Puerto Rico’s Biggest City Is Its Biggest Problem

[Originally printed in Governing Magazine]

 

San Juan, Puerto Rico

Several high-profile governments have approached fiscal collapse in recent years. Think Detroit, Greece and now, Puerto Rico. Internal mismanagement has factored into all these crises, and news reports about them have often been technical, detailing excess spending and debt. Less reported is how insolvency affects people at the street level. I recently had the opportunity to see firsthand how Puerto Rico’s default is impacting San Juan, the island territory’s governmental and cultural capital.

San Juan has long had lower living standards than mainland U.S. cities. But it’s particularly struggled since 2006, when Puerto Rico began its near-decade recession. That year, the U.S. ended the territory’s special tax breaks, and it was later hit hard by the banking and housing crises. Compounding this has been corruption and excessive bureaucracy. About 31 percent of the island’s population is government employed, another 3 percent collects from the Employees Retirement System and, before cuts in recent years, nearly 70 percent of the budget went to salaries and benefits. Puerto Rico has $72 billion in debt and $35 billion owed in unfunded pensions. Luckily, the city has opportunities to turn its fortunes around.

It’s evident as you exit San Juan’s airport how the fiscal crisis affects everyday boricuas, as Puerto Ricans commonly refer to themselves. I’d planned to take a public bus rather than a cab to my hotel, but people at the nearest stop said they’d been waiting an hour and didn’t know when one would come — a frequent problem in this dense but transit-starved city.

Other signs of service failure abounded: Empty buildings caked in graffiti are everywhere. Streets, parks and beachfronts are in poor shape, especially in working-class barrios like La Perla, a slum that sits along prime coastline. Inflated electricity costs mean many lack air conditioning, and dozens of schools have closed.

But most notable was the water situation. Puerto Rico hasn’t had money to maintain infrastructure, meaning dams aren’t properly dredged nor pipes repaired. This has prevented the island from preparing for a recent drought, and now there are regular cutoffs across San Juan.

In perhaps the ultimate sign of how inefficient governance hurts real people, residents must pay high taxes for these subpar services. Amid the debt crisis, Puerto Rico’s Legislature raised sales taxes to 11.5 percent, which is the highest in the U.S. and costly for a city with median incomes of $22,734.

The tragedy is that San Juan has much potential. Like Miami, it has an active port, warm weather, unique neighborhoods and an educated, bilingual population. It’s primed to be a commercial hot spot between the U.S. and Latin America. Instead, the population is declining. Becoming a dynamic hub will require government reform, via streamlined bureaucracy and reduced debt. Some of this can be done locally, by better using revenue from San Juan’s 1 percent sales tax and whopping 8.33 percent property tax. But just as Puerto Rico’s actions are dictated by U.S. policy, the island’s municipalities are burdened by the state, which runs many public utilities, including traditionally local services like transit. So San Juan can only do so much, making it crucial that the territory improve these inefficient public authorities and shed pension debt.