Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA)

PROMESA established a Financial Oversight and Management Board for  Puerto Rico (Oversight Board), and granted it broad powers of fiscal and  budgetary control over Puerto Rico. Census in cooperation with the Department of Labor’s Bureau of Labor  Statistics (BLS) produces the Current Population Survey (CPS), which  provides statistics on work, earnings, and education. Salary Level Test. DOL  estimated that about 4.2 million EAP employees in the states would  become newly entitled to overtime pay under the revised salary level  threshold. Unreliable Economic Data Make Conditions in Puerto Rico Difficult to Evaluate

		Prior to Hurricane Maria, Puerto Rico Had Already Experienced Prolonged Economic Decline

			Overall Economic Decline

Puerto Rico Planning Board (Planning Board) data show that Puerto Rico  has been in an economic decline for more than a decade. From 2005 to  2016, Puerto Rico’s GDP decreased by over 9 percent, after adjusting for  inflation. Methods Currently Used To Measure Puerto Rico’s Economy Are Outdated and Lead to Unreliable Measures

			Measuring GDP in Puerto Rico

Outdated methods for measuring GDP make it difficult for the Puerto Rico  government to fully analyze specific economic needs and develop long- range plans. Planning Board officials told us in  August 2017 that they were working to update their GDP methodology, so  that it is similar to the one used by BEA, and that they would be updating  to a 2007 “market basket.” Board officials said the new GDP figures  were expected to be completed in December 2017. A 2016 bi-partisan Congressional Task Force on Economic Growth in  Puerto Rico (2016 Congressional Task Force) recommended BEA  calculate GDP for Puerto Rico as it does for the states and other  territories, and BEA’s long-term goals include this objective. BEA has  provided technical assistance and support for 6 years; however the  Planning Board has not yet modernized its methods to report a reliable  GDP measure, and BEA has not included Puerto Rico in its reporting  efforts. Specifically, PROMESA suggested that Census conduct a study to  determine the feasibility of expanding data collection to include Puerto  Rico and the other four U.S. territories in the CPS and if necessary,  request the funding required to conduct this feasibility study as part of its  budget submission to Congress for fiscal year 2018. However, Census has not studied the feasibility of including  Puerto Rico in the CPS, which would inform officials’ decision on whether  to include Puerto Rico and the other territories in the CPS. Increasing the Overtime Threshold Would Affect a Small Percentage of Workers in Puerto Rico and Could Affect Employment Conditions

		The 2016 Overtime Threshold Increase Would Likely Affect Less Than 5 Percent of the Workforce in Puerto Rico

Our estimates suggest that a larger percentage (about 4.5 percent) of  Puerto Rico’s total workforce would have been affected by the Overtime  Rule than the states (about 2.6 percent), based on our analysis of ACS  data and DOL’s analysis of CPS data. In its analysis of the impact of the 2016 Overtime  Rule in the states, DOL estimated the largest impact would be an  aggregate transfer of income from employers to employees, which would  be seen as a positive for some employees (e.g., increased pay, fewer  hours for same pay, or new hires) and a negative for others (e.g.,  employers in our facilitated discussion groups said they would have  layoffs, move employees from salaried to hourly, or lower benefit  amounts). Employers could respond by adjusting staff if the 2016 Overtime Rule  goes into effect, but the impacts to employers may be limited and the  workforce could benefit from the 2016 Overtime Rule change according to  our interviews with 1 economist and 1 labor group official. (Recommendation 1)
The Secretary of Commerce, in cooperation with DOL’s Bureau of Labor  Statistics, should conduct a study on the feasibility of including Puerto  Rico in its reporting of the Current Population Survey. In an email, DOL’s Deputy Assistant Secretary for Policy stated that the  agency did not have any comments on the report. To evaluate the current economic conditions in Puerto Rico quantitatively,  we analyzed (1) data from the Puerto Rico Planning Board’s (Planning  Board) Statistical Appendix for the Governor that includes data on Puerto  Rico’s gross domestic product (GDP) from 1990 through 2016 and (2)  passenger data for Puerto Rican airports for years 2016 and 2017 from  the Bureau of Transportation Statistics (BTS). To assess the potential effects of the 2016 Overtime Rule on Puerto Rico  quantitatively, we analyzed and reported data from the American  Community Survey (ACS) for calendar year 2015, because DOL used  2015 data in its impact analysis of the Overtime Rule on the states. In addition to the quantitative data collected, we reviewed relevant federal  laws, regulations, court documents, agency guidance, and internal  controls related to the 2016 Overtime Rule, labor in Puerto Rico, and  federal statistical measures for Puerto Rico. We also interviewed four economists, identified from prior  work and interviews with agency officials, industry groups, and labor  groups as having expertise relating to the 2016 Overtime Rule or the  Puerto Rico economy, regarding the economic conditions of Puerto Rico  and the potential economic impacts of the 2016 Overtime Rule.
Why GAO Did This Study

Puerto Rico, the largest and most populous territory of the United States, is subject to congressional authority, although it has broad authority over matters of internal governance. After it defaulted on over $1.5 billion in public debt since 2015, Congress passed PROMESA to establish federal oversight of fiscal affairs. This debt crisis coincided with DOL finalizing the 2016 Overtime Rule, which was invalidated in federal court and is being appealed. PROMESA included a provision for GAO to assess the rule's impact on Puerto Rico and examine its economic condition.
This report (1) examines the economic conditions in Puerto Rico as of the end of 2016, and (2) assesses the potential effects of applying the 2016 Overtime Rule to Puerto Rico. GAO analyzed 1990-2016 economic data and replicated DOL's impact analysis of the 2016 Overtime Rule using 2015 ACS data, the same year used by DOL in its analysis. GAO also reviewed federal laws, regulations, court documents, agency guidance, and criteria related to the federal overtime rule; facilitated group discussions with employers in Puerto Rico from industries most likely to be impacted by the rule; and interviewed relevant stakeholders and labor groups.

What GAO Found

Unreliable economic and limited labor data make conditions in Puerto Rico difficult to evaluate.
Puerto Rico Planning Board data show that from 2005 to 2016 Puerto Rico's gross domestic product (GDP), a principal economic indicator, decreased by over 9 percent, after adjusting for inflation, and the devastation brought by Hurricane Maria in 2017 has worsened economic conditions. While the overall downward trend is reliable, GAO found that the Planning Board uses outdated methods to calculate GDP, which results in unreliable data from year to year and can make it difficult for policymakers to fully analyze specific economic needs and develop long-range plans. The Bureau of Economic Analysis (BEA), within the U.S. Department of Commerce (Commerce), does not calculate GDP for Puerto Rico, as it does for the other U.S. territories. For 6 years, BEA has provided technical support to the Planning Board to update its methods and Planning Board officials described plans to do so, but its methods remain outdated. A 2016 Congressional Task Force recommended that BEA calculate Puerto Rico's GDP, and BEA considers it a long-term goal; however, BEA has not taken steps to do so.
Further, Puert Rico has limited labor statistics because it is not included in the Current Population Survey (CPS), which is produced by Commerce's Census Bureau (Census) and Department of Labor's (DOL) Bureau of Labor Statistics (BLS). CPS provides detailed information about employment, such as hours of work and earnings. The Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) suggested that Census conduct a study to determine the feasibility of expanding data collection to include Puerto Rico. Census officials said that they estimated the cost of such a study but have not yet conducted it. Census officials also cited concerns with data collection burdens. However, without CPS data on Puerto Rico, policymakers are limited in estimating the full economic impact of different policy changes. For example, DOL did not have the data needed to include Puerto Rico in its assessment of the economic impact of DOL's 2016 Overtime Rule. Conducting such a study would help policymakers consider the tradeoffs of including Puerto Rico in the CPS.
GAO used a different dataset—American Community Survey (ACS)—to assess the potential effects of applying the 2016 Overtime Rule, which would have increased the salary level threshold from $23,660 to $47,476 at which executive, administrative, and professional workers would not be eligible for overtime pay. GAO estimated that about 47,250 of 1.06 million workers in Puerto Rico would be affected—that is, they would become eligible for overtime pay. In response to a salary level threshold increase, employers from selected industries in Puerto Rico told GAO that they might increase certain workers' salaries, but cut overtime hours for other workers, and adjust the number of staff. An economist and a labor group official said that employers could respond by adjusting the number of staff or their hours, but the impacts to employers may be limited and the workforce could benefit. In 2017, a federal district court invalidated the 2016 Overtime Rule and the overtime salary threshold remains at $23,660, but that decision is currently on appeal.

What GAO Recommends

GAO recommends that BEA include Puerto Rico in its reporting on GDP and that Census and BLS study the feasibility of including Puerto Rico in the CPS. Commerce agreed with our recommendations and DOL did not have any comments on the report.