The WasteWatcher: The Staff Blog of Citizens Against Government Waste

Adiós, Puerto Rico – A Story of Shameless Waste and Inefficiency

The WasteWatcher is the staff blog of Citizens Against Government Waste (CAGW) and the Council for Citizens Against Government Waste (CCAGW). For questions, contact blog@cagw.org.


Plagued by significant population decline, relocation of businesses, and a crushing debt nearing $72 billion, Puerto Rico is in a fiscal crisis.  With a $2 billion debt service payment looming on July 1, 2016, the nation is rapidly sliding into an an ever deeper economic depression, driving bipartisan consensus in the House of Representatives rarely seen these days. 

On June 9, 2016 the House passed H.R. 5278, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) by a 297-127 vote.  This bill is significant for two reasons: it provides for the establishment of an oversight body, and it specifically prohibits a bailout of Puerto Rico.

Similar oversight boards have been established in the past with positive outcomes.  In 1996, when the District of Colombia was on the verge of economic collapse, Congress set up a financial control board that oversaw the fiscal affairs of the D.C. government.  The Puerto Rico oversight board would function similarly to the D.C. board from the 1996, and it would have the authority to impose fiscal reforms, negotiate debt restructuring, force the sale of government assets, and the power to block legislation and executive orders.  According to the Puerto Rico Department of Treasury, as of November 2012, Puerto Rico owned 52 corporations of strategic importance with total outstanding debt topping $1.3 billion in fiscal year (FY) 2011 alone.

The Puerto Rico Highways and Transportation Authority reported a loss of $409 million in FY 2011.  In the same year, Puerto Rico Electric Power Authority reported a loss of $272 million, which eventually led to a electricity supply crisis resulting in the shutdown of all public schools.  Meanwhile, Puerto Rico Aqueducts and Sewers Authority – the government monopoly that controls all water utilities on the island, reported a loss of $112 million in FY 2011.  All of these government entities receive subsidies from the consolidated commonwealth budget, of which 25 percent is subsidized by the U.S. government.  In effect, the American taxpayer directly funds one quarter of these highly inefficient government owned corporations.

Serious structural problems trouble the country’s outlook.  Puerto Rico spends roughly $800 million annually on its state university.  Even more problematic, the system graduates 50,000 students each year, but the economy creates only 6,000 jobs in the same period.  According to the Puerto Rico Department of Labor, approximately one quarter of these jobs require a college degree.  As a result, the Puerto Rican economy has no demand for nearly 97 percent of its college graduates.

PROMESA is a step in the right direction because it will prohibit further subsidization of this sinking ship.  The bailout would put off urgently needed reforms to government-run companies, and absolve management of any accountability.  Senate Majority Leader Mitch McConnell (R-Ky.), told reporters on June 14, 2016, that the Senate will consider the House bill designed to help Puerto Rico before July 1, 2016.  Passage of PROMESA, and the establishment of the oversight board will serve to protect the U.S. taxpayers from going down with a sinking ship.

  -- Filip Cukovic

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