Puerto Rico is running out of stopgap financial measures

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Lawmakers on both sides of the aisle are calling for a permanent solution to Puerto Rico’s financial crisis as the island faces yet another healthcare funding shortfall. 

What to do, however, remains a topic of great partisan contention — one that could bedevil spending debates later in the year and carries high stakes for the economic viability of the struggling U.S. territory.

{mosads}The solvency of Puerto Rico’s embattled Medicaid program was a huge sticking point in the April fight over 2017 spending, with the Democrats insisting on an infusion of new federal funds in the face of Republican opposition. President Trump panned the request as a “bailout.”

The Democrats prevailed in that fight, shifting $295 million into the program, but that’s a far cry from the $900 million the Trump administration estimates the island will need for Medicaid over the next 13 months. And in the earliest stages of the year’s remaining budget fights, Democrats are already vowing to prioritize the issue.

“It’s not enough. You can’t request $900 and get [$295]. You’re already in the hole,” said Rep. Luis Gutiérrez (D-Ill.), who rejected the notion that it’s possible to restructure Puerto Rico’s debt and stabilize the island without new federal funding.

“Please show me a crisis where people don’t have money for healthcare, for police, for infrastructure, for food, and the solution is to give you something that doesn’t cost a cent. 

“It’s an economic crisis.” 

A House Democratic leadership aide said the issue is sure to reappear this year, since “obviously, the funds in the omnibus don’t address the full needs” of the Medicaid program. The legislative vehicle remains unclear, but the clash seems certain.

“We will be pushing for additional funds,” the aide said.

Republican leaders have other ideas.

They’re hopeful Puerto Rico’s debt-restructuring board, established by Congress last year, will produce a workable solution without the need for Congress to intervene.

Rep. Rob Bishop (R-Utah), chairman of the House Natural Resources Committee, which has jurisdiction over Puerto Rico’s finances, said the oversight board appointed to review Puerto Rico’s condition “has all the authority they need.”

“They’re a little bit slow on some areas, which is frustrating, but they have not abandoned their role or purpose yet, and they are still going forward,” said Bishop, who is planning a hearing on the issue before the August break.  

“I don’t see anything that has to be done legislatively, and I don’t think it has to be done by appropriations right now.”

Puerto Rico’s healthcare system is heavily reliant on its Medicaid program, which until this year was funded by a one-time $6.5 billion injection granted by the Affordable Care Act in 2011.

The grant, which ran out on schedule earlier this year, was extended by the $295 million in May’s omnibus.

Speaker Paul Ryan (R-Wis.) gave credit for the agreement to Resident Commissioner Jenniffer González Colón (R-Puerto Rico), who brought the case for continued Medicaid funding to House leadership.

“Without your unique approach to solving difficult problems, we would have been unable to get the relief that your constituents need,” Ryan wrote in a letter to González.

Puerto Rican officials are hoping the relationship bears fruit again in future spending debates.

“Jenniffer González Colón has established a very good relationship with the leader of the House,” said Jose Fuentes Agostini, a Republican former attorney general of Puerto Rico.

“There is no one with more access and a better possibility to accomplish that than [González],” he added.

Puerto Rico Gov. Ricardo Rosselló (D), meanwhile, met with Health and Human Services Secretary Tom Price to discuss the island’s Medicaid cliff.

In a letter, Price praised Rosselló’s efforts and extended a deadline for the island’s government to present its Medicaid plan.

Days later, Congress passed the fiscal 2017 omnibus bill, including the $295 million for Medicaid, enough to fund the program through March 2018.

Still, the bridge funding didn’t resolve the structural issues that led to the crisis, said Jeffrey Farrow, a former White House aide and territorial expert.

“There’s a lot of focus on bridge funding,” said Farrow. “A bridge goes from some place to somewhere else. What’s the somewhere else?”

Territories are exempt from the Affordable Care Act’s individual mandate and subsidy requirements. But Puerto Rico has historically maintained an uninsured rate lower than that of most states, in large part due to its extensive Medicaid program.

While the end of the Medicaid block grant in 2017 was expected, the island’s nonhealthcare finances collapsed over the last decade, leaving the government no financial wiggle room.

In 2014, the island’s debt was downgraded to junk status, and in 2015 then-Gov. Alejandro García Padilla (D) said the $72 billion bond debt was “not payable.”

Puerto Rico’s economic collapse came as a result of many factors, including the end of a tax exemption for U.S. companies operating in territories phased out between 1996 and 2006.

The pharmaceutical industry, long established in Puerto Rico, phased out many of its operations as a result. Many Puerto Ricans — natural-born U.S. citizens — sought out better opportunities in the 50 states, drastically changing the demographic composition of the island.

“One thing that’s really defined Puerto Rico is the tendency and ability of people who live in Puerto Rico to come to the mainland,” said Ted Hampton, the senior credit officer for Puerto Rico at Moody’s. 

“The ability of people to do that and the lack of opportunity in Puerto Rico created a vicious circle that fed on itself and continues to do so,” he added.

In the last 10 years, Puerto Rico has lost nearly 10 percent of its population, diminishing the island’s tax base considerably.

In 2016, Congress passed the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), which created an unelected fiscal control board to oversee the island’s finances.

The plan received lukewarm support from both sides of the aisle, as Congress swallowed a bitter pill to avoid a complete financial meltdown that could have spilled over into the states.

One of the selling points of PROMESA was that the cost of Medicaid is much lower in Puerto Rico than in the states.

Currently, there are about 470,000 people on Medicaid in Puerto Rico. If funding for the island’s program were allowed to lapse, reduced services could push many recipients to the states, where they would still be eligible for Medicaid.

“The irony of that is the cost to government will be higher,” said Farrow.

“About one third of the people who moved to Florida are receiving Medicaid. The cost to the federal government and Florida is three times as high as it would be in Puerto Rico,” he added.

Democrats have vowed to make continued Medicaid coverage a priority. The potential for Puerto Rican recipients to move to one of the states, increasing costs there, has given them some leverage with Republicans.

“The leadership has it as part of its agenda, and they’re very energetic to make sure that it’s dealt with in the budget,” said Rep. José Serrano (D-N.Y.), a Puerto Rico-born member of the House Appropriations Committee.

“I personally have discussed with some Republicans who feel it’s an issue, but they haven’t made a commitment,” said Serrano.

But both parties are uncomfortable with the prospect of relitigating the issue on a regular basis.

In May, the territory activated Title III of PROMESA, a bankruptcy-like procedure that gave full control of Puerto Rican finances to the fiscal control board and subjected outstanding bond payments to the oversight of a federal judge.

“I shared the view of many others that unless Puerto Rico addressed its fiscal mismanagement woes, extending bankruptcy authority alone couldn’t fix the problem,” said Sen. Chuck Grassley (R-Iowa) in a floor speech after the announcement.

“Instead, it would merely kick the can down the road and harm thousands of retirees in Iowa and elsewhere, who would bear the costs of Puerto Rico’s irresponsible behavior.”

Still, there is a dearth of proposals in Washington on what a long-term solution would look like.

Puerto Rican officials are adamant that the only permanent solution to the issue is statehood, an idea that’s regarded as far-fetched by many in Washington.

“It’s not a level playing field; we have an economic handicap,” said Puerto Rico Secretary of State Luis Gerardo Rivera Marín. “Here in Washington … what’s my negotiating power if I don’t have a congressman?”

Both González and Rosselló’s campaigns were centered on the issue, and Puerto Ricans will vote to choose their status in a June 11 plebiscite. That vote won’t have binding effects for Congress, but if statehood wins, as expected, it will detonate a process by which Puerto Rico will attempt to seat a congressional delegation.

“If Puerto Rico wants to move forward, it has to resolve, once and for all, its territorial situation,” said Rivera Marín.