Supreme Court to consider case impacting Puerto Rico economy

The Supreme Court agreed Monday to consider a Puerto Rico case that will determine if residents are eligible for a major federal safety net benefit that would impact the island’s economy.

In USA v. Jose Luis Vaello-Madero, a federal appellate court in April 2020 struck down a federal law denying residents of the island eligibility for the Social Security Supplemental Income program for the severely disabled.

Sergio Marxuach, an attorney who serves as policy director for the nonpartisan Center for a New Economy in Puerto Rico, said there is a second pending federal lawsuit that could have an even bigger impact on eligibility for federal safety net benefits.
Brian Tumulty, The Bond Buyer

Vaello-Madero conflicts with two earlier Supreme Court rulings that denied benefits for SSI and another federal benefits program solely based on residency.

Califano v. Torres (1978) denied benefits under SSI.

The other case, Harris v. Rosario (1980), denied residents of Puerto Rico access to the federal Aid For Dependent Children program, known as AFDC.

The earlier rulings justified the exclusion because residents of Puerto Rico are generally exempt from paying the federal income tax; the cost to the federal government would be significant; and granting the benefits might disrupt the island’s economy.

President Biden campaigned last year on making the territory’s residents fully eligible for SSI and food stamps under the Supplemental Nutrition Assistance Program rather than the block grants currently given to the territory.

The Biden campaign’s plan for “recovery, renewal and respect for Puerto Rico” released Sept. 15 cited the Puerto Rico lawsuit without mentioning its name.

Eligibility for full SSI and other federal benefits is also a priority for lawmakers this year.

The new administration took its first step in that direction with the $1.9 trillion American Rescue Plan approved by the House over the weekend on a party line vote. The bill would make households in Puerto Rico fully eligible for the federal Child Tax Credit for the first time.

That legislation, which the Senate will take up later this week, includes children living in Puerto Rico in a nationwide increase of the Child Tax Credit to $3,600 for children under 6 and $3,000 for dependent children from 6 through 17. In Puerto Rico that expanded tax credit would reach an estimated 355,000 families with an average benefit of $770, accrding to the liberal-leaning Center on Budget and Policy Priorities which focuses on low-income Americans.

The $1.9 trillion emergency stimulus also would expand the federal Earned Income Tax Credit nationwide except for Puerto Rico, which would instead get funding to expand its local version of the credit.

The SSI lawsuit the Supreme Court agreed to hear involves plaintiff José Luis Vaello-Madero, who began receiving SSI disability benefits while living in New York. He continued to receive them after moving back to his native Puerto Rico to be closer to family in July 2013.

The federal government sued him in August 2017 seeking restitution of $28,081 in SSI benefits that it said it had incorrectly paid to him from August 2013 to August 2016. The government said he was living outside the United States.

Vaello-Madero filed a lawsuit challenging the constitutionality of the federal law that excludes residents of Puerto Rico from SSI while including U.S. citizens living in another U.S. territory, the Commonwealth of the Northern Mariana Islands. U.S. citizens living in three other territories -- American Samoa, Guam, and the U.S. Virgin Islands -- are also excluded, just like Puerto Rico.

Meanwhile, legal non-citizens living in the 50 states are eligible for SSI and accounted for 6% of all recipients in 2017.

Vaello-Madero’s attorneys argued that the exclusion of Puerto Rico from the SSI program violates the equal-protection component of the Due Process Clause of the Fifth Amendment.

A federal district court agreed and granted summary judgement in February 2019.

The district court judge suggested that Congress may have excluded Puerto Rico in order to harm citizens “of Hispanic origin,” but found it unnecessary to examine that theory because the exclusion of Puerto Rico residents failed even “rational basis scrutiny.”

After a federal appellate court agreed in April 2020, the Trump administration appealed to the Supreme Court.

The new Biden administration will presumably not defend the current SSI system and could seek to extend SSI benefits to residents of Puerto Rico and other territories with congressional legislation. The Supreme Court order accepting the case will force the Biden administration to file an updated brief which could either ask to withdraw the Trump administration's appeal or uphold the appellate court ruling.

The Biden administration also could pair SSI legislation to its campaign proposal to make all Puerto Rico residents eligible for the SNAP food program.

Biden’s campaign cited a 2015 study that found 33% of adults in Puerto Rico to be food insecure, “a share that likely increased in the aftermath of subsequent natural disasters.”

“While those living in U.S. states who meet SNAP eligibility criteria are guaranteed food support, families in Puerto Rico must make do with an annual block grant program which does not automatically adjust in times of higher need,” Biden’s campaign said.

Even if the administration and Congress don’t act, the ruling opens the door for a class action suit seeking SSI benefits for more than three-quarters of million residents of Puerto Rico that would alleviate extreme poverty on the island.

Eight million Americans currently receive SSI benefits, 86% of whom are severely disabled. Very low income older Americans age 65 and over also are eligible.

More than half of SSI beneficiaries receive the basic monthly SSI benefit of $794 for individuals and $1,191 for couples because they have no other income.

Residents of Puerto Rico are currently eligible only for the significantly less generous Aged, Blind, and Disabled (AABD) program which is a federal block grant rather than an entitlement like SSI.

The liberal-leaning Center on Budget and Policy Priorities points out that disabled children under age 18 in Puerto Rico are ineligible for AABD but would be eligible if SSI benefits are extended to residents.

In 2011 residents of Puerto Rico who received AABD were paid average monthly benefits of $58 that would have been $418 under SSI, according to the U.S. Government Accountability Office.

Under both programs, recipients must have less than $2,000 in assets, including cash, bank accounts, stocks and bonds, life insurance, and farms or other property but excluding their primary residence and a car.

Vaello-Madero could push the Biden administration and Congress to make Puerto Rico a priority this year, according to Javier Balmaceda, senior policy analyst focusing on Puerto Rico at the Center on Budget and Policy Priorities.

“A lot of the way that Puerto Rico policy moves in Congress is driven by a sense of urgency,” said Balmaceda in a recent interview. “Puerto Rico faces recurrent fiscal cliffs for all these programs because they are not entitlements. They are usually given to Puerto Rico in the form of block grants. Medicaid, for instance, is facing a cliff in September of this year. Biden, in his plan, has indicated he would like to extend full coverage to Puerto Rico.”

Kathleen Romig, a senior policy analyst and SSI expert for the Center on Budget and Policy Priorities, said in advance of the Supereme Court agreeing to take the case that if they do take it “the courts might force the hand of the agencies before the legislators get to it.”

Sergio Marxuach, an attorney who serves as policy director for the nonpartisan Center for a New Economy in Puerto Rico, said in a recent interview there is a second pending federal lawsuit that could have an even bigger impact on eligibility for federal safety net benefits.

In that case, known as Pena Martinez, nine residents of Puerto Rico have challenged on constitutional grounds their exclusion from SSI, SNAP and the Medicare Part D Low-Income Subsidy program (LIS).

That’s collectively about $5.3 billion federal safety net benefits which would boost the island’s annual economy by 5%, according to an estimate by the Center for a New Economy.

“The scope is much larger and it would apply to a significantly greater number of people if it stands,” Marxuach said. “These programs are designed specifically to help the poorest of the poor in the mainland. Specifically with food stamps and SSI it would provide a huge amount of help to very low income Puerto Ricans.”

Those residents now rely on the local government and extended family members for help, he said.

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