PR’s FINANCES, A PROPOSAL
Yesterday, Standard & Poor put PR’s General Obligation bonds in a negative watch, confirming what Moody’s had already done. Most analysts believe a downgrade of PR’s bonds to junk is a foregone conclusion. The question is, now what?
Ever since the triumph of the Popular Democratic Party in 1940, the Government’s outlook has been socialistic, statist and populist, no matter which party came to power. The underlying view was tax the locals but not the foreigners and spend more than what you receive. The only administration to attempt to rein in this policy was that of former Governor Fortuño and he was not very successful.
What, if anything, can be done now? There are several things that need to and should be done. There are over 100 agencies and public corporations in PR, many of whom are there to provide hefty salaries to political cronies. One by one they should be evaluated and those who serve no public purpose, should be consolidated with other agencies or outright eliminated as pure waste.
An island of approximately 3,500 square miles, there are 78 municipalities. This only serves the class of professional politicians that are the bane of this island. Most are insolvent and should be either eliminated or consolidated. The problem is that aside from the outcry of our professional politicians, the PR Constitution requires that a law be passed and later be approved by the population of the municipalities involved. Good luck with that one.
Politicians in both parties use the government as part of their campaign funds. They promise advertising agencies juicy contracts in their administration in exchange for their expertise during the campaign. Hence, the government is stuck with huge contracts for publicity it does not need and can ill afford. Also, politicians use public corporations as a depository of those friends and family. The P.R. Electric Power Authority (PREPA), the Aqueduct and Sewer Authority (AAA) and the State Insurance Fund (local workman’s compensation agency)(SIG) have been victims of this practice.
These three agencies are ripe for privatization. PREPA and the AAA have been unable to provide good and inexpensive service to their customers and are viewed, quite correctly, as the mayor obstacle to PR’s development. Both are monopolies but both are insolvent, with more liabilities than assets according to their audited financial statements. Even if not privatized, they should be forced to compete with other and therefore their monopolies should be abolished.
The SIF has become an indispensable government tool, not in providing medical services and compensation to injured workers, but as a supplement to the island’s budget. The compensations it dolls out are minimal and every year has a surplus that is vacuumed out by the insatiable PR budget needs. It has become yet another tax on productive business.
Although Puertorricans do not pay federal taxes, they are more heavily taxed that most of their fellow US citizens. Corporate and individual taxes should be lowered to help the productive forces do their job instead of hindering them left and right as the present administration has done. This requires an elimination of most permit requirements. Many a potential businessperson has been permanently discouraged by the permit Raj’s in PR.
Finally, the desirability of a debt restructuring must be faced. Can PR pay all its debts without further borrowing at 10-12% interest? Probably not. A carefully planned and coordinated debt restructuring would be much better than an outright default.
There are many other things that need to be done. These are just a few.