Would Puerto Rico Be Better Off as a Freely Associated State?

The American Rescue Plan dedicates unprecedented resources to the five territories of the U.S. and also includes some assistance to the three former territory areas freely associated with the U.S.

Under the terms of the new law, U.S. territories receive much more generous economic assistance than the freely associated states (FAS) to address the health and financial implications of the coronavirus.

Residents of the U.S. territories are also poised to receive billions of dollars in federal assistance under the terms of the new law – both in the short term and for many years to come. Some of the economic provisions of the new law designed to benefit working families are made permanent.

The Freely Associated States

The U.S. has signed Compacts of Free Association (COFAs) with three sovereign nations that were administered by the United States for the United Nations after World War II.  The three nations – the Republic of the Marshall Islands, Federated States of Micronesia and Palau – currently receive limited Federal financial resources and provide the U.S. military with complete control over the land, sea and air routes in this strategically important area of the Pacific. The Free Association relationships are viewed as especially important relative to China’s growing influence in the area.

The American Rescue Plan continues the eligibility of residents of the Freely Associated States for U.S. unemployment payments as initially provided in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March of 2020.  Under the terms of the new law, FAS residents will continue to qualify for the $300/week benefit until September 6, 2021.

In addition, the U.S. Senate included the Freely Associated States in its new Coronavirus Capital Project Fund on equal footing with neighboring U.S. territories in the Pacific and the U.S. Virgin Islands.  The seven entities (the FAS, USVI, Guam, American Samoa and Commonwealth of the Northern Mariana Islands) are granted a $100 million fund to evenly split, leaving each territory or Freely Associated State with roughly $14.3 million.

U.S. Territories

The U.S. territories, on the other hand, are significantly included in the provisions of the coronavirus relief bill, often even defined as a “state” to receive equal assistance.  Federal resources made available nationwide for coronavirus testing, state governments, rental and businesses assistance, food/nutrition, vaccines, transit, and education are provided to the U.S. territories at a level equal or comparable to that of the states.

Individuals in the territories are eligible for the $1,400 recovery rebates currently being distributed to qualifying individuals in the fifty states and are permanently included in the federal Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) programs.  These tax credits were substantially increased in the new law for 2021 and are expected to bring billions of dollars to people who live in the U.S. territories in the near term and well into the future.

Residents of the Freely Associated States are ineligible for the recovery rebates, EITC, or CTC.

The new Coronavirus Capital Project Fund that provides almost $14.3 million to each Freely Associated State and the four smaller territories includes $100 million for Puerto Rico and $100 million for the District of Columbia, the same amount provided to states.

Nowhere in the legislation are the territories or the freely associated states treated more generously than states.