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Five Lessons Gov. Malloy Can Learn While in Puerto Rico

Gov. Dannel Malloy is spending this week in Puerto Rico at the annual Democratic Governors Association meeting and then taking some time off with his family. Puerto Rico is facing bankruptcy and looking for a federal bailout. Years of poor fiscal policies, government cronyism, overreach and interference in the free market has left the island-state with high unemployment and crippling debt. Hopefully the policy lessons of Puerto Rico’s struggles will not be lost on the governor. The island may be pretty but the economic challenges it faces – like Connecticut’s – are pretty ugly.

1. Bonds, Bonds Everywhere: Puerto Rico’s bonds have a very unique feature – they are not subject to local, state or federal taxes. This has traditionally made Puerto Rican bonds highly attractive to investors but it led to irresponsible borrowing by the Puerto Rican government. As reported by Bloomberg View, “the island’s economic and fiscal conditions deteriorated, it tapped ever-more creative revenue streams, rolling over debt and papering over deficits with money from bonds secured by future tax revenues.” Now the island’s credit has dried up and it is starting to default on interest payments. State Budget Solutions reported that in 2015 Connecticut had the 3rd highest debt per capita in the nation. Hopefully, leaders in Connecticut can make improvements before we end up anywhere near default.

2. Don’t Give Away the Farm (or the government): In what could only be described as a Christmas miracle, Gov. Garcia Padilla, managed to give out $120 million in Christmas bonuses to government employees just before the island defaulted on its interest payments of $37 million. Puerto Rico has amassed over $73 billion in debt and is seeking a bailout from the federal government. Thankfully, Malloy already cancelled one batch of scheduled raises.

3. Labor Laws Have Consequences: If you think employers in Connecticut have it tough, it’s even worse in Puerto Rico. The island “requires businesses to provide 15 vacation days, 12 sick days, eight weeks of maternity leave and one hour per day for breast feeding.” Private employers also have strict severance requirements in order to lay off workers which means “businesses are more reluctant to hire unproven workers.”

4. Minimum Wage Laws Hurt the Poor: Unfortunately, Puerto Rico is subject to U.S. minimum wage laws. While that might sound great for a territory dealing with high poverty rates, it hasn’t worked out that way. The U.S. minimum wage is much higher relative to the average income in Puerto Rico. Working full-time making minimum wage in Puerto Rico will get you 77 percent of the national average earnings, which puts a strain on businesses and doesn’t allow them to increase hiring.

5. Sometimes Work Isn’t Worth It: Puerto Ricans are also entitled to the same welfare benefits as those in the U.S. but which are wildly out of step with the island’s economy. According to a study by The Heritage Foundation, “a household of three eligible for food stamps, AFDC [Aid to Families with Dependent Children], Medicaid and utilities subsidies could receive $1,743 per month,” which is actually more than the full-time median income. Puerto Rico’s unemployment rate currently sits at 12 percent.

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Marc E. Fitch

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