While Pleading for Help and Mired in Debt Puerto Rico Pays Out Christmas Bonuses

It has actually been an annual tradition; a US territory sunk deep in a debt crisis doles out bonuses to federal employees at Christmastime, coming due in the coming week. What makes this year’s Yuletide largesse more pronounced is that the debt has not only worsened but the country is pleading for Congress to shell out billions in hurricane relief aid dollars.

The bonuses themselves really are not the issue. The island will pay out roughly $100 million in Christmas checks this year while facing tens of billions of dollars in the red. At the same time as these payouts the Governor, Ricardo Rossello, is asking for just shy of $100 BILLION in relief aid for the island. While the bonuses are not central to the island’s financials they do typify some of the underlying issues leading to the debt crisis.

Rossello cannot be faulted entirely here, as he is bidden legally to make these payments. It has been Puerto Rican law that employees receive these salary-based bonuses since the 1960s. But stilted salary requirements are both a part of the Puerto Rican culture and a cause of the island facing a debt in the area of $75 billion. (That jarring figure does NOT include funds owed to pensions and other legacy obligations, totaling at least another $35 billion.)

These governmental missteps are exacerbated by economic blunders the government imposes on area businesses, compounding the problems like so much interest on their debt. That Christmas bonus law is also extended to private businesses on the island. Additional laws state that employees are granted the equivalent of three weeks vacation, and an additional twelve days of sick time off. There is maternity leave granted for eight weeks. To further burden employers, fired employees are afforded healthy severance payouts.

While certainly a boon for workers these policies have unsurprisingly been disastrous for the work itself. While the island government is hungry — Make that “starving” — for more tax dollars these policies have led to diminishing revenue for numerous reasons. Employers have frequently relied on off-the-books salaries to save money. This is not only a loss of payroll taxes, but these workers can also claim benefits as a result.

Puerto Rico’s average salary, and the average share of income rest below all the other fifty states. This leads to other problems. Being a US territory means that minimum wage laws apply. In the States the minimum wage sits near 40% of median wages; in Puerto Rico, it is nearly double at 77%. Welfare benefits are available at mainland levels, but when balanced against deflated wages it is more prudent for many to not work and collect benefits (or draw those black market paychecks.)

All of this has presented the territory with an ever-worsening problem. Workforce participation sits at an unworkable 50% level. Hurricane Maria has spiked another problem — a fleeing citizenry. During the lengthy economic morass, it has been estimated that over 275,000 residents have left the island over the last decade or so. Following Hurricane Maria’s landfall that flow has turned into a tidal wave. Over just the past two months in Florida alone they have seen over 200,000 Puerto Ricans arrive. Most of these are young families and workers of varying levels seeking employment.

While numerous solutions are being offered up to ease the crisis in Puerto Rico, most involve erasing or lowering debt obligations, and not addressing the underlying problems. Even erasing all debts would merely be a temporary solution. The harder fix will be changing a system that has the island government paying an increasing percentage of residents to not work – be they retired, on government assistance, or working phantom jobs —  as it sees a swelling exodus of its potential workforce and taxpayers.

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