ECONOMIC DEVELOPMENT

“The engine of our economy is not our government, but our people. And the engine of the private sector is the individual, in his capacity to create, produce, save, and invest in his or her future, and that of his or her children. Our plan, founded upon these basic principles, will help us return to the path of economic development and fiscal responsibility.”
~ Governor Luis Fortuño

Puerto Rico has one of the most dynamic economies in the Caribbean region. The Island possesses many advantages that create the conditions for economic growth—an educated workforce, a favorable business climate, and the presence of U.S. legal and financial structures. Puerto Rico's ideal location also allows the island to profit greatly from trade and commerce, thanks to its many port cities. The island is situated on many paths between the Americas as well as paths from Europe to the Panama Canal.

In large part due to mismanagement and unsound policy decisions by the local government, Puerto Rico’s economy has been mired in a recession for several years.  Unemployment has climbed above 12 percent, by far the highest of any U.S. jurisdiction. Personal income remains well below the U.S. average. 

Fiscally, Puerto Rico faces a significant deficit.  For the last several years, government expenses exceeded our revenues by nearly a billion dollars.  Today, this gap stands at $3.2 billion, proportionally, the highest in the United States.

Governor Fortuño has outlined an aggressive action plan to rebuild Puerto Rico by jump starting the economy, generating jobs and income, and applying additional cost savings across the government.

The Fiscal and Economic Emergency

1. For the past few years, the Government has spent $900 million more than it collected.
2. $3.2 billion deficit is equivalent to a family making $1500 a month, but spending $2100.
3. Credit rating on the verge of junk status, meaning people who loan money to build highways, hospitals, schools, and to provide needed services no longer want to extend credit.
4. More government employees, in proportion to population, than any other state –the amount is equivalent to the totals of more than 9 federal agencies.

Actions Already Taken

1. 10% cut in government operating expenses (official vehicles to cell phones to credit cards.)
2. Reduced political appointments by 30%.

Plan to Rebuild Puerto Rico

Stimulus Portion of the Plan Includes:

1. Swift and efficient implementation of the $5 billion federal stimulus.
2. $500 million to build local, permanent projects.
3. $180 million in business loans for 7,600 small and medium-sized local businesses.
4. $142.5 million to encourage additional projects like river and stream canalization, aqueduct and sewage systems, repairs to bridges and municipal roads.
5. $300 rebate to retirees with annual income under $20,000.
6. $15 million to facilitate job retraining and transitioning skills.
7. Mortgage Assistance to help more than 5, 000 families afford monthly payments.
8. $240 million for home ownership down payment assistance to help 12,000 eligible families
9. $68 million to build 6,500 public/low-cost housing units.
10. New investment through Public-Private Partnerships to encourage greater private investment in the island to spur development in an open and transparent way.
11. Increase in the amount taxpayers deduct for each dependent.
12. Temporary moratorium on business tax credits, except for tourism, film and manufacturing.
13. Temporary, two-year adjustment on certain earnings, and a temporary charge on insurance cooperatives and credit unions with more than $250,000 in net revenues.
14. Temporary, low-rate adjustment on high-income taxpayers and tax surcharge on high-value residential assets.
15. Program for voluntary compliance with tax responsibilities.
16. Excise tax on liquor, wine and beer to fund Health Card.

Government Reform Portion of the Plan Includes:

1. Reduce government payroll with retirement incentives for all public employees
2. Public Employee Alternative program will help employees to choose between a potential private sector or non-profit job, created through government subsidy.
3. Incentives to study, retrain or train for work in other sectors.
4. Long-time employees will be given the option of voluntary and permanent days off.

Actions Speak Louder Words

The Governor has announced he also will take a 10% pay cut. He has also ordered agency heads to take a pay cut through 2010. The government will also freeze all increases in salaries, fringe benefits, and other forms of compensation or financial benefit for two fiscal years.

Consequences of Inaction

1. Puerto Rico would lose over 130,000 jobs, with unemployment reaching 25% in two years.
2. No credit available for building things like roads, schools, hospitals.
3. Recovery would take 8-10 years.
   

Story is Similar to States

Due to the recession, most U.S. states have taken action to reduce their payroll costs.  According to a February 10 report by the Center on Budget and Policy Priorities (CBPP):

• At least 38 states and the District of Columbia have made, or have proposed making cuts affecting their state workforces.
• At least 24 states and the District of Columbia have instituted hiring freezes, ten have announced or proposed lay-offs, 11 have reduced or proposed reducing state worker wages, and several have delayed scheduled pay increases (including COLAs.)

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