4 billion, lowering Puerto Rico’s annual debt payments from nearly $4 billion to just over $1 billion. Supporters say the deal puts the island on a sustainable path while avoiding any cuts to public pensions, which had been a major point of contention. However, critics are wary of the resolution. Some argue that cutting debt without requiring deeper structural reforms means problems are likely to repeat. Others worry that maintaining pension obligations—which amount to $2.
In August 2020, a district court judge ruled that denying island residents several forms of federal assistance, including Supplemental Security Income (SSI), is unconstitutional. The federal government appealed the decision, and in November 2021, the case was heard by an appeals court, which held that Puerto Rico’s exclusion from the SSI program violates the Fifth Amendment. In April 2022, the Supreme Court reversed that decision. Like most U. states, the island receives billions of dollars more in federal spending, including on Medicare and Social Security, than its residents pay in taxes.
In addition, the U. government has allocated more than $25 billion in disaster-recovery funding to the island since 2017. What is the island’s economic outlook? Puerto Rico continues to be ravaged by a sustained recession. Annual economic growth fell by roughly 12. 5 percent overall between 2004 and 2020, while Puerto Rico’s population shrunk by more than 16 percent. It has also struggled under a large public debt in recent years, totaling about $70 billion—or 68 percent of gross domestic product (GDP)—in 2020.
Nor can Puerto Rico residents cast ballots in U. general elections, though presidential candidates curried support on the island in 2020 to win votes from the Puerto Rican diaspora in the primary race. Puerto Rico also lacks economic sovereignty. The U. dollar is its currency, U. federal regulators oversee its businesses, and U. laws dictate its trade policy. Residents pay most federal taxes; their contributions totaled more than $4 billion in fiscal year 2021. However, Puerto Ricans generally do not pay federal income tax, and they continue to enjoy the tax exemptions that have historically incentivized outside investment. Largely because of these exemptions, residents receive fewer federal benefits than other Americans. Puerto Rico residents are ineligible for the Earned Income Tax Credit and earn less, on average, in Social Security and veterans’ benefits. However, some benefits could change as a result of legal challenges.
More than 130, 000 residents fled to the mainland after Hurricane Maria alone. Today, more people of Puerto Rican descent live on the mainland than on the island, and a 2019 study projected that the territory’s population would fall by another 8 percent [PDF] by 2024. How has it dealt with the debt crisis? Since it began defaulting on major debt obligations in 2016, Puerto Rico has struggled with how to pay its creditors—many of whom hold bonds that are protected by Puerto Rico’s constitution—while maintaining basic public services and avoiding an even deeper economic collapse.
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Meanwhile, experts have suggested that Puerto Rico’s restructuring experience could be a test case for heavily indebted U. states such as Illinois and New Jersey, which are also constitutionally ineligible for bankruptcy protections. What are the arguments for changing Puerto Rico’s status? The island’s relationship with the rest of the United States is the subject of vigorous debate. Puerto Rico’s political parties, which are distinct from the mainland’s Democratic and Republican blocs, hold different views on changing the island’s status. The five major positions are: Status quo. Some say the U.
It also crafted dubious deals to balance its budget, including letting government agencies borrow from one another to pay back bonds. On top of that, experts say, much of this money was poorly spent. Leaders failed to parlay the billions of dollars they borrowed into strong institutions, a deficit laid bare by the natural disasters that have devastated Puerto Rico’s underfunded and poorly maintained infrastructure. Hurricane Maria brought ruin to the island in 2017, causing about three thousand deaths [PDF], knocking out the electrical power grid, and costing tens of billions of dollars. An earthquake at the start of 2020, the island’s strongest in a century, also created a power blackout.
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