May
12
By Paolo von Schirach
May 12, 2012
WASHINGTON - A Fox TV interview by John Stossel with Luis Fortuno, the Governor of Puerto Rico, made me curious to learn more. This boysh (just 51 years old, and looking more like 31) Republican has had the courage to meet head on the challenge of a gigantic state debt he inherited, bloated government pay roll and awfully inefficient services. As Deroy Murdock wrote in Human Events, (Puerto Rico’s Gov. Fortuno Show Washington the Way, November 18, 2011), after his 2009 inauguration, Fortuno did what the US Federal Government is politically incapable of even trying, when it comes to re-establishing some degree of fiscal sanity. (And it is not just Washington. We know what is going on in Europe. Everybody knows that super expensive and inefficient government is unsustainable and should be reformed. But resistance to change is extremely powerful. Civil servants want to keep their cushy jobs. And people in general prefer the status quo).
Cutting expenditures while improving regulations
And yet here, from Puerto Rico, this relatively poor US Territory that historically lagged behind the Continental US, we get a lesson in what is politically possible. Fortuno acted simultaneously on two equally treacherous fronts: cutting expenditures and public jobs; while creating at the same time a more business friendly climate by cutting taxes, while simplifying and streamlining permits and regulations.
Very unpopular at first
Kissing popularity good bye, Fortuno did what most elected leaders do not dare even think of doing. And it was really ugly. In fact, at the beginning, there was massive opposition. There were demonstrations and strikes. Fortuno was called a “fascist”. But he persevered and managed a major fiscal turnaround. Here are excerpts from Murdock’s interview with Fortuno.
“When I came into office, we were facing…the worst budget deficit in America, proportionally. We were literally broke. We did not have enough money to meet our first payroll. We had to take out a loan to do that.
Fortuño gave himself a 10 percent pay cut. He trimmed his agency heads salaries by 5 percent… He booted some 20,000 government workers, through attrition as well as layoffs, saving $935 million…Fortuño has shifted remaining government workers from old-fashioned, statist, defined-benefit pensions to modern, market-friendly, defined-contribution plans.
Ranked No. 51 in 2009, behind each of the United States, in terms of deficit-to-revenue, Puerto Rico now is 15th, with the $3.3 billion deficit Fortuño inherited (44 percent of revenues) now macheted to $610 million (7.1 percent)…Fortuño has sliced taxes. The corporate tax rate plunged last January 1 from 41 percent to 30, en route to 25 percent in 2014. He cut average individual tax rates by one quarter in 2011 and in half within six years.
You needed to obtain an average of 28 permits and endorsements to do anything, Fortuño says, regarding regulatory relief. You had to go to 20-plus different agencies to do that. Today, you go to one agency, and you get your permit there, or you can go to PR.gov, and get it online.
CVS, Nordstroms, Pet Smart, P.F. Changs, Saks Fifth Avenue, and Victoria’s Secret all are opening in Puerto Rico. They’re coming in…for the first time, ever, Fortuño says. Honeywell and Merck are expanding manufacturing facilities.”
Getting cheaper electricity
And there is more. Fortuno is trying to switch power generation in Puerto Rico from oil to natural gas. Given the very low price of US natural gas and the high price of oil this makes a lot of sense. There is a huge constraint (coming from US federal law) to do this. Fortuno would need to get an exemption from the 1920 Jones Act mandating that all commerce between US ports has to sail on US ships. In the case of transporting Liquefied Natural Gas , (LNG), this is silly, as America has no fleet of LNG tankers.
A lesson on what is possible
That said, if a Governor of Puerto Rico, a perennial under performer, can manage to generate support if not enthusiasm behind truly drastic yet visionary reforms aimed at making for the first time the island fiscally sound and more competitive, it means that eventually people do get it.
Slimmer, efficient, business friendly government is a good thing. Attracting new investors is a good thing. Private sector jobs are better than government jobs. Think of that.
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