Every Monday, after going to Mass, the governor of Puerto Rico gathers his team at 7:45 a.m. for a special meeting. The focus is building permits, not prayer.
With the U.S. commonwealth now behind South Sudan and Afghanistan in dealing with construction permits—ranking 172 out of 189 economies in a World Bank study—Governor Alejandro García Padilla is pushing to simplify the process through legislation and personal pressure. That’s already led to a much faster turnaround, the governor told an audience at the Palm Beach Strategic Forum this week. The governor believes Puerto Rico is becoming a magnet for business again and promises he is “days away” from presenting its first balanced budget in more than a decade. “We’ve proved that Puerto Rico is not Detroit and not Greece,” he said.
García Padilla’s buoyant pitch came amid news that Puerto Rico’s finance arm has brought in more restructuring lawyers to help it deal with $73 billion of debt. “That’s old news,” said the politician as he left the forum to meet up with his wife for their anniversary. Lawyers from Cleary Gottlieb Steen & Hamilton, much like Millco Advisors, are being retained to help the territory avoid restructuring.
There has been some good news for Puerto Rico lately, including hotel investments from billionaire hedge fund manager John Paulson and the recent sale of $3.5 billion in municipal debt. But the island still faces towering challenges as it tries to emerge from its own fiscal crisis. García Padilla, who came to office last year, is tasked with boosting an economy that’s been marked by crime, a talent exodus, complaints of corruption, daunting energy costs, high unemployment, and perilous finances. Add in the credit rating agencies’ downgrade of Puerto Rico’s debt to junk status earlier this year—a fact that clearly enrages the governor, who said he hadn’t met with them and has no desire to—and the difficulty in pitching a story of progress about Puerto Rico becomes clear.
While García Padilla argues that crime has dropped 30 percent since he came to office and points to increased airline service as an indication that tourism is on the rise, he acknowledges the limits on what he could do. For one thing, he doesn’t plan to lay off public-sector workers in the name of austerity, as that would add to the territory’s 15 percent unemployment rate. And that grim figure doesn’t reflect the reality that more than half of working-age Puerto Ricans have opted out of the labor force altogether. The governor wants to keep skilled locals on the island but can’t say how he’ll do it when average income hovers around $15,200 and opportunities are few.
What Puerto Rico does have—a draw that Paulson and others may be eager to exploit—is the tax advantage of territorial status. The U.S. Government Accountability Office just released a report on the financial implications (PDF) of making Puerto Rico the 51st state. The conclusion: The federal government would likely have to pay millions of dollars, maybe billions, in social programs, and Puerto Ricans would be dinged for much more in federal tax.
No wonder García Padilla immediately dismisses the idea of seeking statehood, arguing that “Puerto Rico will become a Latino ghetto.” Now he has to win over potential investors who worry it’s already there.