Time to Bury the Family Feud
Imagine the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) is the TV game show “Family Feud” pitting the members of the financial oversight board against the remnants of the Alejandro García Padilla administration. Steve Harvey fires off the question: “How do we best create jobs for Puerto Rico?” Control board chairman José Carrión III enthusiastically hits the buzzer and answers—“Austerity measures.” The big red “X” flashes as Harvey replies: “No can do Señor Chairman; you’re gonna need help from Washington, D.C.”
Unfortunately, Promesa is not a game—Capitol Hill is a minefield and the federally mandated board and its counterpart task force for economic development are both moving at a typically deliberate pace. The task force headed by Senate Finance Chairman Orrin Hatch (R-Utah) has until Dec. 31 to deliver a full report of recommendations designed to ignite Puerto Rico’s economy.
The task force’s members have only met once in September, even though they reportedly have more than 400 proposals to analyze. The economic growth measures they finally propose will be essential to the rehabilitation of Puerto Rico’s economy. The boys on Wall Street and lobbyists on the Hill tied to the GOP prefer a “12-step program” that resembles the one employed in Washington. D.C., in the 1990s, which combined austerity measures with incentives, rather than the blueprint used in Detroit, which dragged creditors into bankruptcy proceedings that some creditors have described as a kangaroo court. Which is best? The truth is eclectic and resides somewhere in between.
During Juntéconomico, a recent televised debate hosted jointly by Caribbean Business, Caribbean Business en español and TV Station ABC5, Popular Democratic Party gubernatorial candidate David Bernier told this reporter that Hatch will be pushing members of Congress to pass Section 245A. That measure offers tax incentives that would provide an 85% break on dividends paid by U.S. manufacturing companies doing business in Puerto Rico. In exchange, those companies would need to create desperately needed jobs in Puerto Rico.
To date, Hatch’s enthusiasm is not shared by sufficient members of Congress to see the measure pass. During a panel discussion hosted by the Association of Financial Guaranty Insurers in New York City two weeks ago, former House Majority Leader Eric Cantor explained that 245A’s contentious elements—a projection by the Joint Tax Committee that the measure would be $10 billion negative for the U.S. Treasury—make it prudent to chase other incentives more likely to achieve consensus.
Cantor, who is now the vice chairman of Moelis & Co., believes the measure might have a shot as part of a larger 10-year tax plan with paid-for elements. But the ghost of Section 936, which provided manufacturing companies in Puerto Rico a nearly 100% tax break, continues to linger.
The truth is that the near-ancient hatred underpinning the disdain for these incentives, designed to boost manufacturing, traces to the simple fact that the measures are extensive only to U.S. possessions—if Puerto Rico were a state, the benefits would not be available. Perhaps it is time for the Hatfields and McCoys—the pro-commonwealth populares and the pro-statehood penepes —to call a truce as we work together to create jobs in Puerto Rico. Cantor advised those who want to help Puerto Rico to look for other tools for economic development similar to those employed in Washington, D.C.
Hatch and his task force brigades could achieve consensus on wage credits, a tax holiday on Social Security and maybe achieve a boost in Medicaid funding. Those incentives could help kickstart Puerto Rico’s economy with desperately needed jobs. Will it be enough to offset model of austerity that could force Puerto Rico’s economy to contract by 2%? Hablen claro.