Some people talk forever and do nothing. Others quietly move the world.
At 1:34 this morning, Angelo Falcón e-mailed me a letter which he’d sent to the National Hispanic Leadership Agenda (NHLA). Here it is:
To: National Hispanic Leadership Agenda
I would like to suggest that it is important for the NHLA to weigh in immediately on the need for federal support of Puerto Rico’s efforts to address its current fiscal crisis involving its massive $72 billion debt. This would be especially important coming from the NHLA because it would represent a strong pan-Latino position calling on the White House and the Congress to address this problem in a timely and comprehensive manner. The NHLA may already be planning to address this issue, but I wanted to suggest ways that it can be approached in terms of federal policy.
A NHLA position on Puerto Rico’s fiscal crisis should involve at least the following elements:
While not exhaustive, these ideas for Puerto Rico’s recovery through federal government intervention are perhaps illustrative of what a comprehensive approach to more long-term solutions to Puerto Rico’s fiscal problems.
The National Hispanic Leadership Agenda needs to address this issue aggressively in representing the interests of the 3.6 million residents of Puerto Rico and close to 5 million Puerto Ricans stateside. It would be a way to show that the problems faced by Puerto Ricans are of deep concern to the broader Latino community.
This letter is vintage Angelo Falcón. He has been speaking truth to power for thirty years – and his letter is realistic, precise, and politically nuanced.
He offers clear recommendations in an active voice, urging congress to “act, repeal, adopt,” not to “consider, confer, discuss.”
He understands the importance of a shipping industry in Puerto Rico, and how the Jones Act has inflated consumer prices for the past 95 years.
He sees a role for corporate incentives comparable to IRS Code 936, so long as they’re linked to “significant reinvestment within Puerto Rico tied to job creation.”
He signals the need for a real White House Task Force on Puerto Rico. The current one consists of little more than a website, and even the website is a bit tragic: with four-year old documents, five-year old videos, and photos of generic “Latinos.”
This archaic website shows how drastically and urgently, the U.S. needs to re-calibrate its relationship to Puerto Rico.
A Few Small Suggestions
As Angelo Falcón wrote, this plan is not exhaustive. Accordingly I will offer a few small points.
1) Consider making Jones Act Reform a condition to repayment of the $73 billion. They should be linked as part of the re-structuring negotiation. The debt is our greatest leverage. Once it’s paid, no one gives a damn about us.
2) The “public-private” partnerships in the Krueger Report are a poison pill. They are code language for selling off the only revenue-generating assets in the PR public sector: bridges, highways, tolls, airport concessions, public utilities…the IMF and the hedge funds would love to extend “loan forbearance,” or a new round of credit, in exchange for taking these assets as collateral. Then when the PR government defaults (which is highly possible) they will have permanent ownership of the last few vestiges of public sector revenue.
If that happens, the US will outright own the island’s infrastructure (even more than it does) in perpetuity. So no sale, lien or encumbrance of any public utilities (PREPA, gas and water) domestic transport (bridges, highways & tolls), or international transport (airport concessions and franchises).
3) The current tax structure is wrong. It is hypocritical, through Act 22, to extend a 20-year tax abatement on all dividend, interest and capital gains income to hedge fund billionaires like John Paulson…while a lethal mix of regressive taxes forces hundreds of thousands of Puerto Ricans to flee their homeland. This double-standard tax structure, if unchecked, will produce the “gentrification” of Puerto Rico within the next 20 years.
4) To show good faith, we might consider streamlining the 78 mayors. Each mayor makes an average $68,000 per year for an average population of 46,000. That’s before you add the family, friends, mistresses and gigolos that they pad onto the public payroll. 78 mayors is a horrible mess.
Puerto Rico has the Moral High Ground
As a general principle, we must never concede the high ground throughout this process.
History and common sense are on our side.
The U.S. invaded Puerto Rico and appropriated its farms. By 1930 it was already a factory worked by peons, fought over by lawyers, bossed by absent industrialists, and clerked by politicians – Uncle Sam’s second-largest sweatshop.
A century later, Wall Street demanded “fiscal austerities” from Puerto Rico in order to avoid “Junk Bond” designation of its public debt. Then after 33,000 people were laid off, and water rates rose by 67%, and electricity spiked to 29 cents per kilowatt, and property taxes rose, and gasoline taxes rose twice in one year, and SBC (small business corporation) taxes rose by 39%, and pensions were cut, and 120 public schools shut down…Wall Street still declared Puerto Rico’s debt to be “Junk Bonds.” In other words: Wall Street lied, then hiked the premium payments, and now they want to collect.
They claim that Puerto Rico is “too deeply in debt,” but consider the following:
With an $18.7 trillion national debt, the U.S. federal Debt-to-GDP ratio is 105%. The Puerto Rico ratio ($73 billion debt, $104 billion GDP) is 70%. In other words, Puerto Rico’s debt ratio is one-third less than that of the U.S.
The U.S. federal Debt per capita is $58,125. The Puerto Rico Debt per capita is $20,278. Once you add the layer of average state debt, the U.S. Debt per capita is over $70,000.
Using these criteria, Puerto Rico should create a Financial Control Board to manage the U.S. economy.
Not only compared to the United States…but compared to the entire world, Puerto Rico’s public debt is nothing to be ashamed of.
In this month’s Harvard Magazine (July-Aug. 2015, pp. 10-12), in an article titled “Dealing With Debt,” managing editor Jonathan Shaw writes: “Today, the debt levels in many advanced economies exceed 100 percent of gross domestic product (GDP). In the United States, for example, government debt is currently 105 percent of GDP.”
Harvard Magazine then provides a helpful graph, to show this level of rapidly mounting debt, all around the planet:
The sloppy horizontal line on the right was drawn by me – to show where Puerto Rico’s “External debt as a percentage of GDP” falls, in relation to the other 22 “advanced economies.”
As you can see, Puerto Rico’s 2015 debt level is less than one-third of the debt levels in 22 other “advanced economies.” These economies include the US, Japan, Germany, United Kingdom, Australia, France, and Canada.
Numbers do not lie.
What is Really at Stake
The integrity, and perceived security, of the nationwide municipal bond market will be affected by any precedents set by Puerto Rico’s debt negotiation.
If any “leniency” is extended to Puerto Rico, fifty other states will immediately demand that same leniency.
For that reason, Pres. Obama will maintain a “nuclear submarine radio silence” throughout this process. He will insulate himself as much as possible. He will avoid making this decision, and will not expend any behind-the-scenes political capital on it.
Obama will hide behind the courts, the bankruptcy laws, and the U.S. Congress.
The stakes are very high…too high for a lame duck president with waning influence.
Fighting in this corner: Wall Street revenue, pension funds, broker’s fees, commissions, churned accounts, and year-end bonuses.
Fighting in this corner: the human rights of an entire island, with 3.6 million people.
Thank you, Angelo Falcón, for joining this fight.
We certainly expect that the National Hispanic Leadership Agenda will join him, with a minimum of parliamentary procedure.