Written Statement submitted to the House of Representatives – By Andrés L. Córdova

Written Statement submitted to House of Representatives –
By Andrés L. Córdova

Committee on Natural Resources,
Public Hearings on PROMESA
San Juan, Puerto Rico, March 15, 2019
Andrés L. Córdova1

In a memorandum dated March 1, 1914 to Secretary of War on The Political Status of Porto Rico, then Law Officer Felix Frankfurter included the following statement: “The crux of the matter is that the nature and extent of the relationship as we have seen, is solely a problem of legislative expediency, a political question entrusted by the Constitution to unlimited Congressional control. What the nature of the relationship should be, what its incidents, the privileges that should be conferred upon the inhabitants, and the privileges that for the time being at least, should be denied, are all matters solely for Congressional competence. The Congressional will is circumscribed solely by its own action; and the problem, therefore, is for
Congress to give adequate expression to its own will. There can be incorporation only when Congress sees fit to incorporate[…].” Felix Frankfurter served as Associate Justice of the Supreme
Court from 1939 to 1962.
One hundred and four years later, this statement continues to be a true description of Puerto Rico’s state of affairs. Two recent examples of that congressional competence illustrate the
point.
First, the 2016 Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) where Congress exercised its constitutional authority pursuant to the Territorial Clause. PROMESA and the creation of a Financial Oversight and Management Board (FOMB) have been the congressional response to Puerto Rico’s excessive public debt financing and decades long governmental mismanagement. For all political purposes, PROMESA has decisively made clear that Puerto Rico never ceased to be a territory, regardless of the illusory claims made by certain political sectors in Puerto Rico that its 1952 Constitution put into place some sort of undefined autonomic status.
Assuming that the FOMB achieves its objectives that the Government of Puerto Rico achieves four consecutive years of balanced budgets and a return to the municipal bond market.
What then? Is Puerto Rico to continue as an unincorporated territory for the benefit of capital investors looking for tax havens and triple exemptions for its bonds, while the island’s population1 Professor at Inter American University of Puerto Rico, School of Law, acordova@juris.inter.edu Curriculum vitae attached.

continues to age and lose it’s working and professional sector to emigration? According to recent’ projections Puerto Rico’s population will fall to just over 2,000,000 inhabitants by 2050.
From a historical perspective, PROMESA is a limited, temporary measure aiming to stabilize the current economic crisis. It fails to address the underlying political conditions of the unincorporated territory which created the circumstances for the collapse of the Government of Puerto Rico. From a political perspective, independently of financial considerations, the FOMB embodies the limitations and insufficiency of the current territorial model. Political problems require political solutions.
Secondly, the Tax Cuts and Jobs Act of 2017 continues to designate Puerto Rico as a foreign jurisdiction for purposes of imposing taxes on the income generated by the American Foreign Controlled Corporations (CFC). This tax treatment in a territory under the jurisdiction of the United States would appear in a first reading to be inconsistent with the Uniformity Clause provided in Article I, Section 8, of the Constitution.

For the last 120 years, Congress has discriminated in favor of powerful economic forces at the expense of the general welfare of American citizens in Puerto Rico. First were the sugar barons, now it’s the pharmaceutical companies. In the recent past, Section 936 of the Internal Revenue Code allowed for significant tax credits and incentives for American based manufacturers that were unavailable for constitutional reasons in the rest of the States. The triple
exempt tax advantages of Puerto Rico’s bonds have also been based on this same constitutional justification. The May 2018 GAO report on Puerto Rico’s debt crisis well illustrates the consequences of these policies.
In his 1914 memorandum Frankfurter early on argued that as a matter of finance Puerto Rico needed to be treated differently from the provisions applicable to incorporated territories.
The designation of Puerto Rico as a foreign jurisdiction has legally been justified under the Supreme Court insular cases which still classifies Puerto Rico as an unincorporated territory,
“belonging to but not being a part of the United States”.
Between 1901 and 1922 The Supreme Court produced a group of opinions referred to collectively as the Insular Cases, which articulated and consolidated the doctrine of unincorporated territories, allowing for the selective application of those constitutional rights deemed fundamental. See Downes v Bidwell, 182 U.S. 244 (1901) and its subsequent jurisprudence.
How to distinguish which constitutional rights are fundamental from those which are not, of course, requires a degree of clairvoyance unavailable to most of us. This doctrine holds that the acquisition of territories by the United States does not necessarily imply that they will be incorporated as states at a future date, contrary to the historical experience that had been the order since the Northwest Ordinance of 1787. Recently, in Boumediene v. Bush, 553 U.S. 723 (2008), regarding the right of habeas corpus petitions by enemy combatants held in the United States

Guantánamo Naval Base in Cuba, the Supreme Court seemed to suggest the continued validity of the Insular Cases.
From 1900 to 1917 Puerto Ricans were naturals of the United States, similar to the current situation of American Samoa. In 1917 the Jones Act granted American citizenship to Puerto Ricans, though the Supreme Court held in Balzac v. Porto Rico, 258 U.S. 298 (1922), that this did not alter the unincorporated nature of the territory. It is precisely the statutory nature of our citizenship in conjunction with our unincorporated territorial status that precludes the full
protection of the guarantees contained in the Fourteenth Amendment.
Both PROMESA and the Tax Cut and Jobs Act of 2017, in conjunction with the latest expressions of the Supreme Court in the cases of Commonwealth of Puerto Rico v. Sanchez Valle, 579 U.S. _ (2016) and Commonwealth of Puerto Rico v. Franklin California Tax-Free Trust, 579 U.S. _ (2016), attest to the fact that Puerto Rico continues to this day to be an unincorporated territory, without voting representation, subject to the plenary powers of Congress.

Two recent lower court judicial rulings, however, highlight the legal and historical dead-end of the unincorporated territory of Puerto Rico. On February 4, 2019 U.S. District Court Judge Gustavo Gelpí ruled that the exclusion of Supplemental Social Security (SSI) payments to American citizens in Puerto Rico ran afoul of the Equal Protection clause under the Fifth Amendment. On February 14, 2019 U.S. Court of Appeals for the First Circuit, Judge Juan Torruella ruled that the appointment of the members to the Financial Oversight and Management Board (FOMB) created by PROMESA to deal with Puerto Rico’s financial crisis was unconstitutional because it did not comply with the Appointment Clause of the Constitution.
At first reading, both rulings would appear to focus on issues unrelated to the Supreme Court’s unincorporated territorial doctrine, which exclude the full application of all constitutional protections to American citizens in Puerto Rico. A closer look at the legal arguments of each ruling reflects lower court’s growing frustration with the restrictions imposed on the judiciary by the anachronistic Insular Cases.
In the first case, U.S. v. Vaello-Madero, the government was aiming to recover payments made under the SSI Program to a defendant who had moved to Puerto Rico from New York without informing his change of address. American citizens in Puerto Rico are not eligible for SSI payments because, according to Congress, they don’t pay federal income tax. The Supreme Court’s unincorporated territory doctrine allows Congress to treat Puerto Rico differently from stateside jurisdictions under the Territorial Clause of the Constitution. The opinion held that exclusion of American citizens in Puerto Rico from SSI payments was predicated on the suspect
category of the Hispanic origin of Puerto Ricans, which was contrary to the Equal Protection under the law. The underlying premise of the opinion is that the unincorporated territory is in of itself a legally suspect category.
In the second case, Aurelius Management v. Commonwealth of Puerto Rico, the U.S. Court of Appeals for the First Circuit addressed a lower challenge to the manner in which the FOMB members were appointed, without the advice and consent of the Senate. The Appeals Court argued that being principal federal officers, the FOMB members required the advice and consent of the Senate prior to occupying their positions. The implications of this holding for purposes of federal liability for Puerto Rico’s public debt remains to be seen.
Notwithstanding the above, the Appeals Court, citing Buckley v. Valeo, 424 U.S. 1 (1976) as authority, upheld the FOMB’s actions and the bankruptcy-like proceedings under its Title III, independently of its unconstitutional designation. The opinion, unfortunately, fails to discuss the distinction made in that case between the validity of certain administrative actions by a designated commission and a commission’s participation in civil litigation before the Courts of the
The United States. The significance of this distinction on FOMB’s action in the ongoing litigation under Title III should not be lost. As of this writing, this ruling has cast a shadow of uncertainty on the whole proceedings and it is still unclear how the President and the Senate will act.
In a pragmatic but unusual procedural action, the Appeals Court declared that it would not notify its judicial mandate for 90 days, in which time the President and the Senate could act on the confirmation of the Board members or appoint new ones, thereby curing the FOMB of any constitutional infirmity. The FOMB has announced that it will file before the Supreme Court to review the decision. Given current political alignments and animosities, one can expect a predictable outcome to this process. As a matter of partisan politics, this Committee’s efforts to study possible amendments to PROMESA is not likely to move forward.

Both of the above mentioned cases take implicit issue with the Insular Cases reading of the Territorial Clause. In Vaello-Madero the Court argues that the Territorial Clause is not a blank check which Congress can draw on as it sees fit, disregarding constitutional limitations. In Aurelius Management the Appeals Court argues that the plenary powers recognized in the Territorial Clause does not constitute a license for Congress to disregard other constitutional provisions.
Both cases must be read as a challenge to the by now rote exercise of congressional plenary powers under the Territorial Clause. Both U.S. District Court and Appeals Court, of course, are bound by stare decisis, and are limited as to what they can say about the unincorporated territory doctrine. Appearances must be kept.
Given congressional neglect of its constitutional responsibility in this matter, it is proper that the judicial branch review its own historical missteps and bring into question a doctrine which politically and systematically disenfranchises its citizens in Puerto Rico. Perhaps it is time for Congress to review its own historical complicity in this matter.