Congress Should Offset Emergency Spending

Natural disasters continue to hit Puerto Rico, hurting the territory's fragile economy. Rep. Nita Lowey (D-NY) has proposed a new round of federal emergency spending to help offset the impact for the island. Her legislation, H.R. 5687, the “Emergency Supplemental Appropriations for Disaster Relief and Puerto Rico Disaster Tax Relief Act, 2020” would provide $4.67 billion over five years for a number of community repair programs, with spending focused on energy, infrastructure, and education, along with over $14 billion in tax relief over ten years, primarily via refundable tax credits.

While this is a small amount of money relative to the entire budget, it illustrates a key issue. The federal government, traditionally, does not include a budget offset to disaster relief bills and frequently excludes them from existing PAYGO rules (requiring bills to remain budget neutral or not count towards the federal debt).

The bill aims to repair damaged schools, prioritizing the repair of schools most directly impacted by earthquake damage. Beyond funds for school repair, the bill provides capital to small businesses to encourage businesses to continue to engage with affected communities. Included in the cost of the emergency spending is support for the expansion of information technology networks across Puerto Rico, which in turn support the disbursement and management of aid funds.

The bill also expands several federal tax credits for low-income Puerto Ricans. First, it encourages the island to expand its Earned Income Tax Credit (EITC). Puerto Ricans do not pay federal income taxes, due to the island’s status, so the bill provides funding to the Puerto Rican government to expand its own EITCs. (It provides additional funding to other territories, such as the U.S. Virgin Islands, too.) It also expands eligibility for the Child Tax Credit. Currently, only families with three or more children qualify for the $2,000 per child credit. H.R. 5687 expands eligibility to those with one or two children. CBO estimated that these provisions would increase outlays by $12.3 billion over ten years.

Additional tax-related provisions would remove the limit on distilled spirits excise taxes that are transferred (known as the “rum cover-over”) to Puerto Rico and the Virgin Islands, provide a payment to Puerto Rico for an employee retention credit in qualified disaster zones, increase allocations to Puerto Rico for New Markets Tax Credits, and increase Low-Income Housing Credit allocations.

The price tag of the bill could potentially increase when it is considered in the House this Friday if Members use it as a vehicle to provide emergency funding in response to the coronavirus epidemic.

Clearly, Puerto Rico needs assistance following a series of devastating hurricanes and earthquakes; however, lawmakers should be seeking an offset cost, rather than simply adding to the deficit, which is already expected to exceed $1 trillion this year and worsen over the decade. As lawmakers consider providing additional disaster aid, they should do so in a fiscally responsible manner. Natural disasters are unpredictable, and as such Congress should maintain a “rainy-day” fund to make certain that unforeseen disasters do not become fiscal sinkholes.