Obama budget includes bankruptcy power, billions in relief for Puerto Rico

By Peter Schroeder -The Hill

President Obama is proposing to provide Puerto Rico with billions of dollars in relief, in addition to allow the territory to declare bankruptcy on some of its debt.

The president’s fiscal 2017 budget proposal, released Tuesday, includes several policy changes aimed squarely at helping the territory boost its economy, and get out from under a debt burden island officials say is unmanageable.

Among the changes are bankruptcy power for Puerto Rico, an expansion of the Earned Income Tax Credit to the island, and increased Medicaid funds. All the policy changes, if enacted, would apply to Puerto Rico and other U.S. territories. The president’s plan would also subject the island to “strong fiscal oversight,” but does not detail exactly how.

After years of economic decline, Puerto Rican officials are warning the island will not be able to pay off its most important debts for more than a few months at most. The issue of how to help the island, and the millions of American citizens living there, has become a top priority for Congress. Speaker Paul Ryan (R-Wis.) has vowed to produce legislation on the matter by the end of March.

The White House plan would allow Puerto Rico to undergo a “comprehensive restructuring” of its debts, a move likely to be fiercely contested by investors in Puerto Rican debt eager to be paid in full.

In addition, the administration wants to extend the Earned Income Tax Credit, currently available in all 50 states, to Puerto Rico and other territories. That credit is available to low and middle-income individuals and families. According to the White House, such an expansion would cost $601 million in fiscal 2017, and $6.6 billion over the next decade.

Obama’s budget would also scrap a cap on Medicaid funds that currently applies to territories, and would gradually increase Federal Medicaid matching funds until they fall in line with levels enjoyed by U.S. states.

Such a shift would cost $320 million in fiscal 2017, and $29.6 billion over the next decade.

 

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