Puerto Rico does NOT have a revenue problem

More bad economic news about Puerto Rico this week.  It starts with small business. Pizzeria Uno is closing 3 stores on the island while Dunkin Doughnuts is closing even more.  This means dozens of part time and  a handful of full time employees will be out of work.  While Dunkin’s decision to close may be more about a legal fight, one can’t escape the thought that it may have begun with low revenues.

Meanwhile, the construction business is also failing.  Cement sales on the island are down another 9.7 percent.  Cement is widely used in Puerto Rico, not just for foundations, but also as the primary building material for walls and ceilings due to local building codes.  So when cement sales fall, that means less housing starts, less new businesses and less construction jobs.  However, it also means other raw building material sales will also decline.  Metals, glass, cable, wood, ceramic and even appliance sales will drop.  That is why I see cement sales as a key and primary indicator of the economy.  Expect 10% drops in all of the above items.

Puerto Rico tax revenue fell short of expectations again last month.  No big surprise for anyone who has been paying attention to what is going on. However, it occurs to anyone who has followed Puerto Rico that the fall in tax revenue is not the problem.  The 3 percent drop year over year amounts to 36 million dollars versus expectations.  That translates into a 400 million dollar shortfall in addition to the 500 million dollar projected deficit.

This follows Puerto Rico’s 3 billion dollar bond issue to bridge the gap between now and a mythical economic recovery that will never happen.  That happened in Spring and was followed by another 500 million dollars in bond sales in early summer and now more bond sales this fall.  This year has also been the year of downgrading of Puerto Rico credit to the point that  now Puerto Rico is paying more in interest on its debt that Greece.

Yes, that is how bad it is.  So bad indeed that now there is widespread discussion of lowering sentences for criminals.  That’s not out of benevolence considering the islands crime problem, that is a cost cutting move that will put the lives of the general public in even more danger than they already are.

To make up for its insatiable desire to bring in more money, Puerto Rico has raised water and electricity rates, raised taxes, added new taxes and supposedly balanced the budget which only needed 3 billion, plus 500 million, plus what ever comes next to actually be balanced.

It doesn’t stop there however, the island has now introduced ‘foto multa’ or camera tickets at traffic lights and elsewhere as a hidden tax on the populace.  How do I know it is only for revenue generation and not for traffic safety?  Because the camera tickets program was put into place without ever consulting the islands police superintendent.

So what is the problem?

Well, politicians on the left (which means most politicians in Puerto Rico) will tell you that it is a revenue problem.  OK, lets see.

Puerto Rico budgets and taxes about 10 billion dollars per year.  The Federal Government, between direct payments to individuals (welfare, social security etc) spends over 20 billion dollars a year.  That’s 30 billion dollars a year in spending which works out to about $8,500 dollars per man, woman and child per year.  What the hell does the government do with all of that money?

Despite all that money; two-thirds of which doesn’t have to be generated by tax revenue (because it comes from taxpayers in the U.S.), the island mysteriously can’t raise enough money to fund itself.  It raises 8 to 9 billion dollars a year in local tax revenue which, according to the Puerto Rico government itself is rising, but falling at the same time.

Those confusing numbers and statements tell a much bigger story.  The official debt on the island is 73 billion.  Independent accountants put the debt at 110 billion.  Maybe they are both wrong.  Because if the deficit was reduced and tax revenue is rising, then why the 3 billion in bonds, plus half a billion more, plus more?  My guess is that there is a hidden debt or a hidden shortfall that no one is talking about.

The truth is with that much money (and debt) Puerto Rico shouldn’t have any financial troubles at all.  As with the U.S. Puerto Rico does NOT have a revenue problem, it has a spending problem.  The increased taxes and regulations will only make this worse.

As taxes rise and regulation increases, so do prices.  Higher prices mean less buying power, which means less spending which means less economic activity, which means less jobs and lower tax revenue.  How long will it take for the politicians of Puerto Rico to learn how to do math?  How long before they learn to understand the  reality of cause and effect?

The commonwealth must do what Alejandro Garcia Padilla swore he would not do: dramatically cut the size of government and come clean about the depth of the problem.  He must repeal all current taxes and replace them with a simple straight forward system.  He must end the unionization of public employees to take away the power these unions have to intimidate politicians into offering impossible to full fill promises.

He must also turn back the clock and repeal anti-business laws.   The recent sick leave abuse protection law, for example.  Another that should be repealed is the law requiring business owners to pay full salary to women on maternity leave.  This doubles the cost for business when an employee is absent, while lowering productivity.  Who ever said your decision to get pregnant was your employers responsibility?  Those anti-business laws directly led to the closing of 12 thousand businesses on the island according to Caribbean Business.

Commonsense and harsh cuts must become the order of the day.  If the politicians of the U.S. territory are not willing to do it, then give me the job, because I will.

***If you want change, you actually have to make a change.  Want to help?  Join us onFacebook; Follow me on Twitter; And follow my other blogs at the Pan Am Post and here on Word Press.***

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About worleyf

Semi-retired Media Relations guy, former radio and TV reporter and legislative aide. Middle of the road Libertarian (as if that actually existed) who reviews current news items and stories, and offers an alternative point of view.
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