Disaster + Fiscal Insolvency = Puerto Rico

Lights out in San Juan. Photo credit: Los Angeles Times.

I can watch only so much CNN and MSNBC before I get nauseated, but I have seen enough the past day or two to be appalled at how the media are spinning the post-hurricane disaster of Puerto Rico: It’s another Katrina. The Trump administration hasn’t responded fast enough or aggressively enough to help the battered territory, where two hurricanes shut down electric service, cell phones, the transportation system and government services. Others can engage in the blame game if they want to, but I want to point out the obvious: Puerto Rico illustrates the incapacity of a bankrupt government to carry out basic functions under highly stressful circumstances.

And let that be a warning to everyone. Puerto Rico is the future of many U.S. states unless we get our acts together. Garnering less attention than the human tragedy in Puerto Rico, the states of Pennsylvania and Connecticut have made headlines, too, in the past week. After Pennsylvania passed a budget without enough revenue to pay for its spending, S&P Global Ratings downgraded the state’s debt to A+, down two notches from the coveted AAA rating. Meanwhile, despite having the highest median household income in the country and the second highest tax burden (taxes as percentage of income), Connecticut faces a $3.5 billion biennial deficit. The state, notes the Wall Street Journal, is groaning under heavy debt load, large unfunded pension liabilities, and a shrinking population. S&P has placed nine Connecticut localities on negative credit watch.

Those two states have a long way to go before they achieve Puerto Rico-levels of insolvency, but they indicate the direction the U.S. is heading. On a national level, Republicans have abandoned any pretense at crafting a tax reform plan that will shrink the deficit (something that can be pinned on the Trump administration). The national debt is $20 trillion and growing, even in the absence of a recession, at a rate of more than $600 billion a year. It’s not a question of if we will share Puerto Rico’s fiscal fate, but when.

So, what happens when governments approach fiscal insolvency? One thing they do is starve infrastructure maintenance. Puerto Rican roads were in worse physical condition than roads in any U.S. state. Of the island’s 2,280 bridges, 55.8% were considered structurally deficient or functionally obsolete before the hurricanes struck. The territory has chronically under-invested in its water systems, which also failed during the hurricanes, and the government-owned electric system, the Puerto Rico Electric Power Authority (PREPA), has been a disaster-in-waiting for years now.

Reports the Los Angeles Times:

As of 2014 the government-owned company was $9 billion in debt, and in July, it filed for bankruptcy under the provisions set by the Puerto Rico Oversight, Management, and Economic Stability Act, a law signed by President Obama in 2016.

Problems accumulated. Cutbacks in tree pruning left the 16,000 miles of primary power lines spread across the island vulnerable. Inspections, maintenance and repairs were scaled back. Up to 30% of the utility’s employees retired or migrated to the U.S. mainland, analysts said, and the utility had trouble hiring experienced employees to replace them.

The neglect led to massive and chronic failures at the Aguirre and Palo Seco power plants. The three-day blackout in September 2016 underscored how fragile the system was, and that the company was “unable to cope with this first contingency,” the Synapse Energy report said.

No wonder the island’s electric grid collapsed. No wonder officials say it will take four to six months to restore electric power.

If you want your city, county or state to show resilience in the face of natural disasters, you need to have governments and utilities that are fiscally resilient. Entities hobbled by excessive debt scrimp on maintenance and upgrades, leaving roads and utilities more vulnerable to disruption and depriving authorities of resources with which to respond to emergencies.

Puerto Rico would be in terrible shape no matter what. Hurricane Maria wrought devastating destruction, and recovery is impeded by the fact that the island, unlike Houston and Florida, is inaccessible to help by land. But the incapacity of bankrupt government and utilities have made the challenges immeasurably worse.

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26 responses to “Disaster + Fiscal Insolvency = Puerto Rico

  1. Something I’d like to know are the facts around Puerto Rico’s public sector pensions. Ditto for its utility pensions. Are the utilities private or public?

    And what is the impact of the huge cost to taxpayers for the costs generated by illegal immigrants. http://www.washingtonexaminer.com/record-135-billion-a-year-for-illegal-immigration-average-8075-each-25000-in-ny/article/2635757

    What if some of this cost was not incurred and could be applied to public infrastructure? Perhaps, federal tax reform should include a provision that imputes a proportionate share of these costs to employers who have not used E-Verify or have knowingly or negligently hired people not eligible to work in the United States.

    • TMT – here”s a good account of what happened to Puerto Rico.. it had nothing to do with pensions… nor illegal immigration:

      Here’s why Puerto Rico’s broke

      https://www.cnbc.com/2015/08/04/heres-why-puerto-ricos-broke.html

      you should , AT LEAST, try to get more than one source of your “news” , guy…

      geeze guy – we’re talking about Puerto Rico and you’re citing a Wash Examiner article that has NOTHING TO DO with Puerto Rico.. at all!
      geeze!!!! Good GRIEF!

      • The pension question was directed at Puerto Rico. The second comment was directed at Jim’s paragraph reading: “If you want your city, county or state to show resilience in the face of natural disasters, you need to have governments and utilities that are fiscally resilient. Entities hobbled by excessive debt scrimp on maintenance and upgrades, leaving roads and utilities more vulnerable to disruption and depriving authorities of resources with which to respond to emergencies.”

        The taxpayer money spent in response to illegal immigration and the importation of poor people most certainly squeezes out infrastructure investment and maintenance, as do unsustainable pensions.

  2. Excellent article Jim.

    I respectfully disagree with one element of the article namely:

    “And let that be a warning to everyone. Puerto Rico is the future of many U.S. states unless we get our acts together … the states of Pennsylvania and Connecticut have made headlines, too, in the past week … Pennsylvania passed a budget without enough revenue to pay for its spending … Meanwhile, despite having the highest median household income in the country and the second highest tax burden (taxes as percentage of income), Connecticut faces a $3.5 billion biennial deficit. The state … is groaning under heavy debt load, large unfunded pension liabilities, and a shrinking population. S&P has placed nine Connecticut localities on negative credit watch. Those two states have a long way to go before they achieve Puerto Rico-levels of insolvency, but they indicate the direction the U.S. is heading.”

    I suggest this problem is not only a matter of insolvency. It is also a matter of obvious fact that a growing cadre of our governments and nations leaders, and their institutions, are increasingly unable to govern themselves and their people with the competence, discipline, and integrity that is needed to preserve and enhance the interests and welfare of all the American people.

    And that now, too many of us sit on the sidelines while, or agitate for our governments and institutions to, instead morph into corrupt regimes that focus their power on maintaining the self interests of their ruling elite, and increasing their control over our people.

    This is a very old story, this recurring threat to Democracies and Republics, their inherent weakness, an Achilles heel so well known to James Madison.

    FIRST our system of governance too often allows its leaders to take the easy way out its challenges by avoiding its real problems and truth behind them. And to instead devise schemes to placate the people with false solutions and deceits that hide those festering problems and the truths behind those problems, and to manufactured false gifts handed out to people that build in them a depency, and low self esteem and expectations, while the rulers and their allies collectively built ever more wealth and advantage for themselves.

    Secondly and next, as matters and life among the great majority of the people grow worsen, the self interested rulers find fault in OTHERS to further shift the blame away from themselves, the rulers and manipulators who manuevering for their own advantage, while shifting it onto scapegoats, thus firing up to peoples’ the darker angels to maintain the corrupted power of their rulers.

    Here typically, in these latter stages of democratic governmental failure, we see a great surge of demagoguery among the elite governing class and its ancillary institutions (corrupted press, court and school system, and crony capitalism) raise its ugly head. This ever increasing drumbeat of demagoguery then multiplies and increases among more and more warring factions that too often transforms the feelings of their followers from helpless dependency into hopeless blind rage & violence, often in the streets.
    You see when democracies and republics begin to seriously fail, the competing rulers work hard to spilt and anger ever more factions so as to take control of base of power they can ride into battle. So politicians create armies for themselves.

    I believe we now see nearly everywhere this spreading hysteria, and army building. Our governments and our civil and cultural institutions, even now to a degree some our churches are increasely broken and disfunctional. Only the military, although increasely threatened, is holding together, although it too is under attack. And those attacks are coming now from everywhere, going after most everything that use to hold our nation together.

    For example:

    Most significantly, and of late, we see this army building and its organized destructions and disruptions not only in our institutions of higher learning but on the professional playing fields of the National Football League.

    Who would have imagined this a few years ago?

    The Dallas Cowboys, what use to be AMERICA’S TEAM, now as an institution lead by its owners and players disrespects (attacks) the Nation’s Flag and is National Anthem in front of millions of Americans of all ages all over America – in bars, homes, schools, stadiums, more everywhere American’s gather. All of this after months of places of higher learning, our best colleges and universities, tear down Statutes marking our nations past.

    Now more and more of out nation’s institutions, are increasingly incompetent, unable to govern, and increasing aggreggive in trying to rule the thought, actions, culture, history, and language of other citizens and groups, these increasingly currupt institutions now are beginning a rush headlong into anarchy. With their corrupted Leaders leading the charge.

    • In short, many parts of the US and Puerto Rico are mirror images of one another, and now that trend is popping up in very unexpected places. And that trend is accelerating at an alarming pace. All despite the reassurance we can take from earlier storms this year that hit more resilient areas of the nation.

    • These comments should not obscure the important point Jim article makes. Puerto Rico internally was particularly unprepared for what happened.

      And:

      Although emerging facts might show that the Federal Government was slow to appreciate the fragile nature of Puerto Rico’s dilapidated public infrastructure and services when confronted with back to back hurricanes of historic proportions and power that hit the island directly (and other parts of America) in rapid succession, likely the causes of crisis are complicated by many highly unusual events acting in concert in perhaps unforeseeable ways. Looking at history, and very current events, then should be our best guide.

      So a few pertinent questions might be: How often has this immense devastation and resultant public health crisis happened before to Puerto Rico? Why? What was response back then? Have similar events under similar circumstances happened one time, a few times, or many times? What was the island and the Federal response at this time? Why is this time so different if it is, and in what degree is it different?

      The rabid and highly politicized of so much of the Press and the usual Politicians and their flack ideologue allies to gain cheap political advantage irrespective of the truth only points up the fragile and broken nature of our nation’s body politics. And the life threatening course our nation is on.

  3. Jim – you are “spinning” the right wing narrative here , guy.

    First, explain what happened to Puerto RIco’s economy BEFORE it went bankrupt and BEFORE the hurricane.

    Also Explain why the Jones Act was applied in such a way that it harmed Puerto Rico’s economy.

    But finally explain why we KNEW the island had been devastated – just like Houston and Florida was and we CHOSE to WAIT to respond even though we KNEW it had been devastated.

    Is this going to be the Conservatives response to future disasters in the US? to basically say: ” you screwed up and now it’s on you?”

    You guys kill me.. it’s all about ideology .. and “we’re all gonna die cause we’re lazy and irresponsible” gloom and doom blather.

    Disasters HAPPEN – we should not discriminate in how we respond to them and it’s crystal clear this govt chose to not help Puerto Rico – UNTIL it got int he news… upon which the blather-butts – blame who ? the media of course…not the reality that our govt screwed up and failed to help the people of Puerto Rico when it should have.

    • The Jones Act is a piece of protectionist legislation designed to help America’s shriveled maritime industry. I totally oppose the Jones Act, and I always have. Clearly, the law hurt Puerto Rico’s economy. But the island’s problems are much bigger than the Jones Act. The territory spent beyond its means. That is the pure and simple truth of it.

      As for this reckless comment — “this govt chose to not help Puerto Rico – UNTIL it got in the news” — it is transparently false, and you should be ashamed of yourself for making it. One could argue that the government should have intervened more aggressively, I suppose, but I’m not sure that shipping more stuff to Puerto Rico and watch the containers pile even higher on the wharfs would have made things any better.

      It’s easy to be a Monday-morning quarterback and criticize after the fact, but I didn’t hear anybody calling for more aggressive intervention in the immediate aftermath of the hurricane. It’s only when the full extent of the devastation became known, and the logistical bottlenecks became apparent, and the incapacity of the P.R. government became manifestly visible that the need for extraordinary measures became evident to all.

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  5. 8 days after the disaster is not Monday morning quarterbacking – not when that response is far later than the responses to Houston and Florida.

    This is just plain discrimination based on some idiotic idea that Puerto Rico is not “American” or that somehow they deserve this because they had serious economic problems – that were not wholly of their own doing but instead a “let them eat cake” attitude of the US on tax credits and the Jones Act when it’s understood that islands have some serious disadvantages when it comes to attracting businesses and the increased cost of doing businesses in no small part because of shipping costs.

    It’ll be interesting to see what the so-called fiscal Conservatives do when the costs of these 3 disasters get tallied up and the prospect of more if we see more hurricanes like this.

    Is the govt going to essentially abandon some devastated areas on the same basis they’re justifying not helping Puerto Rico?

    If Norfolk or Portsmouth gets whacked by a hurricane are they going to be “judged” as to whether or not they “deserve”relief?

    this is the kind of whacko-bird logic that is now taking over the political right these days…

    I’ll also be curious to see what Trump and the “responsible right” does about subsidized FEMA Flood insurance for places like the Outer Banks and Myrtle Beach, etc… are all of those places going to be put on notice that they self-insure and that the Feds are out of the insurance business? I bet not.. I bet the GOP is going to hear from their business folks about this and like a lot of other issues, the GOP will be unable to do anything..just sit on it.

  6. Like Jim, I feel nauseated but for different reasons. This is yet another tome about debt and irresponsibility and that those irresponsible Puerto Ricans can’t be trusted running a dog pound.

    A few points:

    (1) Puerto Rico has been treated by the U.S. as a 19th century-style colony since it assumed it and made it a “Commonwealth” of the U.S. after the Spanish-American War. As such, the island has been denied any real representation. No Senators. Members of Congress who are denied voting rights. And so on. This all has a racist feel — like we white guys can’t let them have full rights because they are darker skinned.
    (2) P.R. is an island so there are only two ways in and out — ship and airplane. And since it is part of the U.S., shipping rates are given an automatic and non-competitive boost because the 1920 Jones Act forbids many foreign-flagged vessels from carrying what can be considered coastwise trade. So, when Jim gets into the usual conservative points on being irresponsible with money, he somehow doesn’t mention that U.S. laws stack the deck against P.R. in a way that diminishes capitalism and free trade.
    (3) It is true that many Puerto Ricans leave the island when they can because job possibilities are limited. You have tourism, rum and some agriculture. What is little known is that the U.S. has regularly tapped the island whenever needed labor. When I worked in the MidWest for BusinessWeek, I always wondered why there were so many people of Puerto Rican descent around Great Lakes steel mill towns. Turns out that during and after World War II, the steel mills were greatly short of workers so they launched massive recruitment drives in Puerto Rico.
    (4) And, not to mention, Puerto Ricans are U.S. citizens, serve honorably in the U.S. Armed Forces and have made many contributions in sports, arts, culture and the economy.

    So, it nauseated me to read such a one-sided and ill-informed analysis of a proud people that hints of racism. I worked for a New York City-based corporation for 18 years and there are plenty of people in town whose families are from Puerto Rico. My personal and anecdotal experience was that if you confronted a difficult and complex provide, they might be among the first people who seek out.

    • Racism, racism, racism. Blah, blah, blah. When all other arguments fail, tar those you disagree with as racists. Perhaps you didn’t notice, but I drew a direct parallel between Puerto Rico and (mostly white) Connecticut, which is following a similar fiscal trajectory. It’s about the political philosophy, Peter, not the ethnicity.

      • it’s borderline racism… and it does show.

        there is absolutely no justifiable reason to treat Puerto Rico any different than you would Houston or Florida unless you can’t get your own mind straight on why.

  7. Jim – A few months ago you made a post about the economic problems of the American Virgin Islands /St Croix, and you mentioned you did not know too much about how they got into that situation. I tried to inform you that part of the issue was that St Croix got extremely heavily damaged by Hurricane Hugo, and never managed to get back to where they were before Hugo.

    I don’t know where to go from here, except to say Hurricane’s are obviously a huge existential issue for the Caribbean islands.

  8. ” Puerto Rico illustrates the incapacity of a bankrupt government to carry out basic functions under highly stressful circumstances.

    And let that be a warning to everyone. Puerto Rico is the future of many U.S. states unless we get our acts together. ”

    this is the moralistic bile being burped up to justify treating Puerto Rico different than we would Houston or Florida…

    I guess Houston and Florida deserved a better disaster response because they were more fiscally responsible and woe to you if you’re not because if a hurricane hits you – tough cookies.. it’s all on you!

    • “This is the moralistic bile being burped up to justify treating Puerto Rico different than we would Houston or Florida…”

      You know, Larry, I don’t take kindly to this and other insinuations of racism.

      My blog post didn’t “justify treating Puerto Rico differently than Houston or Florida.” It used Puerto Rico as a warning of the future that awaits several U.S. states — I mentioned Pennsylvania and Connecticut — if we don’t get our fiscal act together.

      You’re the one who brought race into this discussion, where it clearly didn’t belong.

      You seem incapable of anything resembling a critical reading of a text. You draw all sorts of conclusions — based upon your own fixations — that bear no resemblance to anything I think or have written. Please, please, read engage your critical faculties and understand what you’re reading before typing out such misguided and offensive comments.

      • re: ” My blog post didn’t “justify treating Puerto Rico differently than Houston or Florida.” It used Puerto Rico as a warning of the future that awaits several U.S. states — I mentioned Pennsylvania and Connecticut — if we don’t get our fiscal act together.”

        Since we had 3 geographic areas that had disasters – WHY did you SELECT only one to wag your moralistic finger at for fiscal sloth and then to try to compare Puerto Rico to Pennsylvania and Connecticut!

        What the…. dooda do either of them have to do with any of this?

        Why not compare the three places in the US that DID suffer disasters ?

        and really – at the end of the day – can we ever really justify a different disaster response to ANY place in the US for ANY reason – regardless of their other sins?

        really?

        ” … Puerto Rico internally was particularly unprepared for what happened”

        like Houston and Florida WERE “prepared”.

        good lord….

  9. West Side Story is a National Anthem.

    West Side Story was (and is) one of my National Anthems from the moment I heard it’s original score at around age 14 with a 12 year old neighbor who is now my wife.

    “Maria – MARIA – I just met a girl named MARIA. MARIA got things done big time.

    Add to West Side Story some of our other National Anthems – Long Day’s Journey into Night – South Pacific – Porgy and Bess – On the Waterfront – Street Car Named Desire – Oklahoma – and you got what you got no where else – the American Experience. And you got it growing up – created mostly by outcasts who had found a home, and added immensely to that home they found.

  10. Interestingly, Bacon, the reactions to this post, presumably from thoughtful and informed readers, demonstrate the difficulty of rational discourse when there is opportunity for ideological grandstanding.

    Your analysis of Puerto Rico as well as your comparison to failing States in the US is, of course, spot on. Out-migration and the loss of corporations and wealthy citizens is hammering a number of State budgets. When there is no money, expenditures must be reduced somewhere and that is something politicians don’t do until they have no other choice. Witness the agony of Greece over the past decade.

    Ultimately and inevitably, the biggest losers are those whom redistributionist ideologues purport to represent. In their view the source of pain will never be bad fiscal policy and discipline but racism, greed, corporations, imperialism, colonialism, “white privilege”, Trump, conservatives, the Alt Right, Bannon. and whatever other emotionally charged and distracting label they can place on it. If they are successful in their rhetoric, actions, and remedies– they get Venezuela.

    Bacon’s point which is inarguable is that what no amount of heat, passion, outrage, moral and ideological superiority can change is that the good life does not return for the lower economic classes until fiscal responsibility returns.

    • You and Jim are right.

      Problem is demagoguery shouted out by “redistributionist ideologues” has worked almost every time for decades. Now you cannot speak your mind. And your children can’t get a decent education, or any manners or morals, without being intimidated by the modern day equivalent of French Revolution mobs using techniques ranging from PC to safe spaces to breaking storefronts, to tearing down monuments to running off anyone trying to say anything the mob disagrees with or anything that somebody says makes them uncomfortable, or that suggests that they be responsible for themselves or their children. Like the radical idea of getting married before you have a child. Or living a live of endless abortions for sex without children or spouse without shame.

      Thus too we get the unrestricted and self destructive immigration policies that refuse to enforce existing laws much less enact new effective ones, all of it by reason of corrupt politicians who seek to enlarge their voter base and crony capitalists who seek to drive down their own labor cost.

      And all of this harm is being inflicted despite the obvious fact that this selfish behavior by our leaders is running the nation into the ground, bankrupting our nation to the great harm of everyone living in it, as such conduct by leaders compounds American’s problems instead of building the capital America needs to solve its real problems, and grow the wealth of all citizens, instead of wasting our money on false problems.

      So now we at the point of ruining of the life of more all Americans citizens, except of course the few in power who go on get richer and more powerful.

      Why does this go on without effective challenge or counter weight?

      I think its because for far too long too many of those who disagree with what is happening have chronically failed to stand up to the nonsense. Like with Greeks, as you suggest.

      If there is a silver lining to Trump, this likely is it. I was appalled that at first most everyone around here stood silently by (or joined in the cheering, or acted ho hum as if business as usual) while those Dallas Cowboys did the equivalent of spitting on American flag in front of millions of viewers sitting at home with their families. Most acted like sheep, or cheered. Trump stood up.

  11. Talk about Trump. He’s blamed Puerto Rico for probably the most massive hurricane in a century.

    • Peter –

      Is that what he said? Are you sure?

      Might he have said that all or some of the damage suffered was the result of Puerto Rico’s poor preparation for the hurricane or its poor execution of its plan, whether that plan was faulty or otherwise, and whatever else might have been beyond anyone’s control, given peculiarities unique to Puerto Rico or uniquely within the control of others, including Puerto Ricans?

      I don’t know the answer to these questions and I don’t believe any one else does with any degree of certainty or precision yet, including what fault may lie with the Federal Government.

      But I do know for sure that we need truthful and unvarnished facts, and we need know all the circumstances, and all answers relevant to these questions, and likely many others, if Puerto Ricans are to get the fixes they deserve so this never happens again to the extent that these threats can be fixed.

      And that only then can justice be done for the Puerto Ricans.

  12. The idea that you’d deny or delay aid to victims of a hurricane on the basis of one’s perception of their “bad” governance or them as a people is about as ignorant and hateful as can be.

    There is no excuse what-so-ever for that kind of attitude where one seeks to put blame on people who are innocent victims of a disaster.

    This is where our politics has taken us today -where ordinary people trying to make a living and care for their families – hit by a hurricane and the ideological idiots in this country want to delay or deny aid to them ….

    folks that think that way – be proud… (sic).
    what has happened to us ?

  13. One thing that “has happened to us” is people and media like Slate, Salon, Atlantic, Huff Post, Washington Post, CNN whose mission is to discredit, smear, divide, and otherwise create as much political and emotional havoc as possible on any pretext. This is combined with a total lack of understanding and gratitude for just the personal efforts of thousands of people and millions of dollars rained on them for their assistance.

    If we have a Republican and probably soon, white male, administration it will never be fast enough, delivered properly, sufficient, the right kind or the right brands of cereal or the right anything.

    Unfortunately, when you work to totally discredit your government, you are totally discrediting government. The Left’s strategies and tactics are akin to drilling holes in the right side of the boat they live on so everyone on that side will drown.

    A massive effort has been invested for Puerto Rico as it has for Texas, Louisiana and Florida nearly simultaneously and responsible reports are that FEMA is getting better and better and has done a job in all these locations that Americans can feel proud of. Parenthetically, personal phone calls from Puerto Rico debunk the political narrative of the Left which is aggressively trying to create a Katrina smear but reinforce the incredibly sad situation and difficulties of even knowing who has been hurt..

    As with Katrina and all disasters, our Feds are dependent on local leadership for the delivery, although in Puerto Rico as well as Texas and Louisiana officials have been creative in adding to their abilities. In Puerto Rico with difficult geography of course access and delivery is even more challenging.

    Those here so compelled to pen unsubstantiated, false conspiracy theories, defamatory accusations, moral outrage, and smug denunciations–take your comments to Slate or the like where your lofty and superior knowledege of America’s social ills and divisions will get a lot of “Amens”.

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