WASHINGTON — The Government Accountability Office is projecting that Puerto Rico would receive billions of additional federal dollars if it became a state, with some observers predicting the report will rekindle the statehood debate over the financially troubled island.
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The bonds were downgraded to speculative grade by all three major rating agencies earlier this year. The study did not produce specific figures, but projects possible spending ranges for various categories.
Many of the most significant changes would likely involve social welfare spending. The GAO said Medicare spending could increase by as much as $1.5 billion annually under statehood, while Medicaid spending could increase from about $400 million to about $1.5 billion per year. However, the report also said spending on Medicare could remain almost flat, depending on the number people eligible to receive it. Supplemental security income spending on the island could increase very much to between $1.5 billion and $1.8 billion from roughly $24 million on a similar federal program in 2011, according to the report.
The report estimated a roughly $115 million annual increase in federal highway spending. Puerto Ricans, who are American citizens, would also pay the U.S. government about another $2 billion annually in federal income taxes, the report states. Corporate income tax from companies operating in Puerto Rico might increase between $700 million and $5 billion according to the GAO, but some businesses might leave Puerto Rico if they lose the favorable corporate tax climate they currently enjoy there. Under special multi-year agreements with Puerto Rico, some of these corporations pay corporate income tax rates far below the commonwealth's maximum rate of 39%. Instead they pay a special excise tax, the legality of which has been questioned by some observers and even the Internal Revenue Service.
The statehood issue is divisive in Puerto Rico, which has held four internal votes on the issue since the late 1960s. Puerto Rico resident commissioner Pedro Pierluisi, a member of Congress with limited voting powers and a staunch supporter of statehood, seized on the GAO report as evidence of statehood's benefit to the commonwealth's economy.
"As GAO expressly observes, 'statehood could eliminate any risk associated with Puerto Rico's uncertain political status and any related deterrent to business investment,' Pierluisi said in a statement. "It must be emphasized that investment in Alaska and Hawaii increased substantially once they became states."
Puerto Rico Governor Alejandro García-Padilla took the opposite view.
“The GAO’s findings are very concerning for Puerto Rico, our economy and jobs,” he said. “The enormous tax burden that Puerto Ricans would be forced to shoulder as a state would be incredibly damaging to our economy, our businesses and the workers on the Island. This report also clearly states that statehood will make it very difficult for the commonwealth to move its economy forward. Ultimately, statehood is a losing proposition for both Puerto Rico and the U.S.”
A lobbyist said the report contains some major gaps, including billions of dollars of Obamacare funding Puerto Rico would be eligible for as a state. The lobbyist also added that the report does not take into account some political factors, such as how tax reform might affect the numbers before any statehood question could be resolved and what changes two new senators and multiple voting congressmen might be able to get enacted once the commonwealth gained statehood. Although the report provides no clear comprehensive view of how statehood would affect the territory, pro-state and anti-state elements on the island will try to spin it in coming days and weeks, the lobbyist said. "It is going to add to the debate in Puerto Rico," he said.
