Puerto Rico Closes Government in Budget Battle

While the rest of the US braced itself for more drama over illegal immigrants, the Commonwealth of Puerto Rico had to close its government offices and schools because there is no money to pay for them. Essential services will continue, but there are now 500,000 kids who aren’t in school on the island, and 100,000 government employees (including 40,000 teachers) without jobs. Fortunately, municipal authorities are still afloat, so the garbage will get collected.

Puerto Rico has been an American territory since the end of the Spanish American War in 1899, and all of its Spanish-speaking inhabitants are US citizens. The government is the largest employer on the island, and salaries and wages make up 80% of its operating budget. It is also vastly poorer than Mississippi, which is the poorest of the 50 states. Mississippi has a median household income of over $32,000, while Puerto Rico’s is about $13,000.

The island has enjoyed certain tax concessions from Washington over the years, but the local competition for tax-haven status includes the Caymans and Bahamas, so it really hasn’t become a huge offshore banking zone. Moreover, it hasn’t developed a decent revenue source for the island's government. Most US states fund themselves through sales taxes (though there are some exceptions). Puerto Rico has no sales tax.

The Commonwealth has a deficit of $740 million, and the governor and legislature haven’t been able to agree on spending plans since 2004. A 5% sales tax on companies with profits in excess of $10 million per year could close the $530 million loan from Puerto Rico's Government Development Bank to pay government workers' salaries for the rest of the fiscal year, according to the lower House. The Senate says a 5.9% tax is preferable, while the governor warns anything less than 7% does nothing about the deficit.

The underlying problem is, of course, the general poverty of the island. However, the immediate need is to get the people paid and the schools opened. Help from the mainland shouldn’t be part of the package here, but some kind of safety net may be needed if payday gets missed more than once. Budget problems can become political problems that spread.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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