Right before Labor Day, Hillary Clinton visited Puerto Rico and declared that a Chapter 9 bailout was necessary for the island’s economic recovery. Last week, Governor Alejandro García Padilla released a fiscal adjustment plan designed for the purposes of political cover and lobbying for Chapter 9 bankruptcy. Unfortunately, both Clinton and García Padilla are putting politics and special interests ahead of meaningful reforms that will help the Puerto Rican people.
Sen. Marco Rubio (R-Fla.) understood this. The easy political path for him would have been a similar sound bite. But on his visit, the same day as Clinton, he called for local solutions that would improve lives and reduce the cost of living for residents while stabilizing the debt problem. And he called for these to be implemented before Chapter 9 is on the table. That is a much smarter position, if not politically expedient.
Chapter 9 is a bad idea for Puerto Rico, for many reasons. First, it puts off real, substantive reforms, which is precisely what got Puerto Rico into this mess. The Island needs structural reforms, not a band-aid that chases investment away.
The governor’s plan paid lip service to this need in vague platitudes that have little chance of being implemented. And the reforms would come after bankruptcy, which reveals his true agenda.
Under normal circumstances, most of Puerto Rico’s debt doesn’t even qualify for Chapter 9 bankruptcy, since it is made up of General Obligation Bonds or debt incurred by solvent companies. Chapter 9 would do little to address the problem.
Most importantly, Chapter 9 doesn’t do anything to help grow Puerto Rico’s economy. The mere discussion is actually harming the economy. Puerto Rico has been hurt by a lack of necessary reforms combined with bad tax-and-spend policy choices made by its leaders, especially Garcia Padilla.
The good news is that many of the reforms that actually will help improve the Puerto Rican economy are relatively easy to enact and could produce results within a short timeframe.
For example, Puerto Rico could expand their public-private partnerships. Right now, the Commonwealth owns major assets that states typically do not, like their utility companies, for example. Recently, Puerto Rico privatized roads and their main airport, producing immediate savings. Additional privatization would eliminate billions of dollars of debt.
Puerto Rico could reform its government workforce and labor policies. Every Sunday, the minimum wage in Puerto Rico is set at time and half. So most businesses outside the tourist industry shut their doors and economic activity slows to a crawl. Mother’s Day and Father’s Day are mandatory holidays. And many of the Island’s public corporations hold positions for politically appointed “trust employees”, who work when their political party is in power, but remain employed even if their party is out.
Or the government could simply make it easier to build a building. In Puerto Rico, it can take six years to get a permit for a large-scale development project or six months for a standard construction permit. The permitting process in Puerto Rico stifles private sector investment and construction.
And they don’t need to raise taxes. It is clear García Padilla’s recent tax increases have not worked. To jump-start the Puerto Rican economy, the government could pursue the types of tax cuts that lead to growth.
Even with tax cuts off the table, Puerto Rico could simply collect taxes that are already owed. Puerto Rico has an abysmal rate of tax collection - 56 percent of tax revenue on the island compared to an average of 83 percent in the states. They could generate billions, reduce their debt and make their debt service payments with only a slight improvement, using existing technology and enforcement capabilities.
Clinton and García Padilla are seeking solutions to their political problems. Puerto Rican families deserve better.
Let’s hope more politicians take the smart stand and advocate for real reforms that will actually help the residents of the island by improving services, reducing costs and growing the economy. That, not bankruptcy, is the solution.
Lopez is the president of the Hispanic Leadership Fund, an advocacy organization dedicated to promoting liberty, opportunity, and prosperity for all Americans.
By Mario H. Lopez
Putting politics over solutions in Puerto Rico
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