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Getting Down To Dollars And Cents
As a state, Puerto Rico could receive over $40 billion a year in federal funds, more than double the amount it currently receives
By CARLOS MARQUEZ
October 28, 2004
Puerto Ricos political status has remained unresolved for far too long, at an economic, political, and social cost to its people. Up to now, political parties and others have addressed the status issue from an emotional perspectivefor example, whether we will be able to participate in Miss Universe or have a Puerto Rico Olympic team.
For six months, CARIBBEAN BUSINESS, with a staff of researchers and economists assigned exclusively to the task, has researched the economic and political impact on Puerto Rico of the various political-status alternatives, examining over 50 years of commonwealth and presenting the options proposed under a new form of commonwealth, independence, free association, and statehood. The goal was to put emotional and political issues aside and determine which of the status alternatives would provide the most economic benefits to the residents and the government of Puerto Rico.
When CARIBBEAN BUSINESS got down to the dollars and cents of each of the status alternatives, we found that only through statehood would Puerto Rico be able to share on equal terms the economic benefits and growth that the U.S., the wealthiest nation in the world, provides the citizens of its 50 states. While the other status forms examined and presented in the "What if?" series published in CARIBBEAN BUSINESS these past three months may seek to continue some form of a relationship with the U.S., only statehood can guarantee permanent and equal access to the nation politically and economically.
Puerto Rico will reap greater economic benefits
Between 1994 and 2003, Puerto Rico received approximately $120 billion from the federal government, $14.66 billion in federal fiscal year (FY) 2003 alone. These federal funds have been instrumental in the islands economic and social development, substantially improving the quality of life of those who reside in Puerto Rico. But lack of full and proportionate participation in a substantial number of federal programs, whereby funds are channeled to individuals, corporations, and state and municipal governments, has limited Puerto Ricos potential development and the well-being of the U.S. citizens who reside on the island.
Complete access to and participation in these federal programs, however, require full participation in the U.S. political process, something Puerto Rico has been denied in its 106-year relationship with the mainland U.S. The lack of full political and economic integration has prevented Puerto Rico from fully benefiting from the billions of dollars distributed by the federal government each year and from the multiplier effect these funds would have on the economy. Full participation, however, can be achieved only through proportionate representation in the U.S. Congress and the right to vote for president.
How much is distributed in federal funds?
In federal FY 2003, according to the Consolidated Federal Funds Report released in October 2004, the federal governments domestic expenditures or obligations totaled $2.1 trillion, and federal assistance through loans and insurance programs added up to an additional $966 billion. In Puerto Rico, federal expenditures totaled $14.66 billion, excluding $4.9 billion in federal assistance from loans, loan guarantees, and insurance coverage. Total federal funds and programs in Puerto Rico added up to over $19.5 billion in 2003.
From 1994 to 2003, Puerto Rico received $119.09 billion in federal expenditures, excluding loans, loan guarantees, and insurance programs. Although these numbers are certainly substantial, they also present a dismal picture of the commonwealths reality when compared with the states. Consider the following:
Funds P.R. receives compared with similarly populated states
Puerto Ricos situation in comparison with Mississippi, the poorest state, isnt an isolated case. It is the same when the island is compared with states that have comparable populations. In 2003, for example:
A closer look at federal funding
Federal expenditures consist of five major categories: direct payments to individuals for retirement and disability, direct payments to individuals other than for retirement and disability, grants, procurement contracts, and federal government salaries and wages. In Puerto Rico, these payments have been distributed as follows:
Importance of federal spending
Federal funds are important not only to help U.S. citizens in Puerto Rico to get out of poverty, to help the needy, and to improve their quality of life, but also to accumulate private capital, which encourages investment and economic growth. To achieve economic growth in Puerto Rico, investment in physical and human capital is required.
Although not every additional dollar coming into Puerto Ricos economy has the same economic impact, new dollars do have a multiplier effect on the local economy. They generate additional economic activity and jobs. The person who receives the federal dollar gives it to someone else in payment for goods and services; this second person then spends the money, creating additional economic activity. Federal grants channeled to the commonwealth government provide the preconditions necessary for physical and human capital development.
A precondition for the continued growth of the private sector is public investment in the construction of the physical infrastructure and in the adequate maintenance of the existing infrastructure. This investment allows local companies to grow, produce goods and services at lower costs, increase profits, expand businesses, hire more workers, and generate more income and employment growth. Additional spending in the economy would improve Puerto Ricos business climate and attract new investment, not only from local investors but also from abroad.
Under statehood, Puerto Rico would be able to access the additional funds needed for the adequate development of the physical and human capital required for long-term economic growth. The costs involved are too high for the private sector to adequately meet the physical and human requirements for capital accumulation. Entrepreneurs wont risk capital to invest in repairing roads and highways. Private corporations cant assume all of the cost of educating workers and all of the costs needed to develop new technologies.
The federal government assists state governments by contributing to these investments on behalf of the public good. Under commonwealth, however, Puerto Ricos federal contributions to economic growth have fallen substantially short of those to the 50 states. Federal contributions to the states keep growing larger than those to Puerto Rico. The result is that the economic gap between Puerto Rico and even the poorest state of the union, Mississippi is growing wider.
Statehood would bring the same stability to the island as it has to the 50 states and help to end the uncertainty for investors considering the island. Statehood not only would stimulate the Puerto Rico economy to grow faster through full integration with the U.S. economy and political system, but also would remove uncertainties regarding Puerto Ricos status and political risk profile, making the island a full and complete part of the U.S. in the eyes of investors.
With complete political and economic integration, long-term personal and collective prosperity equivalent to that in the states would be achieved. The disparity between federal spending in Puerto Rico and that in the 50 states has contributed to our lagging behind all of them, and we have been falling even further behind in the past few decades.
Statehood provided billions of dollars in free advertisement to Hawaii when it became a state 1959, creating what is referred to as the Hawaiian Boom. Hundreds of new companies jumped at the opportunity to do business and invest in the newborn state; property values multiplied; and millions of new tourists were lured to the islands. New investment in business and property didnt just come from the U.S. mainland but from Asia as well. Local businesses expanded and thrived. The scenario wouldnt be different in Puerto Rico should it become a state, as investment would flow not only from the U.S. mainland but also from Latin America and Europe.
On Tuesday, Nov. 2, 2004, over 120 million U.S. citizens in the States will exercise their constitutional right to vote for the U.S. president, 435 members of the House of Representatives, 34 senators (approximately one-third of the Senate is elected every two years to a six-year term), and many state government officials. Voters will decide who will govern their future socially, politically, and economically.
On that same day, Puerto Rico will elect a governor for the next four years, a resident commissioner, legislators, mayors, and hundreds of other local officials. The U.S. citizens who reside on the island, however, wont be able to vote for any elected officials in the U.S. federal government, although the decisions of these elected officials, particularly the president and the members of Congress, can have an impact on almost every aspect of Puerto Ricos well-being.
Although Hispanics are the nations largest minority, approximately 40 million strong, not counting the people who reside in Puerto Rico, there are only 16 million eligible Hispanic voters in the States, out of which only seven million are expected to vote in the 2004 general election. If stateside Puerto Ricans registered and participated in the electoral process at the same rate their counterparts on the island do, it would mean over four million additional votes including Puerto Rico. Furthermore, if Puerto Ricans on the island were allowed to participate in U.S. mainland elections, the Hispanic vote in the U.S. would increase by almost 30%.
As U.S. citizens, all Puerto Ricans are eligible to vote in U.S. elections as soon as they move from the island to the mainland. Hispanics from Latin American or other foreign countries, on the other hand, must wait years after they relocate to the U.S. and obtain their citizenship before they are allowed to vote.
However, if a Puerto Rican who has spent his or her entire life residing on the U.S. mainland and participated in every U.S. election since becoming eligible to vote relocates to Puerto Rico, his or her right to vote is immediately taken away. The same Puerto Rican who resides in any of the 50 states and relocates almost anywhere in the worldsay, for employment reasonshas the right to obtain an absentee ballot from the state he or she previously resided in and can participate in elections in the U.S.
Two senators and six representatives
There are currently no Hispanics in the U.S. Senate, and there hasnt been one in over 25 years. Throughout U.S. history, there have been only three Hispanic senators, all of them from the state of New Mexico. In 2004, Cuban-born lawyer Mel Martinez from Florida, a former Bush cabinet member, is running for the seat of retiring Sen. Bob Graham. Although Martinez has the powerful Cuban vote, many observers believe his election will also depend on having the Florida Puerto Rican vote.
As a state, Puerto Rico would elect not one but two Hispanics to the U.S. Senate, who would represent not only the people on the island but also the more than 40 million Hispanics residing on the U.S. mainland. Adding relevance to the importance of these two Puerto Rican senators is that the U.S. Senate is presently divided almost evenly, with 51 Republicans, 48 Democrats, and an Independent who participates in the Democratic caucus.
Out of the 435 members of the House of Representatives (Puerto Ricos resident commissioner isnt included), there are only 24 Hispanics. Puerto Ricos resident commissioner has no vote in the U.S. Congress. If Puerto Rico were to become a state, however, island voters could elect five or six members to the House, which is the same as or more than 26 states have. Instead of having a resident commissioner as the sole representative of all Puerto Ricans, we could have several members of Congress with different views and from various regions of the island, all working for Puerto Ricos benefit.
Having six members of Congress and two senators would give Puerto Rico representation in the Democratic and Republican parties, allowing the island to influence the decisions of both. With five or six congressional representatives, Puerto Rico would be able to sit on many House committees, many of which consider bills that can have profound economic, political, and social repercussions for the island. These Puerto Rican congressional representatives would not only provide island residents with proportionate representation in Congress but would also create more equitable representation for all Hispanics on the U.S. mainland. This political power translates into economic power.
Each of the 50 states has a number of electoral votes equivalent to the number of senators and representatives it sends to Congress. These electoral votes make up the Electoral College, for a total of 538: one for each of the 100 senators and 435 representatives, plus three allotted to the District of Columbia. To win the presidency, a candidate must obtain 270 electoral votes. Puerto Rico currently has no electoral votes. As a state, Puerto Rico would have seven or eight electoral votes for president and vice president of the U.S. (based on two senators and five or six representatives), more electoral votes than over half of the states have.
With seven or eight electoral votes, Puerto Rico would become an important campaign stop for the national parties leadership and presidential candidates, who would commit to helping the island, since its electoral votes would be important in presidential elections.
The additional advantages of statehood status when combined with the dollars and cents advantages of statehood to the residents of Puerto Rico will be covered in a later issue of CARIBBEAN BUSINESS.
Actual federal funds Puerto Rico received in fiscal year 2003: $19,617,536,000
As a state, Puerto Rico would have received (compared to Mississippi) per capita fiscal year 2003: $40,864,275,590
Additional federal funds Puerto Rico could have received as a state for fiscal year 2003: $21,246,739,590
The $21 billion more Puerto Rico could have received in 2003 in federal funds is more than the Treasury of the Commonwealth collected in income taxes from individuals and corporations in the same fiscal year.
Federal Funds Fiscal Years 1994-2003
Difference of how much more four states with comparable population to Puerto Rico received in federal funds during past 10 years.
State: Population / Example Just in FY Ending 2003 / Total Received Over 10 Years / 10 Years difference Received vs. P.R.
Colorado: 4,550,688 / $28,874,000,000 / $223,045,000,000 / $103,946,000,000
Connecticut: 3,483,372 / $28,595,000,000 / $205,488,000,000 / $86,389,000,000
Kentucky: 4,117,827 / $31,153,000,000 / $232,988,000,000 / $113,889,000,000
South Carolina: 4,147,152 / $28,038,000,000 / $214,376,000,000 / $95,277,000,000
Puerto Rico: 3,878,532 / $14,661,000,000 / $119,099,000,000 / --
The numbers are different for each of the 10 years, but for space consideration, we show only the 2003 numbers. However, the difference is the actual total of the 10 years.
Source: Consolidated Federal Funds Report for Fiscal Year 2003, U.S. Census Bureau, Issued September 2004.
Three charts are included below.
This Caribbean Business article appears courtesy of Casiano Communications.