NEW YORK — With a $73 billion debt burden that Gov. Alejandro García Padilla recently called inconvertible, Puerto Rico is now being giving advice by hedge funds: improve tax collection and cut education spending to reduce mounting debt.
A new report released Monday, which The Guardian says was commissioned by 34 hedge funds, says that Puerto Rico has room to increase revenues by improving tax compliance rates. Puerto Rico's current sales tax compliance is 56 percent, compared with an 83 percent average on the U.S. mainland. The report suggests that an additional $1.1 billion would be available if tax compliance were improved to the U.S. average.
Written by former International Monetary Fund members who work for the consultancy Centennial Group International, the report says Puerto Rico has room to lower education spending. It claims that education expenditures increased 39 percent, or $1.4 billion in the past decade, while total school enrollment has declined by 25 percent.
The new report highlights aspects of another report, released last month, which calls for increased property taxes, income taxes and an income tax surcharge on corporations receiving exemptions — cuts that it says could yield over $1 billion by fiscal year 2016.
As a U.S. territory, Puerto Rico is unable to declare bankruptcy without congressional approval, and House Republicans seem unlikely to make such a deal. Many Puerto Ricans blame the island’s economic woes on the United States and cite the 1917 Jones Act as an example of economic imperialism. The law protects the U.S. shipping industry by requiring that ships carrying goods from one U.S. port to another be U.S. built, owned and staffed. According to some economists, the Jones Act costs the island hundred of millions of dollars every year.
On Tuesday, New York City Mayor Bill de Blasio and city council speaker Melissa Mark-Viverito called on Washington to help Puerto Rico in its time of crisis. A five-point plan outlined by Mark-Viverito asks President Barack Obama and Congress to commit to a federal investment plan addressing underlying fiscal issues. The plan also calls on Washington to invest in health care and clean energy development, approve legislation granting Puerto Rico a bankruptcy option and amend the Jones Act.
“Austerity is not the solution,” said Mark-Viverito. “The solution to this crisis cannot be at the expense of the working class and the most vulnerable.”
She had scathing words for hedge funds. “They are vultures. They are feeding off of the misery of the island and of the people, and it’s really dire,” she said. “These same hedge funds have actively been lobbying in Congress to not take action when it comes to Puerto Rico.”
De Blasio called for the passing of H.R. 870, the Puerto Rico Chapter 9 Uniformity Act, which would allow the island to file for bankruptcy. The mayor said the crisis was created by federal policy, and he demanded federal intervention. “If the federal government doesn’t step in, they will be abandoning three and half million Americans for only asking for fairness at this moment,” he said.
Lorraine Cortés Vásquez, the current chair of the National Puerto Rican Day Parade, drew clear lines between the economic crisis in Puerto Rico and the 2016 presidential elections.
“What you do for us on the island will be reflected on what we do for you in the next election,” she said.