EspañolIt has finally happened. Credit-rating agency Standard and Poor’s (S&P) has downgraded Puerto Rico’s general-obligation bonds to “junk” status. In the short term, this makes it even more difficult for Puerto Rico to obtain financing through loans or bonds. In the long term, S&P has already said they expect further downgrades. This is terrible news for the island.
Governor Alejandro Garcia Padilla and his predecessor Luis Fortuño have both previously taken action or at last attempted to control spending. However, their actions did not stretch nearly far enough, and have only scratched the surface of the fundamental problem in Puerto Rico: the government’s outlandish spending.
It is time for fundamental — if not radical — change in the way the government of Puerto Rico does business. It is also time for politicians from both parties to grow up and start representing the interests of the people of Puerto Rico, instead of continuing down the path of divisive politics. It’s easy to apply blame in every direction, but the truth is blame goes around fairly evenly. So I will forgo attacking the political parties, and instead offer some short and long term solutions to the island’s fiscal problems.
1. Declare an emergency by legislation which suspends all collective bargaining agreements with public sector unions. In order to make any substantive changes to the way the government does business, the island will have to first limit the power of unions. Declaring an emergency by legislation pits the legislative and executive branches against the courts, which have shown their willingness to defend unions at the expense of the rest of the people.
The Puerto Rican Supreme Court may challenge the law or its implementation, which would escalate the matter to federal court on a question of separation of powers. At that stage, the federal court may be willing to see the government has the authority, responsibility, and the need to take action.
2. Cut the size of Puerto Rico’s government by 50 percent. This means laying off nearly 150,000 of the approximately 300,000 people currently employed by government. This also means closing entire agencies and combining and reorganizing others. The government needs to refocus on its primary responsibilities: the police and fire departments, public services, and education.
3. Ask private businesses which regulations are the most restrictive in terms of opening or expanding their operations. Once there is a consensus, repeal those regulations. This will spur the kind of business investment and growth that Puerto Rico needs to recover from its current crisis.
4. Lower taxes across the board, including income and estate taxes. This will generate economic activity, further stimulating the economy.
5. Legalize marijuana, hash, and prostitution, while also easing gaming regulations. This would enable Puerto Rico to tax them, free up resources, raise new sources of revenue, and increase tourism.
The cuts in government are designed to not only lower the state’s costs in the short and medium term, but also to relieve the government from the pensions of employees that will otherwise lock in prior to their retirement age. The combination of trimming the government and lowering taxes will free up enough money to stabilize the government’s funding issues, and have enough left over to significantly decrease its current debt.
These are not easy choices; they will take time to bear fruit and will be painful to implement. But the time has come for Puerto Rico to accept that a crisis exists. It must stop laying blame and take drastic action, because if the island stays on its current path, it’s only going to get worse.