Government Accountability Office Report on Puerto Ricoan Statehood Released

The Government Accountability Office is projecting that Puerto Rico would receive billions of additional federal dollars if it became a state, with some observers predicting the report will rekindle the statehood debate over the financially troubled island.

The GAO report, released Monday, estimates that federal spending on many programs would increase by hundreds of millions or billions of dollars if Puerto Rico became the 51st state. That would potentially allow the commonwealth's government to use its revenues to address its mounting debt problem, spurred by the popularity of its bonds, which are tax-exempt at the federal, state, and local levels.

The bonds were downgraded to speculative grade by all three major rating agencies earlier this year. The study did not produce specific figures, but projects possible spending ranges for various categories.

Many of the most significant changes would likely involve social welfare spending. The GAO said Medicare spending could increase by as much as $1.5 billion annually under statehood, while Medicaid spending could increase from about $400 million to about $1.5 billion per year. However, the report also said spending on Medicare could remain almost flat, depending on the number people eligible to receive it. Supplemental security income spending on the island could increase very much to between $1.5 billion and $1.8 billion from roughly $24 million on a similar federal program in 2011, according to the report.

The report estimated a roughly $115 million annual increase in federal highway spending. Puerto Ricans, who are American citizens, would also pay the U.S. government about another $2 billion annually in federal income taxes, the report states. Corporate income tax from companies operating in Puerto Rico might increase between $700 million and $5 billion according to the GAO, but some businesses might leave Puerto Rico if they lose the favorable corporate tax climate they currently enjoy there. Under special multi-year agreements with Puerto Rico, some of these corporations pay corporate income tax rates far below the commonwealth's maximum rate of 39%. Instead they pay a special excise tax, the legality of which has been questioned by some observers and even the Internal Revenue Service.

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