Anybody Out There Got Twenty Grand?

On an island where the improbable happens more often than the probable, it made perfect sense: they were, after all, just across the street from Plaza las Américas (“the largest shopping mall in the Caribbean”, as it never stops telling us.) And everyone knows that Plaza has an excellent air conditioning system, with enough capacity to cool the place down to about thirty degrees in ten minutes. So why shouldn’t the 4000 members of the Unión de Trabajadores de la Industria Eléctrica y Riego (UTIER) just saunter over to the mall to have a little protest? They had, after all, just voted to strike.

To those who don’t know, UTIER is the union representing the workers who run the island’s power company. OK—so why are they striking? Because the legislature has voted and the governor has signed a budget that—while still 100 million dollars short—is being declared “balanced.”

Caveat—I’m swimming in two deep waters here, the first being Spanish, and the second being economics. In fact, “swimming” implies considerably more adeptness than I have: “struggling to tread water” is more like it. I can, however, use a calculator. But first, consider this statement:

La deuda del Estado Libre Asociado y sus corporaciones públicas alcanza la cifra de $71 billones de dólares, producto de décadas de decisiones que ponen primero los intereses de los acreedores. La deuda es tan grande que ya supera el tamaño de nuestra economía.*

(“The Commonwealth of Puerto Rico and its public agencies’ debt has reached the sum of 71 billion dollars, the product of decades of decisions which put the interest of the creditors first. The debt is so large that it now is greater than the size of our economy.”)*

OK—so we owe “71 billion”. And how many of us are there? Here’s your answer:

La población total de la isla bajó de unos 3,7 millones en 2010 a 3,6 millones en 2013. Las mayores bajas se registraron en San Juan y en el oeste y sur de la isla.

(“The population of Puerto Rico dropped from 3.7 million in 2010 to 3.6 million in 2013. The greatest drops were registered in San Juan and the west and south of the island.”)

So the question of the hour: how much would each of us—man, woman, child, infant—have to pay to pay off the debt tomorrow?

Well, let’s make it simple: let’s say that the debt is “only” 70 billion, and that the population has further dropped to 3.5 million. So how much is it?

Twenty thousand bucks.

Guys—would you buy a bond issued by a government so heavily in debt?

Well, if you said yes, you are considerably more rosy-eyed than the three companies who make it their business to advise investors about such things, since earlier in the year, all three of them reduced out bond ratings to junk status. And so we headed off from being La Isla del Encanto and became La Isla de la Deuda—and yes, that means what you think it means.

Enter the 242,000 people who are “working” for the government—and anyone who has tried to get service from our government knows haw richly justified those quotes are. The governor has promised to not cut jobs, but asked that the public unions make concessions about fringe benefits and payment for sick leave. The unions—reputedly—said yes, but wanted the governor to include language that would reinstate the benefits, once the crisis is over. This, the governor was unwilling to do.

And so, yesterday, the water utility and the power company decided to strike. OK, what have they vowed to do? Well, borrowing a page from the legislature, they’ve resolved to act in secret, as well as at night. Oh, and they’ve vowed to close off the airport, major shopping centers, and also Old San Juan. So what happens if my aging mother-in-law suffers a fall? Will we have to medevac her out?

Oh, and what is this going to do to our economy? Well, here’s one economist:

Una paralización en los servicios públicos como energía eléctrica, el agua, el Banco Gubernamental de Fomento y corporaciones públicas que ya están en situación económica y financiera delicada, esto le puede dar el golpe de muerte a las mismas”. 

(“A paralysis in public services such as power and light, the Government Development Bank and public corporations which now are in delicate economic and financial health could be the death blow for these agencies.”)

Absolutely possible, because what did the head of UTIER advise listeners to do, this morning on WKAQ Radio? Stop paying the light and the water bills!

The announcer stopped to scratch his head.

“OK—so what happens when they come to cut the service?”

Guess what? The answer should be obvious.

“Who’s going to come to cut your service? Not us!”

See? 

_____________

* The author of the first piece cited above uses the term “71 billion” the US way. In fact, the debt is named at 71,000 million dollars (which in Spanish would be termed 71 millardos and is 1,000 times less than 71 billion.)

The Teachers Mutiny

T’was the week before Christmas and…

“…we had a coup d’état,” in the words of Jaime.

Who should know, being a lawyer and an astute observer. So what happened? Well, the governor of the island called a special session of the legislature to pass a “reform” of the teachers’ retirement system, which currently has almost 40,000 pensioners. This follows a move in April to reform the government workers retirement system, which caused protests across the island.

It’s not the chickens but rather the eagles come home to roost; since 1952, governments have had two or three essential strategies to reduce unemployment. The first was legitimate—manufacturing, especially pharmaceuticals. That Valium you mother chugged down to tide her through your terrible twos? Thanks, Puerto Rico!

The other modes were a little less kosher….

“He shipped ‘em all off to New York!” sputtered Mr. Fernández, when someone suggested that Luis Muñoz Marín—a close relative of the devil, in the eyes of Mr. Fernández—had reduced unemployment.

The other solution? Put everybody on the government payroll, give them one task to do, and pay them substantially less than the private sector. So you had an enormous government; if memory serves... well wait. Here’s a graphic:

So everybody knew for years that we were heading for disaster. And thus the last governor passed legislation that slashed 30,000 government jobs. Last April, the present governor took the machete to the government retirement system and raised taxes. And now, it’s the teachers’ turn.

There are two reasons for this. First, the system is broke; here’s what the president of the Senate, Eduardo Bhatia, had to say:

To have a retirement system you have to square the end of the month and it is broken. For every dollar you have to give a person who retires today there are 17 cents in the piggy bank. The question is where the other 83 cents go, and that is the decision we have to make as a country. Are there additional 83 cents in the General Fund? No, not there,’ said the Senate leader.

Put it another way—the norm is to have a plan 80% funded, we are only at 17%.

The other factor at play? A little company called Moody’s, which has our credit rating one notch above junk, and is watching Puerto Rico closely.

Well, “watching” may be generous. Moody’s, in fact, has Puerto Rico quite securely by part of a gentleman’s most prized anatomical possessions. And Cate Long, writing for Reuters states it openly: she wrote, “Moody’s identified this reform as one of the factors that will compose its review of Puerto Rico.”

So what happened? The governor sent legislation to one of the two teachers’ unions on the island, and they erupted. And as you can see in the video below, they not only protested but broke the doors to the Senate and charged in. So soon, the entire island was glued to their televisions, watching as hundreds of chanting teachers gathered in the capitol.

Damage? $55,000. One part of which may have been a senator’s chair, on which, according to The New Day, a child was permitted or possibly urged to urinate. Oh, and a security official got bitten, though the attacker didn’t draw blood.

And what did the Senate do? Well, they got the hell out of Dodge City, which in this case meant retreating into an adjacent room, the Hall for Illustrious Ladies. They continued the debate until seven PM, when they adjourned.

To make a sorry situation worse, the teachers do not receive Social Security, and so their pension is the only thing they have.

The reaction from the guv? He came out and called it “reproachable,” which seems a bit mild, given the damage done and the precedent it sets.

You can argue—the teachers should have seen it coming; it was clear that the system was unsustainable. It’s also true that we have a very expensive government, and that our legislators make a killing, both when they’re in office and when they come back as “advisers.” Nor does it help that—according to Mr. Fernández—the Department of Education has the highest proportion of non-docent versus docent personnel in the country.

The saddest thing? According to an analysis by Joanisabel González in the print edition of El Nuevo Día, “Lo increíble es que Puerto Rico entrará en esta nueva parte del ciclo sin garantías de que escapará a la degradación crediticia”.

Simple translation! Even if we do this—and the House has in the last hour just passed the legislation—it may not be enough.