Is the Puerto Rican government serious about wanting to reform its moribund economy and repair its dire fiscal condition? That question has just been answered by Governor Ricardo Rosselló with a resounding “no.”
The latest confirmation of the governor’s recalcitrant attitude toward reform is manifested in his recent statement that the island would refuse to implement virtually any of the reforms put forth by the island’s Oversight Board. These reforms included having the government take some tangible steps to boost the labor force participation rate, such as delaying a draft plan to boost the minimum wage rate to $8.25 an hour. The existing $7.25 minimum wage is the equivalent of a $20 an hour minimum wage on the mainland, adjusting for relative wages. Increasing it further—to the point where it is close to the island’s median wage—is insane, to put it bluntly.
The board also asked that it to do more to achieve cost savings in government administration over the next five years, which included a request that it end the extra-contractual Christmas bonus annually provided to government workers.
The government essentially toward the Oversight Board to suck it. Some of that is probably deserved: Thus far, the board has been loath to compel the government to make good on its promises, so this has heretofore been a successful political maneuver. However, Rosselló’s blunt rejection of the board’s requests and his refusal to acknowledge its powers will likely to set up a legal showdown in the near future.
The response is disappointing for those of us who care about the island’s residents and hope that it can soon chart a path for economic and fiscal recovery, but it is far from surprising. Like his predecessor, Rosselló has no appetite for making any of the politically difficult but necessary decisions to turn around the island’s prospects. Reducing its bloated public workforce needs and improving its tax collections may sound like obvious steps to take for a government that’s utterly bankrupt, but the fact that doing so will make waves and doubtless anger a few constituents is apparently all the reason to avoid doing so except under duress.
Of course, the entire point of having an Oversight Board like the one set up by PROMESA is to give the government cover to make the politically difficult decisions necessary to return the government to solvency and help resume economic growth. However, Rosselló apparently thinks that by being obstinate the island’s $73 billion debt and moribund pension plan will be dealt with by stiffing its bondholders and getting a future Democratic Congress to bail it out.
The destruction done by Hurricane Maria, and the island’s reaction to the disaster, bear out this plan for obstinacy. The Puerto Rican government’s prediction of an incipient cash-flow crisis shortly after Maria hit did not happen as it predicted, and a closer examination revealed that the island’s government had much more on hand in its various accounts than it had revealed. Its insistence that the disaster should preclude any payments to its creditors is unsurprising in that context, since that has always been the government’s preference for dealing with the crisis.
A Republican Congress reluctantly acted to help the island in 2016 and only because it feared a potential humanitarian crisis, one the previous government—abetted by the Obama administration’s Treasury Department—was only too happy to sell. Once Congress passed PROMESA, it felt it had done its job and its members moved on to the next issue.
However, sensing his most important legislative accomplishment is going off the rails, the architect of PROMESA, House Natural Resources Committee Chairman Rob Bishop, recently chastised the board for its “lack of creditor engagement” and “intentional misrepresentation.”
Perhaps this extra nudge from Congress is what the board needs; in the coming weeks, it will be up to the Oversight Board to ensure the necessary reforms are achieved. To date, its accomplishments are questionable; with the past fiscal plans, it eventually acquiesced to the governor’s demands and negotiated agreements that watered down reforms, did a minimum of budget cutting, backtracked on proposed public employee reforms and prioritized pension payments over payments to bondholders—a core requirement of PROMESA.
The current showdown between the PROMESA board and Rosselló is a real test of its resolve, and its ability to see through real change will signal if the island’s government will accomplish the necessary long-term structural changes to the Commonwealth if it is ever to return to fiscal and economic health.
