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.