Trump Tightens Aid for Puerto Rico as Turmoil Grips Island

(Bloomberg) -- The Trump administration is planning to place restrictions on disaster aid for U.S. states and territories, holding up $8 billion that Puerto Rico is relying on to rebuild from Hurricane Maria and reverse an economic rout that drove the government into bankruptcy.

The Department of Housing and Urban Development plans to release rules for accessing the $16 billion in disaster mitigation grants announced last year, two senior department officials said Friday. The rules will allow states to get money before Puerto Rico and the Virgin Islands, both battered by the 2017 storm.

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The decision escalates the long-running clash between President Donald Trump and officials in Puerto Rico who've complained about the federal response and the pace at which aid has been released. The administration's hand has been strengthened by the turmoil that's engulfing Puerto Rico Governor Ricardo Rossello, who resigned in the face of massive protests over callous and profane texts with his aides and a federal corruption investigation that led to the indictment of two of his former top officials. Rossello is due to step down Friday, but it's not yet clear who will replace him.

The department will release rules for U.S. states in coming weeks, the officials said, and rules for territories will come later. The delay for Puerto Rico is due to concern over the territory's financial controls and the current political instability, one official said.

“Recovery efforts in jurisdictions prepared to do their part should not be held back due to alleged corruption, fiscal irregularities and financial mismanagement occurring in Puerto Rico and capacity issues in the U.S. Virgin Islands, which is why HUD will award disaster mitigation funds in two separate tranches,” said HUD Secretary Ben Carson in a news release.

The release of aid is critical to Puerto Rico's effort to emerge from bankruptcy, with the island's federal overseers counting on rebuilding to provide a jolt to the economy.

Yet Trump has repeatedly lashed out over help extended to the island, falsely claiming that Puerto Rico has received more than $90 billion and incorrectly asserting that officials wanted to use it to pay off bondholders. While about $42.5 billion has been allocated to the island, only about $13.6 billion has so far been disbursed, according to the Federal Emergency Management Agency.

--With assistance from Jonathan Levin.

To contact the reporter on this story: Austin Weinstein in New York at aweinstein18@bloomberg.net

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, William Selway, Stephen Merelman

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