Puerto Rican Government Seal What's going to happen to Puerto Rico?
     I was taught that ‘you don’t spend what you don’t have.’ For 16 years, I served as a city councilman. Part of my responsibility was to avoid spending money the city did not have. During the past few years, several cities and counties in the United States have gotten into financial trouble because their elected officials spent more money than the city or county received. Examples are:

General-Purpose Local Government Bankruptcy Filings: 9

  • City of Detroit, Michigan
  • City of San Bernardino, California
  • City of Stockton, California
  • Jefferson County, Alabama
  • City of Central Falls, Rhode Island
  • City of Hillview, Kentucky (Dismissed)
  • Town of Mammoth Lakes, California (Dismissed)
  • City of Harrisburg, Pennsylvania (Dismissed)
  • Boise County, Idaho (Dismissed)
Source: http://www.governing.com/gov-data/municipal-cities-counties-bankruptcies-and-defaults.html
     Here is a typical scenario explaining municipal financial insolvency: “Not many people in public office will come out and make definitive and unpopular statements. But two years before San Bernardino filed for bankruptcy, city manager Charles McNeely made a presentation to the council warning of impending financial ruin. "You're headed for trouble, it's a train wreck, you can't keep doing business this way," said McNeely. He was staggeringly accurate in his predictions, and yet everyone chose to ignore his warnings and go on doing the same old thing. That involved spiraling employee pay, benefit costs, and budgetary gimmicks, coupled with a sharp and continued decline in tax revenues. In August 2010, around two years after the McNeely prediction, San Bernardino had a $40 million budget deficit for the fiscal year, and filed for Chapter 9 protection. McNeely told everyone and no one listened.” Source: http://www.wisebread.com/9-cities-you-never-knew-went-bankrupt

     For years, the Puerto Rican government has spent more money than it earned from taxes, federal grants, etc. In spite of limited revenue, the government hired too many people, paid them too much money, and accumulated a huge unfunded retirement obligation. Simultaneously, the island’s infrastructure (e.g., utilities) was allowed for deteriorate.

     Here are detailed examples of the island’s financial crisis: “Some newspapers, such as El Vocero, have stated that the main problem is local government inefficiency rather than lack of funds. As an example, the Department of Treasury of Puerto Rico is incapable of collecting 44% of the Puerto Rico Sales and Use Tax (or about $900 million), did not match what taxpayers reported to the department with the income reported by the taxpayer's employer through Form W-2s, and did not collect payments owed to the department by taxpayers that submitted tax returns without their corresponding payments. The treasury department also tends to publish its comprehensive annual financial reports (CAFRs) late, sometimes 15 months after a fiscal year ends, while the government as a whole constantly fails to comply with its continuing disclosure obligations on a timely basis. Furthermore, the government's accounting, payroll and fiscal oversight information systems and processes also have deficiencies that significantly affect its ability to forecast expenditures.

     “Similarly, salaries for government employees tend to be quite disparate when compared to the private sector and other positions within the government itself. For example, a public teacher's base salary starts at $24,000 while a legislative advisor starts at $74,000. The government has also been unable to set up a system based on meritocracy, with many employees, particularly executives and administrators, simply lacking the competencies required to perform their jobs.” Source: https://en.wikipedia.org/wiki/Puerto_Rican_government-debt_crisis

     In 2017, two major hurricanes hit the island and devastated homes, businesses, and the previously neglected infrastructure. Six months later, parts of the island are still without electricity. Many of its citizens have blamed the United States for not giving more aid to the island and others are blaming the utilities for not acting faster.

     After the hurricanes left their mark on Puerto Rico, I cringed as Carmen Yulín Cruz, the Mayor of San Juan, got in front of television cameras and criticized President Trump for his slow reaction to the crisis and complained about a lack of Federal funding to restore her devastated city.

     Most people would be embarrassed to shift blame following a natural disaster. Oh, but not a mayor who has aspirations of becoming Puerto Rico’s next governor! Her shameless behavior in the aftermath of the hurricanes didn’t fit my definition of good leadership. In fact, her behavior was the exact opposite!

     Politicians like Carmen are a dime a dozen. Unfortunately, having good leadership qualities is not a perquisite for getting elected to public office. On the contrary, a politician can get elected by blaming others for their current predicament and making exaggerated promises of a brighter future if they are elected.

     I’m guessing a majority of citizens don’t understand how a government is supposed to work. In many ways I can’t fault them for their lack of understanding. They work hard, tend their children and parents, and concentrate on other important things in their personal lives. They don’t study government finance. Politicians take advantage of these citizens and promise them everything in order to get their vote.

     When a politician promises citizens free stuff, they only have to look at our Federal Government and will find our Congress and President spending tax dollars like there is no tomorrow. It’s no wonder Puerto Rican government leaders never learned financial discipline. Where was the example of good leadership?

     If Carmen is elected Governor, will the Puerto Rican citizens be better off? I think not. This woman has a history of blaming others for failure. She already has the script memorized in anticipation of the next disaster. Does anyone believe she is the person who can change an entire culture of government mismanagement?

     What is my suggestion? Because Puerto Rico is a United States Territory, I believe Congress should authorize a Territorial Management Commission whose members would be appointed by the President. This commission would assume responsibility for:

  • Monitoring and approving all government financial transactions (outflow and inflow)
  • Establishing and implementing sound financial management policies
  • Establishing and operating a central contracting office
  • Preparing standardized job descriptions for government employees
  • Reviewing and modifying personnel management policies and procedures
  • Establishing a realistic and reasonable pay scale for the island’s government employees
  • Reviewing the qualifications of current employees and making adjustments as needed
  • Adjusting the retirement benefits of retired and current employees based on the new pay scale
  • Reviewing and approving budgets of all government offices
  • Training and holding employees to high performance standards
     A majority of politicians are incapable of making tough, unbiased financial and personnel decisions. This territory needs some good old fashioned management. Maybe it could serve as an example for other poorly managed American cities and counties?

Joe R. East, Jr.

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Updated 04/04/2018
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