Marking the 1 year anniversary of the controversial statehood vote we look at the nitty gritty financial details of Puerto Rico.
Can Puerto Rico’s financial situation prevent it from becoming a state? Recent news is pointing towards this.
This article discusses the reasons behind the rise in cost of living in Puerto Rico and its effects on working families. Increases in the prices of energy, food and other costs are higher than on the US mainland and now the Puerto Rico government is implementing new taxes for water and sewage, along with taxes on businesses that make $1 million or more a year. The increase in taxes is seen as a way to deal with Puerto Rico’s debt problem.
UBS AG and other US brokerage firms, in September, also have warned about the Puerto Rico financial situation. They issued strong warnings against buying the bonds Puerto Rico uses to fund its finances. This caused bond ratings to get downgraded.
Gov. Padilla is making the rounds (as best he can) to stop public worry and shore up financial support. His recently introduced austerity measure, while effective on paper, are not believed to be enough to turn the tide. Combine this is raised taxes on business and you have a very similar situation to how the Euro crisis is playing out.
But Puerto Rico may not be able to declare bankruptcy due to being a territory – so is there any actual recourse? And why is there such a debt problem?
There are 3 main reasons:
1) Puerto Rico is unable to participate in the bond market (due to downgrades) so it must finance with short term loans. This sort of financing is not suitable for longterm growth and stability.
2) With a domestic debt load of $87,000,000+ this puts a burden of over $23,000 for every resident. With a shrinking population and tax base there is less government income. This creates a downward spiral of less jobs, less businesses, higher taxes, etc. When will governments learn this is NOT the answer to financial problems? (Sadly never)
3) Average income on the island is less than $13,000 and unemployment is touching 13%.
Some American analysts are even calling for Puerto Rico to be cast off as it were and given independence. This is a far cry from an accepting and welcoming 51st state. Could Puerto Rico even be accepted with such a poor financial standing? And when mainland cities like Detroit are going bankrupt, and not receiving federal aid, why should Puerto Rico?
These are questions we do not expect the federal or Puerto Rico government to really answer soon.
But even despite all this, what do the people think?
On November 19th all Puerto Ricans and statehood supporters are encouraged to gather for the Puerto Rican Day of Equality. Citing “520 years” (the time Puerto Rico has been a colony) this march urged Congress to finally address the issue of Statehood/Independence.
We believe Rep. Pedro Pierluisi’s bill will get a push of support from this march. Pierluisi’s official stance is to get this bill running by the end of 2014.
Here is their flyer: