Published on August 11, 2020

Sergio Marxuach

1. Nine plaintiffs, all residents of Puerto Rico, challenged on constitutional grounds their exclusion from the Supplemental Security Income program (“SSI”); the Supplemental Nutrition Assistance Program (“SNAP”); and the Medicare Part D Low-Income Subsidy program (“LIS”).

2. Specifically, the Plaintiffs argued that their exclusion from those welfare programs solely because they live in Puerto Rico violated the equal protection component of the Fifth Amendment’s Due Process Clause.

3. Judge Young’s opinion follows the “rational-basis” constitutional analysis set forth in Califano v. Torres (1978); Harris v. Rosario (1980); and, most recently, in United States v. Vaello-Madero (2020).

4. In general, under the applicable constitutional doctrine, a court will uphold a legislative status classification (in this case status as a resident in a territory as the basis for denying benefits under certain federal welfare programs) if that law neither burdens a fundamental right nor targets a suspect class and it bears a “rational relation to some legitimate state end.”

5. In Califano and Harris, the Supreme Court of the United States found three valid rationales for denying SSI benefits (in Califano) and AFDC benefits (in Harris) to residents of Puerto Rico, based solely on the fact of their residence in Puerto Rico:

a. Residents of Puerto Rico are generally exempt from paying the personal federal income tax;

b. The cost of extending these programs to Puerto Rico would be very high; and

c. Fully granting these benefits in Puerto Rico might disrupt the island’s economy.

6. In Vaello-Madero, the Court of Appeals for the First Circuit disentangled itself from the holdings in Califano and Harris by differentiating the legal theory of those cases from the legal theory of the plaintiff in Vaello-Madero:

a. With respect to Califano, it found that while it indeed upheld the categorical exclusion of Puerto Rico residents from the SSI program, it was decided as a right to travel case, not on equal protection grounds.

b. With respect to Harris, it found that while it was indeed an equal protection case, that case did not concern SSI, but rather federal block grants under the AFDC program, a distinction the court found significant in Vaello-Madero.

c. The court in Vaello-Madero then concluded that “the [Supreme] Court has never ruled on the validity of the alleged discriminatory treatment of Puerto Rico residents as required by the SSI program under the prism of equal protection.” Notice that the First Circuit court did not overturn or invalidate the holdings in Califano and Harris, in fact, those cases are still the “law of the land”; rather it differentiated those cases from Vaello-Madero.

d. Having found that neither Califano nor Harris were controlling precedents in the case of Vaello-Madero, the First Circuit went on to conclude that none of the Government’s arguments in those cases, which were raised by the Government in Vaello-Madero, provided a “rational basis” for upholding the exclusion of the residents of Puerto Rico from participating in the SSI program.

e. In general, the court in Vaello-Madero found that:

i. The income tax rationale is inadequate because the beneficiaries of these programs are, by definition, low-income people who generally do not pay income tax no matter where they live.

ii. The high cost of providing these benefits to residents of Puerto Rico also failed the rational basis test because: “Facing budgetary constraints, Congress could have spread out benefit reductions equally or it could have excluded any slice of the population — so why pick residents of Puerto Rico? Wanting to cut costs cannot explain who gets cut.”

iii. Finally, the Vaello-Madero court analyzed the “economic disruption” argument even though the Government had not raised it at the district court level. In essence, the Government’s argument in Califano and Harris was that “extending these benefit programs may have an especially adverse impact on labor incentives on the island.”

iv. However, the First Circuit found that “the economic disruption theory cannot rationally explain the categorical exclusion of residents of Puerto Rico from these particular programs. That is so, in part, because these programs all provide uniform benefits nationwide no matter the local poverty rate or other economic variations.”

7. In Peña Martinez, Judge Young used the holding in Vaello-Madero as the basis to analyze the same three arguments — which were raised yet again by the federal Government to justify the disparate treatment of the residents of Puerto Rico — to determine whether discrimination based solely on status as a resident of Puerto Rico could be used to deny benefits to potential beneficiaries under the SSI, SNAP, and LIS programs.

8. SSI – In the case of SSI, Judge Young found that “the exclusion of Puerto Rico residents from the SSI program runs afoul of equal protection and is therefore invalid.” In fact, he had no choice in this matter as Vaello-Madero is the controlling and binding precedent in the First Circuit, which includes Puerto Rico. The judge, however, elaborated on why the “economic disruption” argument was invalid. He emphasized that it did not make much sense for the Government to argue that the SSI program may adversely affect the labor force participation of a segment of the population, namely, the aged, blind, and/or disabled, which due to its very own characteristics already has a weak attachment to the labor force in the first place. Indeed, “as the Supreme Court has recognized, SSI was designed precisely for those people who cannot work.”

9. SNAP – In the case of SNAP, Judge Young had to do a little bit of legal gymnastics to argue that Harris was not the controlling precedent. Remember, Harris was an equal protection case that challenged how a federal block grant program (AFDC) was applied in Puerto Rico. Similarly, Peña Martinez, with respect to SNAP, is an equal protection case that challenges how a federal block grant program (SNAP) is applied in Puerto Rico. Judge Young dismisses the argument that Harris would control by arguing that the issue of how “block grants” function in Puerto Rico was “only a distinguishing feature of Harris but not its sole” And finds other “distinguishing features” to liberate himself from the holding in Harris.

Having set aside the Harris precedent, he dismisses the “failure to pay income tax” and “high-cost” arguments using the same analysis set forth in Vaello-Madero. However, he spends a considerable amount of ink on the “economic disruption” argument.

a. First, he analyzes “empirical” arguments regarding the validity of the theory that providing additional food assistance to residents of Puerto Rico would depress labor supply.

b. The federal Government cites a study done by Gary Burtless and Orlando Sotomayor to buttress its argument.

c. The Plaintiffs raised two arguments in rebuttal:

i. First, a report drafted by Professor Juan Lara, which argued that “[a] post-hurricane ‘experiment’ with a temporary increase in NAP funding is a case study of how equal treatment in the challenged programs would help Puerto Rico’s economy.”

ii. Second, the amicus curiae brief filed by Congresswoman Nydia Velazquez which “correctly noted that the HEW report cited by Califano, 435 U.S. at 5 n.7, cuts against the economic disruption theory. In fact, that report expressly states that ‘the Food Stamp implementation in Puerto Rico has shown that a large influx of assistance does not necessarily disrupt the economy’.”

iii. In any event, Judge Young concludes that “an empirical attack is generally unavailing on rational basis review”. See footnote 15 of the Peña Martinez opinion.

d. Having engaged in and then disregarded a “war of the experts” on this issue, he moves on to explore what he calls an “even deeper irrationality”:

i. He asserts that “by excising Puerto Rico from the national program, Congress has effectively exempted the NAP program from the major pillar of its plan to combat SNAP’s labor disincentives: limiting benefits to no more than three months’ worth over three years for able-bodied adults without dependents between ages 18 and 49 (dubbed “ABAWDs”) unless certain work requirements are met.”

ii. According to Judge Young, “Economists may debate whether SNAP’s work requirements in fact promote the desired labor supply effects, as they debate whether SNAP depresses labor supply at all. Congress has evidently made its empirical assumptions and the Court must respect them. Yet these work requirements do not apply to the NAP program.”

iii. He then states that “It is baffling that this strategy would be implemented everywhere except Puerto Rico, where Congress supposedly was most anxious about SNAP’s disruptive economic effects. How can excluding Puerto Rico from the SNAP program be a rational means to counteract welfare dependency when the linchpin of SNAP’s anti-dependency policy — the strict work requirement — is thereby made inapplicable in Puerto Rico?”

iv. Not surprisingly, he concludes that the “economic disruption” argument fails to provide a rational basis to justify the discriminatory treatment of the residents of Puerto Rico with respect to the application of SNAP.

10. LIS – This is perhaps the shortest analytical section of the opinion. Judge Young agrees with the Plaintiffs when they state that the LIS is essentially indistinguishable from SSI and SNAP in “all relevant respects.” Therefore, “in light of this Court’s and the First Circuit’s conclusions explained above, it follows that the LIS program’s exclusion of Puerto Rico residents also violates the equal protection component of the Fifth Amendment.”

11. Remedies – The Plaintiffs requested two remedies:

a. A declaration that the statutory and regulatory provisions of SSI, SNAP, and LIS that discriminate on the basis of status as a resident of Puerto Rico are unconstitutional; and

b. An order enjoining Defendants from enforcing such discriminatory provisions of the SSI, SNAP, and Medicare statutes and implementing regulations. (Otherwise kn0wn as a “permanent injunction”).

c. The Government did not object to the validity of either remedy with respect to the nine Plaintiffs.

d. The judge grants and orders the requested remedies with respect to the nine Plaintiffs but also extends them to all similarly situated residents of the Commonwealth of Puerto Rico.

e. This is perhaps the weakest part of the opinion from a legal perspective. As the judge readily concedes “no class has been certified here, nor have the Plaintiffs moved for class certification.”

f. That being the case, the Government argued that “this fact divests the Court of authority to issue Commonwealth-wide relief under Article III standing requirements and traditional equitable principles.”

g. The judge disagreed. Indeed, Judge Young cites several precedents that support the contention, that while rare, the Supreme Court has approved injunctions that extend beyond the parties to the case, even when no class has been certified.

h. This issue will probably be one of the grounds for appeal.

12. So, What is Next? – The federal Government has several options. Among these are the following:

a. Request Judge Young to stay the effect of his order granting relief to the Plaintiffs and all other similarly situated persons in Puerto Rico until the Government decides whether to file a petition for certiorari with the Supreme Court in the Vaello-Madero case. If the Government files such a petition, and the Supreme Court grants that relief, then it will probably also issue an order extending the lower court stay. The logic is that Vaello-Madero is the central axis of the legal reasoning in Peña Martinez. If Vaello-Madero falls, then so does Peña Martinez.

b. Appeal directly to the First Circuit. This is an option in theory, but unlikely to be exercised in practice, given that Court’s recent opinion in Vaello-Madero.

c. In the alternative, the Government may appeal to the First Circuit only the broad injunctive relief granted by Judge Young. That is, it may seek to limit the application of Peña Martinez only to the nine named plaintiffs, perhaps while concurrently filing a petition for certiorari on Vaello-Madero.

d. Do nothing and let the chips fall where they may in Congress, which will have to appropriate the funds to make this decision effective.

13. Economic Impact – The economic impact of this decision, should it become binding, final, and applied to its full extent, is significant:

a. LIS – According to Judge Young’s opinion there are approximately 500,000 persons who could benefit from this program in Puerto Rico. The SSA estimates the average annual LIS benefit to be $5,000 dollars in the U.S. That means residents of Puerto Rico could receive up to $2.5 billion in annual benefits under this program. Caveat: total benefits could be lower given that drug insurance premiums, deductibles, and co-payments are probably lower in Puerto Rico than in the 50 states.

b. SSI – CNE has already estimated that if this program were applied in full to Puerto Rico, the annual benefits would be approximately $1.8 billion.

c. SNAP – Advocates for SNAP parity estimate that Puerto Rico would receive an additional $1 billion in benefits if it is granted the same treatment as the states under SNAP. Caveat: total benefits would probably be lower if able-bodied adults without dependents are required to meet certain work requirements.

d. In sum, we are talking about some $5.3 billion in additional benefits, or approximately 5% of Puerto Rico’s GNP, on an annual recurrent basis—that is in contrast to emergency or reconstruction funding, which is non-recurrent.