Puerto Rico, with at least $70 billion in debt, confronts a rising economic misery 567 Share to Facebook Share on Twitter Share on LinkedIn Add to PersonalPost Share via Email Print Article More Miguel Rodriguez, 50, who was working on his résumé at a government employment office in San Juan, said he has been out of work for four years, making it difficult to support himself or pay child support. He noted that his plight is not unusual. “Here, it is very hard to find a job,” he said. As work has disappeared, more Puerto Ricans have relied on the government to survive: About a third of the commonwealth’s population relies on food stamps, and residents of the island are twice as likely as those on the mainland to receive Social Security disability benefits, according to researchers. All of those problems were compounded by a housing bust that took down three of the island’s banks, while leaving many Puerto Ricans as deeply in debt as their government. Now pawnshops and title loan operations, which give loans to people who put up their car titles as collateral, are a growing presence on the island. At a Borinquen Title Loans office located in a former bank branch outside San Juan, an employee inspected a potential customer’s car in the small parking lot, while inside, employees were busy on computers. “We see all kinds of people here,” from former professionals to out-of-work laborers, said area manager Rosemarie Velazquez. “Business has been good.” Restoring economic growth is a top priority for Padilla, whose signature campaign promise was to create 50,000 jobs. That would normally call for spending, tax cuts and investments. But his other top priority, bringing the debt under control, calls for the government cutbacks and tax increases. Since taking office, he has tried to do both. Under pressure from the Wall Street rating agencies, his administration has enacted reforms far more dramatic than those made by cash-strapped states on the mainland. He enacted $1.3 billion in taxes including increased corporate taxes, a broadened sales tax and a new gross receipts levy. The percentage increase in taxes is far larger than what the federal government has ever imposed, according to Richard Larkin, senior vice president of H.J. Sims, an investment firm. “To say that Puerto Rico’s tax increase for 2014 was monumental is an understatement,” Larkin wrote. Padilla also has continued government job cuts begun by his predecessor as governor. Together the two leaders have cut about one in 10 jobs from the public payroll. The changes have put the government on course to shrink the current year’s budget deficit from an estimated $2.2 billion to about $870 million. The plan going forward is to reduce the deficit by half every year, and totally eliminate it by 2016, officials said. To bolster the severely underfunded government pension plans, Padilla shifted many government workers from traditional pensions to 401(k)-type retirement plans, while raising retirement ages and increasing employee contributions to the plans. He also promised a series of increases in the government’s pension contributions to fortify the severely underfunded plans. Meanwhile, economic development officials are stepping up efforts to generate growth on the island. The government has enacted tax incentives and offered electricity credits to entice firms that might be discouraged by Puerto Rico’s electricity costs, which are double the average on the mainland. Officials also are searching for an operator for a $300 million port project that can handle the mega-ships that will soon traverse an expanded Panama Canal, and they are working to bolster the tourism trade, which accounts for a paltry 6 percent of the tropical island’s economic activity. They say they already are seeing success, including new air routes to the island and commitments to build hundreds of new hotel rooms. “[Previously,] we were lazy and complacent,” said Alberto Baco, Puerto Rico’s secretary of economic development and commerce. “Now we have to act fast.” But it remains to be seen whether the government’s actions will be enough to stave off the crisis. Earlier this month, the rating agency Fitch warned that Puerto Rico’s general obligation bonds could be downgraded to junk status next summer because of concerns that the commonwealth would be unable to return to the market anytime soon to borrow more at a reasonable cost. Another downgrade would be a severe blow for Puerto Rico, effectively cutting it off from the market and paralyzing its efforts to dig out from under its mountain of debt. If that happens, Lamba-Nieves, the director of the Center for a New Economy, said the federal government could feel pressure to step in with some type of bailout. “Puerto Rico might be a little too big to fail,” he said.
Posted on: Mon, 02 Dec 2013 17:57:46 +0000
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