How Not to Fix a Fiscal Crisis: Puerto Rico’s Population Loss Accelerates
Puerto Rico’s population loss accelerated last year, a troubling sign for an island facing a severe fiscal crisis and a recession entering its 10th year.
The island’s governor said last week that the U.S. territory would make most of roughly $1 billion in debt payments due Jan. 1, largely as it borrows from reserve accounts. It will miss around $37 million in payments on two bonds Monday, and officials have warned of future defaults.
The island’s bondholders and the insurance companies that have guaranteed those bonds say Puerto Rico’s elected leaders have made the crisis worse by resisting deeper spending cuts and tax increases. The island’s local government has said there isn’t enough spending to cut or revenue to raise to plug budget deficits and, together with congressional Democrats and the Obama administration, they have called for Congress to create a mechanism for the island to restructure its debt.
The population figures, which were released last month, illustrate how Puerto Rico’s fiscal and economic crises are likely to worsen. Puerto Ricans are American citizens, and as they leave the island to seek employment or retirement in the U.S., the island faces a shrinking tax base to pay for debts incurred over the past decade.
The Census Bureau report showed that Puerto Rico’s population fell 1.7% in the year ended June, an acceleration from the 1.6% decline for the year before that. The island’s population has fallen by more than 1.1% for five straight years.
To put that in context, only seven states saw their populations decline last year: Connecticut, Illinois, Maine, Mississippi, New Mexico, Vermont and West Virginia. West Virginia’s 0.25% decline in its population was the largest of that group.
Since 1990, no U.S. state has witnessed an annual population decline of more than 1% with the exception of Louisiana, which saw its population fall 6% after Hurricane Katrina hit the Gulf Coast in 2005. The District of Columbia saw its population fall by at least 1% annually from 1994 to 1996, a period in which a federal control board was established by Congress to curb the city’s financial crisis.
The large annual drop in Puerto Rico’s population is particularly notable because it follows several years of declines. The population is now 9% lower than it was one decade earlier, a period in which its debt burden has increased 64%.
In the years following the start of World War II, no U.S. state has posted such a large 10-year drop in population. The closest is West Virginia, which saw its population fall 8% in the 1980s.
Only two U.S. states last year had fewer residents than they did ten years earlier: Michigan has seen a 1.3% drop in its population since 2005, and Rhode Island has lost 1.1% of its population. Even Louisiana has recovered from Katrina.
Puerto Rico has struggled to grow its economy since the expiration of tax credits last decade. Economists say a bloated welfare state has discouraged work while a minimum wage that is high relative to productivity and local income has made it harder for the island’s tourist and manufacturing sectors to compete against Caribbean peers. Tax evasion is high and labor-force participation rates are very low, compared with the 50 U.S. states.
ByNick Timiraos
How Not to Fix a Fiscal Crisis: Puerto Rico’s Population Loss Accelerates - Real Time Economics
The island’s governor said last week that the U.S. territory would make most of roughly $1 billion in debt payments due Jan. 1, largely as it borrows from reserve accounts. It will miss around $37 million in payments on two bonds Monday, and officials have warned of future defaults.
The island’s bondholders and the insurance companies that have guaranteed those bonds say Puerto Rico’s elected leaders have made the crisis worse by resisting deeper spending cuts and tax increases. The island’s local government has said there isn’t enough spending to cut or revenue to raise to plug budget deficits and, together with congressional Democrats and the Obama administration, they have called for Congress to create a mechanism for the island to restructure its debt.
The population figures, which were released last month, illustrate how Puerto Rico’s fiscal and economic crises are likely to worsen. Puerto Ricans are American citizens, and as they leave the island to seek employment or retirement in the U.S., the island faces a shrinking tax base to pay for debts incurred over the past decade.
The Census Bureau report showed that Puerto Rico’s population fell 1.7% in the year ended June, an acceleration from the 1.6% decline for the year before that. The island’s population has fallen by more than 1.1% for five straight years.
To put that in context, only seven states saw their populations decline last year: Connecticut, Illinois, Maine, Mississippi, New Mexico, Vermont and West Virginia. West Virginia’s 0.25% decline in its population was the largest of that group.
Since 1990, no U.S. state has witnessed an annual population decline of more than 1% with the exception of Louisiana, which saw its population fall 6% after Hurricane Katrina hit the Gulf Coast in 2005. The District of Columbia saw its population fall by at least 1% annually from 1994 to 1996, a period in which a federal control board was established by Congress to curb the city’s financial crisis.
The large annual drop in Puerto Rico’s population is particularly notable because it follows several years of declines. The population is now 9% lower than it was one decade earlier, a period in which its debt burden has increased 64%.
In the years following the start of World War II, no U.S. state has posted such a large 10-year drop in population. The closest is West Virginia, which saw its population fall 8% in the 1980s.
Only two U.S. states last year had fewer residents than they did ten years earlier: Michigan has seen a 1.3% drop in its population since 2005, and Rhode Island has lost 1.1% of its population. Even Louisiana has recovered from Katrina.
Puerto Rico has struggled to grow its economy since the expiration of tax credits last decade. Economists say a bloated welfare state has discouraged work while a minimum wage that is high relative to productivity and local income has made it harder for the island’s tourist and manufacturing sectors to compete against Caribbean peers. Tax evasion is high and labor-force participation rates are very low, compared with the 50 U.S. states.
Puerto Rico is facing a severe fiscal crisis and a recession entering its 10th year.
ALVIN BAEZ/REUTERSBy
How Not to Fix a Fiscal Crisis: Puerto Rico’s Population Loss Accelerates - Real Time Economics
posted by Zo Heri at 9:24 AM
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