US Treasury: We Must Avoid Another Lost Decade in Puerto Rico
SAN JUAN – Just ahead of the U.S. House Natural Resources Committee oversight hearing Thursday on the U.S. Treasury’s analysis of the Puerto Rico crisis, the deputy assistant secretary for Microeconomic Analysis at the U.S. Treasury, Tara Watson, painted a dire picture of Puerto Rico’s financial debacle in the Treasury’s blog, “Notes.”
The following is Watson’s entry:
Puerto Rico’s fiscal crisis follows years of economic deterioration on the Island. The contraction in the economy has been longer and more severe than what the mainland experienced during the Great Recession and has imposed severe hardship on the 3.5 million American citizens living in Puerto Rico. And there are few signs of recovery.
Economic Decline. Economic opportunity has dwindled in Puerto Rico for nearly a decade. The economy has shrunk by 13 percent between 2006 and 2014. There are 110,000 fewer jobs now than there were in December 2007—a decline of 13 percent. The current unemployment rate of 12.2 percent, while lower than its peak, is still 5.5 percentage points higher than the highest U.S. state.
Out-Migration. The lack of economic opportunity is driving Puerto Ricans from the Island to the mainland. Puerto Rico’s population has fallen every year since 2004, and the population loss is only accelerating. Initial data suggest at least 85,000 Puerto Ricans, or 2.5 percent of the population, left in 2015
U.S. citizens who move to the mainland represent a cross-section of Puerto Rico’s society, according to the 2008-2012 data from the Census Bureau’s American Community Survey (ACS). Compared with those who remain on the Island, Americans leaving Puerto Rico are more likely to be in the labor force with average incomes that are about 10 percent higher than those who stay. Economic decline has reached broadly across Puerto Rico, such that people of all economic classes from doctors to low-income working families are leaving for better opportunities elsewhere.
Americans who move from Puerto Rico to the mainland often arrive under considerable economic distress. The poverty rate of those who have recently arrived from Puerto Rico is 37 percent, according to the 2014 ACS. Ten percent receive either public assistance or Supplemental Security Income, and 42 percent are on Medicaid or some other public insurance for low income or disabled individuals.
Home Values. The housing market in Puerto Rico has also experienced sustained economic decline. Home values have dropped substantially. The weak economy and downward pressure on prices have forced many borrowers to fall behind on mortgage payments. According to the Mortgage Bankers Association, roughly one in 10 borrowers have missed three or more consecutive mortgage payments, about 2.5 times the mortgage delinquency rate on the mainland.
The Obama Administration’s Roadmap for Recovery. After nearly a decade of poor economic performance and the onset of a full-blown economic and fiscal crisis, policymakers need to act to prevent a humanitarian crisis and reverse Puerto Rico’s economic decline. But only Congress can provide the comprehensive solution Puerto Rico requires. That’s why the Administration’s Roadmap calls on Congress to:
1) Authorize a legal framework that allows for a comprehensive restructuring
of Puerto Rico’s debts;
2) Provide independent fiscal oversight while respecting Puerto Rico’s
3) End Puerto Rico’s unequal treatment under Medicaid, and
4) Provide bipartisan tools like the Earned Income Tax Credit to support
growth and reward work.
We believe that Puerto Rico can turn around its economy and return to growth, but time is not on its side. Unless action is taken immediately, Puerto Rico faces a real risk of another lost decade, this one more damaging than the last. Congress has said it will act by the end of March and the Administration stands ready to work with Congress to get the job done now.