EspañolThe Financial Times‘s interpretation of last week’s speech by Governor Alejandro García Padilla was perhaps the most telling of all media coverage. “Puerto Rico faces $28 billion shortfall in next 5 years,” their headline read.
Of all the data out there on the governor’s non-announcement, this is the one piece everyone should focus on.
For some time now, I’ve argued that the cure for the island’s financial mess is to cut spending, then cut, and cut some more. The island is spending far too much money on a government that quite frankly doesn’t work very well. It is also feeding enormous corruption.
In July, I wrote about education “professional services contracts” granted to numerous companies. Some of those multimillion-dollar contracts came due this week, when the FBI arrested nearly three dozen people for corruption associated with the use of funds awarded under those contracts.
A job, by the way, that the Puerto Rico Justice Department failed to do. The FBI says this is only phase one of a multistage operation that will include “many more” arrests.
By some estimates, the island spends upwards of US$12 billion per year on professional and services contracts. Cutting that amount in half would solve the island’s financial crisis, and even allow for lower taxes, which would inevitably increase overall economic activity.
The information released this week from the governor’s office does indeed look grim, but let’s not forget that Puerto Rico raises nearly $10 billion per year in taxes, and receives more than $20 billion a year from the federal government, with total expenditures exceeding $28 billion.
Puerto Rico does not have a revenue problem. Puerto Rico’s problem is not the size of its debt. Puerto Rico’s problem is how much it spends.
I very much look forward to the coming lawsuits from creditors regarding the island’s decision to default on some of its loans. I hope some smart attorney directly subpoenas the governor, the treasury secretary, and other commonwealth officials, and puts them all on the stand under oath.
Maybe then the public will finally get some honest answers about what’s going on inside the Puerto Rico government.