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Less than one month after begging the United States government for $94 billion in taxpayer-funded federal aid for Hurricane Maria recovery, Puerto Rico Gov. Ricardo Rossello Nevares paid out a lavish $113 million to the island territory’s government employees in the form of Christmas bonuses.
“Rossello requested the $94 billion federal aid package in November, estimating that $31 billion of the funds would go toward rebuilding homes and $18 billion would go toward repairing electric utilities,” Breitbart reported from a letter the governor sent to President Donald Trump last month.
But the governor’s aides contend that the recently granted bonuses were part of the budget that had been approved last summer to keep with Puerto’s longstanding tradition permitted under law.
Christmas bonuses … really?
Even though Puerto Rico’s budget was planned before Hurricanes Irma and Maria stuck the Caribbean island that left widespread devastation, the bonuses are still being met with outrage.
“The island’s financial oversight board – created by Congress as part of a deal to bail the government out of a potential debt default last year – called the payments ‘imprudent’ and said the hurricanes should have forced the governor to rethink his decisions,” The Washington Times reported. “And the payments could dent Mr. Rossello Nevares’ efforts to get Capitol Hill to pony up for the recovery, where the $94 billion price tag the island has set is already meeting with shock.”
In fact, once the mount of the Christmas bonuses were revealed, one member of the House committee that has oversight over Puerto Rico, Rep. Tom McClintock (R-Calif.), issued a statement saying that he believes the reckless spending is typical of the financially irresponsible U.S. territory.
“Puerto Rico has demonstrated time and time again that its government is incapable of responsibly handling its finances,” McClintock told the Times. “This is yet another such instance.”
It has been argued in recent years that the decades-long tradition must stop because of Puerto Rico’s financial irresponsibility.
“The bonuses, which analysts said are not uncommon in Latin America, date back to the 1970s in Puerto Rico, but they’ve been controversial in recent years as the island has struggled with debt,” the Times’ Stephen Dinan noted. “The payments in 2015, of about $120 million, sparked a fierce debate.”
According to Bloomberg News, some 250,000 government employees will receive $113 million in Christmas bonus payments this year, with $600 being allotted on average to current workers and approximately $200 going out to retirees.
Bonuses or bust
Yet it is contended that Puerto Ricans rely on their Christmas bonuses.
“For the majority of government employees who make between $20,000 and $40,000, it’s an important boost, said Carlos Mercader, who leads Puerto Rico’s office in Washington, D.C., [as he insists] the governor, in making the payments, is following the law,” Dinan pointed out. “And he said members of Congress who are pondering the territory’s massive relief request should be aware of how much the governor has already done to control the budget, such as a 20-percent reduction in political appointees in the government and a 15-percent cut in the operating budget.”
In fact, Mercader went as far as to assert that the Puerto Rican government has been frugal and financially responsible.
“I would challenge whoever argues that the government hasn’t been austere in this whole process,” he asserted, according to the Times. “The government has been saving money from the get-go.”
But the Nov. 27 letter issued by the oversight board questioned the governor’s decision to fund the “imprudent” bonuses, maintaining that he should have discussed them before approval. The biggest qualm had to do with one-third of the Christmas bonuses going out to retirees.
“While the Oversight Board shares in your desire to recognize public employees who have gone above and beyond in aiding recovery efforts across the island, to do so in a way that increases the liquidity strain on the commonwealth at this time puts the public at risk and demonstrates a lack of fiscal discipline,” the board’s letter signed by Chairman Jose B. Carrion stated, as disclosed by the Times.
Shooting right back, Mercader contended that earlier this year, the board approved Puerto Rico’s yearly budget, as well as its 10-year fiscal plan, with the bonuses included in each.
“The notion that the board had no clue about it, or [that] it was done without the purview of the board is not true,” Mercader insisted. “The board knew about it – it was something that was in the budget, and they had approved the budget.”
Despite the presumed legality of the bonuses, one member of the oversight board, American Enterprise Institute Resident Scholar Andrew G. Biggs, argued that Puerto Rico used little discretion in carrying on its tradition in the midst of its ongoing financial crisis.
He said that even though the territorial government met certain board-imposed liquidity requirements, withholding the bonuses would have been a gesture signifying fiscal health.
“My view is that in extremely difficult times, you have to make some changes to how you do bonuses, and this strikes me as an area where change is appropriate,” Biggs expressed, according to the Times.
He pointed out that Puerto is in no position to be handing out bonuses – given that it has not made a debt payment in 18 months – noting that spending an excess of $90 million in Christmas rewards while suspending its debt payments sends the wrong message to those being petitioned for financial assistance.
“I want to see federal assistance to Puerto Rico, especially in the short term to get the economy going again,” Biggs impressed. “My concern is the Christmas bonus may hurt their chances with Congress.”
On the same note, McClintock says that any relief money allotted by Congress should not be delivered directly to the government – which he says has proven to be incapable of responsibly managing fiscal matters.
“I believe that any disaster funding should go to a federally appointed receiver who would disburse it in a responsible way – instead of being handed directly to the local government that simply can’t help itself,” the representative offered.
Perpetuating money problems
Hurricane or no hurricane, Puerto Rico has consistently experienced financial problems, with its greatest failure registered last spring.
“Puerto Rico entered into the largest bankruptcy in U.S. municipal market history in May after it a series of defaults on its $74 billion of debt,” Bloomberg reported last month. “Before the storm, Puerto Rico drew up a fiscal plan that would cut into spending and cover only a fraction of the debt payments due over the next decade, [but] it’s now moving to redraw that road-map and its bond prices have tumbled amid speculation it will have to foist even deeper losses on investors.”
Paying for Christmas bonuses while watching an exodus of much of its workforce spill into the mainland of the U.S. makes little sense to many.
“The island’s long-term economic recovery will also depend on whether the residents stay to rebuild or move to the U.S. mainland,” Bloomberg’s Rebecca Spalding stressed. “The oversight board official told Congress last [month] that about 100,000 residents have fled since the storm.”
Just weeks before signing off on $113 million in Christmas bonuses, Rossello issued a stern warning to Congress that levying new taxes on Puerto to cover the cost of broader U.S. tax cuts would spur even more Puerto Ricans to flee to the U.S. and inflict more damage on his territory’s economy.
"If Congress does not consider Puerto Rico in tax reform, it would lead to the exodus of companies that currently generate 42 percent of Puerto Rico’s gross domestic product, the loss of jobs on the island and exacerbate the outward migration of island residents moving to the mainland," the governor’s office expressed in a statement that accompanied last month’s letter to Trump requesting disaster aid, according to Bloomberg.
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