerto Rico issues. That department lacked the institutional capacity to manage federal-territorial relations, and this arrangement made a mockery of the oversight Congress and the Interior Department historically had exercised in thirty-eight other U.S. territories.

Since 1952 when the U.S. adopted the “commonwealth” model of territorial government, the policy of “autonomy without accountability” has been abused by Congress as much as it has by the local government. That included federal and local “economic development” schemes in the name of “job creation” that amounted to “corporate welfare” tax shelters for giant U.S. corporations with a marginal presence in the “commonwealth.”

So the Congress looked the other way as Puerto Rico became addicted to federal fiscal gimmicks subsidizing local “autonomy.” When even massive federal transfers were not enough to sustain runaway expansion of the public sector, Congress was asleep at the wheel as the “commonwealth” regime made promises that could not be kept without borrowing more than the territorial government could repay.

Uncritical and passive acceptance of anachronistic federal court territorial law rulings and JFK’s circumvention of its territorial power was an abdication of its constitutional role by Congress. When combined with local territorial government intoxication by over-consumption of public debt under federal auspices without federal regulation the current fiscal perfect storm was foreseeable.

Simply stated, the “commonwealth” regime usurped federal powers and abused its “autonomy without accountability” to unsustainably drive up the cost of public utilities and other government enterprises subsidized by federal taxpayers, as well as the inflated liabilities of pension funds for teachers, the courts, and government civil service employees. This was a failure of both local and federal territorial law and policy in Puerto Rico.

Only in 2000 did President Clinton begin the process of reversing the “autonomy without accountability” policy by issuing an Executive Order establishing the President’s Task Force on Puerto Rico’s Status.” In 2005 the first report by that Task Force exposed the historical and constitutional fallacies surrounding the “autonomous association” doctrine.

In a 2012 referendum a majority voted to end the current status and seek statehood, proving our fellow U.S. citizens in Puerto Rico are ready to make the real choice between statehood and nationhood. The question is whether Congress is ready, both to restore fiscal order by restoring federal oversight under the PROMESA recovery legislation, and provide a mechanism for defining a permanent non-territorial status through democratic self-determination.

This commentary was submitted by Howard Hills, legal counsel for territorial status issues in the Reagan Administration. He is author of the recent book on Puerto Rico, Citizens Without A State (Amazon.com)

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