Time For Fiscal Reform

by John Marino

March 4, 2005
Copyright © 2005 THE PUERTO RICO HERALD. All Rights Reserved.

. Hearings on status at the Capitol have taken the limelight over the last week, but many observers are beginning to question whether the calls for consensus and the participation of top political leaders on the issue would not be better used in searching for a solution to out-of-control government spending and growth.

Surely island lawmakers and political leaders can walk and chew gum at the same time, and many engaged in the status wars will scoff at the suggestion that the gargantuan size of the commonwealth government and its inefficiency is not directly related to the island’s unresolved status issue.

All true, but the need for government fiscal reform — becoming crystal clear to most islanders — does not have the power that the status issue has to stir the passion or spark the ingenuity of top island politicians. And that is what is required for Puerto Rico to make needed progress in cutting back the size of government and improving the island’s economic landscape.

And if political leaders lack the same resolve to deal with fiscal reform as they have in confronting the status issue, they risk alienating themselves from the great majority of Puerto Rican voters, who appear to be more worried about the economy, crime and the dismal performance of their government, than they are over whether or not a petition to Congress or a constituent assembly is a better vehicle to seek status resolution.

The public see the wild overspending ways of the government, made all too clear over the last two weeks as Acevedo Vilá administration officials corrected deficit estimates upwards to $1.4 billion, as having to come to an end. While political leaders, including Gov. Acevedo Vilá, say the same thing, they have yet to draw a road map towards reform.

Contrast that to the specific status proposals, compromises, and counterproposals put forth by the three parties over the last few weeks. For politicians, the energy is there for status, but not for fiscal reform.

No recent polls have been taken, but I’d venture to guess the feeling is just the opposite for most non-politician residents. Business groups, prominent economists and business leaders, academics and artists, have all spoken on the need to bring government costs under control, and reinvent the island tax system.

Just how out-of-hand things have gotten was detailed by the sober, riveting testimony of newly designated Office of Budget and Management Executive Director Ileana Fas Pacheco, in legislative hearings on the deficit.

For years, it seems, government agencies have been able to overspend their budgets at will, confident that the commonwealth would look for a way to finance it later, through one-time windfalls, rainy day funds, or simply borrowing from the Government Development Bank. Simply cutting costs or stemming growth would not be enough to turn around the fiscal misfortunes of government, she said. It would take a relentless, sustained effort to achieve.

Business groups and economists are also sounding the alarm, saying the size and inefficiency of government is the No. 1 issue regarding the island’s competitiveness.

The size of government is "asphyxiating" the island’s economic growth Puerto Rico Manufacturers Association Executive Vice President William Riefkohl told lawmakers this week. Government spending accounts for 48 percent of the island’s gross domestic product, when ideally it should be around 25 percent or less.

Compared to similarly sized states, Puerto Rico outspends most and has way more employees on the public payroll than many. With a 3.5 million population, Connecticut has an annual budget of $20.5 billion and 49,000 government workers. Puerto Rico’s head count is 3.9 million, but its budget is $22.2 billion and there are 298,751 government employees.

The size of government is so big that it makes it actually harder to get things done and saps people’s entrepreneurial initiative that could be put to better use in more productive areas of the economy.

In some ways, the Acevedo Vilá administration is talking tough, with a hiring freeze, early retirement plan and elimination of some government agencies all on the table. But its actions so far — cutting back on the number of political appointees and perks such as cars and cell phones — have been largely symbolic.

Nearly everyone engaged in the fiscal reform debate agrees on the need to enact a consumption tax as a way to bring relief to the overburdened middle class taxpayer by tapping into Puerto Rico’s huge underground economy. The one exception could be Gov. Acevedo Vilá, who campaigned furiously against the New Progressive Party platform plank calling for the tax.

Rather than discussing the issue, Acevedo Vilá has appointed a panel to make recommendations on a tax reform.

But it’s time that the panel unveils those recommendations and the governor takes a stand on the issue.

February has come and gone without a new budget proposal, and while La Fortaleza says the governor will make his budget address this month, no firm date has been set.

It’s not that there is not enough money to run the government, most experts on the subject say. It’s just that the government does not spend what it has wisely.

That’s why most people here are eager to see La Fortaleza’s new budget proposal, and hear the governor’s specific fiscal reform proposals.

John Marino, Managing Editor of The San Juan Star, writes the weekly Puerto Rico Report column for the Puerto Rico Herald. He can be reached directly at: Marino@coqui.net

Self-Determination Legislation | Puerto Rico Herald Home
Newsstand | Puerto Rico | U.S. Government | Archives
Search | Mailing List | Contact Us | Feedback