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How Puerto Rico Can Save US$2.4 Billion

By: Frank Worley-Lopez - May 11, 2015, 9:02 pm

EspañolDespite claiming to have balanced the budget, Puerto Rico Governor Alejandro García Padilla now admits that the government is short by a bit. News reports say the deficit this year is only $191 million. However, recently rejected tax reforms were designed to raise $1.2 billion.

Puerto Rico can prevent this year's fiscal disaster - and those to come - by taking a bold stance on  excessive public spending. (Flickr)
Puerto Rico can prevent this year’s fiscal disaster – and those to come – by taking a bold stance on excessive public spending. (Flickr)

So it begs the question, if the island is only short by $191 million, what is the remaining billion for? And why was the Padilla administration trying to raise another 3 billion dollars in debt?

Just four days ago, the government said it was looking to cut $1.5 billion from spending. This is the problem with Puerto Rico: it’s virtually impossible to get straight answers from anyone in government.

I won’t belabor the point about how Puerto Rico got here, I’ve been discussing this for a while. Right now the island needs answers.

At present the government is cutting back on employee hours and government services. These initial moves offer some hope that the budget can be balanced for this fiscal year, but what about the next one, which is just months away?

Once again the Padilla administration fails to address the island’s fundamental problem: government is too big and it spends too much money. The closest estimate to the actual shortfall comes in news reports today: the US territory is short by $2.4 billion. So let’s start there.

Padilla: Do the Math

How do you save $2.4 billion? Well, here we go:

Median earnings for working people in Puerto Rico are about $22,000; Puerto Rico, on a side note, is one of the only US jurisdictions where women’s median earnings are more than men, by a few hundred dollars in our case.

Employers face additional costs of about $1.35 for every dollar in wages paid to an employee. This is a ballpark figure often used in estimating costs. So 1.35 x 22k = $29,700 per year per average employee.

The number of public employees? 300,000.

If you cut one third of the total government workforce (100,000 jobs) you would save roughly $2.97 billion. There you have it. The best part of this is you don’t actually have to cut 100,000 jobs.

When you close an entire department or division of government, you also let go of its property; fleet of vehicles, electricity costs, internet charges, and office costs like paper, printers, and so on.

So my best guess is that by laying off 50,000 to 75,000 public employees and reorganizing the commonwealth government, the savings will come through with no additional taxes.

Best of all, this attacks the primary problem the government is facing; its size. As a result, we wouldn’t have to come back and fight this battle all over again next year.

However, taxing and spending are only part of the overall problem. Puerto Rico remains in a severe economic crisis and is now facing possible water rationing (again).

I’ve addressed economic issues in the past in this space, and put forward proposals for dealing with many of these issues. I’ll likely return to them in the future, but suffice it to say that Puerto Rico’s government needs to get out of the way of businesses, and let capitalism work its miracle.

The only thing holding Puerto Rico back is its government.

Edited by Laurie Blair.