U.S. releases Puerto Rico debt crisis report, offers solutions
SAN JUAN, PUERTO RICO » A U.S. government report Wednesday detailed how Puerto Rico accumulated some $70 billion in public debt and suggested ways federal officials could help avoid a repeat of the crisis, such as removing a triple-tax exemption on the island’s bonds and requiring local investment companies to disclose risks associated with those bonds.
The report comes nearly two years after Congress enacted a law to help Puerto Rico restructure a portion of its debt and establish a federal control board to oversee the island’s finances amid what is now a more than decade-old recession. It also allowed the Government Accountability Office to examine what led to Puerto Rico’s crisis and actions the U.S. government could take.
“From highlighting the stifling debt, to identifying the systemic financial malpractice of the Puerto Rico government over the past half century, the GAO report reiterates why Congress passed (the law) two years ago,” said U.S. Rep. Rob Bishop, chairman of a committee that has jurisdiction over Puerto Rico affairs.
The report found that the island’s public finance problems are partly a result of government officials who overestimated revenue, overspent, did not fully address public pension funding shortfalls and borrowed money to balance budgets.
It said the government overestimated revenue in eight of the 13 years analyzed, by as much as 19 percent in one year. As a result, this allowed Puerto Rico’s legislature to increase appropriations to agencies that in turn overspent an average of nearly $460 million annually in nine of the 13 years.
The report said Puerto Rico’s Treasury Department was not always aware of this practice because government agencies used a variety of accounting systems that prevented it from tracking those expenses.
Puerto Rico also made agreements with certain corporations to reduce their tax rates but then did not maintain an inventory on those details, preventing treasury officials from taking them into account when estimating revenues, the report said.
In addition to the recession’s impact, the island’s economy has been further weakened by a loss of population, the high cost of importing goods and energy and “burdensome” regulations and permitting processes for new businesses, the report said.