The Week in Public Finance: Puerto Rico's Double Disaster, the Cost of Ending DACA and More

A roundup of money (and other) news governments can use.
by | September 8, 2017
A man takes a break after searching through debris in the aftermath of Hurricane Irma in Puerto Rico. (AP/Carlos Giusti)

Irma Leaves Puerto Rico With Double Disasters

Hurricane Irma swept across the Caribbean this week, unleashing damaging winds and rain on Puerto Rico at a time when it's already facing a financial disaster and likely least prepared to deal with the fallout.

Puerto Rico is bankrupt -- facing more than $70 billion in debt -- and under the control of a fiscal oversight board. While grappling with its own financial disaster, it must now address an environmental one.

Damages caused by the Category 5 hurricane in Puerto Rico are still being tallied, but photos show devastated buildings, palm trees broken in half and major flooding. The capital city of San Juan reported storm surge of up to 30 feet in some places. As of Thursday, more than 1 million residents -- roughly 70 percent of the island -- were without power. So far, two storm-related deaths have been reported there.

Rain continues to pummel the island, and Gov. Ricardo Rosselló has warned residents that landslides may now be imminent.

Puerto Rico did everything it could to brace for the storm. Rosselló, along with Florida Gov. Rick Scott, declared a state of emergency earlier this week, clearing the way to receive federal disaster relief assistance. The government has made hundreds of shelters available, which are now nearing capacity at more than 60,000 people.

The Takeaway: When it comes to cleaning up the wreckage, the island is horrifically underprepared.

With its credit rating deep into junk territory, it doesn’t have access to capital markets to borrow money for jumpstarting its recovery. And according to Rosselló’s administration, it has just $15 million in its emergency fund and another $20 million more in its general fund.

It will likely need much more than that before federal reimbursements are available -- a process that may become muddled as the Federal Emergency Management Agency has warned it could run out of money this weekend.

 

Could Ending DACA Cost States and Localities?

President Trump announced this week that he is phasing out DACA, the Obama-era program that offered two-year deportation protection to some young immigrants who came to the U.S. illegally before turning 16. Some state and local officials -- all Democrats -- are renouncing the decision as bad economics.

California Comptroller Betty Yee said that “immigrants -- as workers, as students and as consumers -- are powerful contributors” to her state, which is the world’s sixth-largest economy.

Rhode Island Gov. Gina Raimondo called the decision “cruel” and claimed that rescinding DACA (Deferred Action for Childhood Arrivals) has the potential to be a $61.1 million hit to the state’s economy.

The Takeaway: There’s evidence to support their claims.

A survey conducted earlier this month by the Center for American Progress, a liberal think tank, found that seven in 10 DACA respondents got a raise after receiving DACA protection. If they're deported, governments will lose all the income tax revenue that they provided.

Separate research by the Urban Institute and the National Academies of Science suggests that ending DACA might mean that state and local governments won’t get to recoup their investment in educating DACA kids. That research, on legal immigrants, found that while immigrants cost state and local governments more in the short term because they tend to have more kids in public schools, those kids grow up to ultimately pay more in taxes than native-born Americans.

 

In Kentucky, Pension Reform Fuels Retirement Surge

As Kentucky lawmakers yet again try to address the state’s pension debt, state workers are getting out while the gettin’s good.

September retirements were up dramatically -- by nearly 40 percent -- compared with the average number of retirements for that month, reports the Lexington Herald Leader. August retirements also reportedly saw an uptick from the average.

The surge comes as the state legislature prepares for a special session to tackle pension reform. It’s the third time in a decade that lawmakers have taken up the issue, each reform posing more drastic solutions than the last.

This time, retirees could face pension cuts while current employees would have to wait longer to retire.

The Takeaway: These surges seem to be just another part of pension reform to factor in -- other governments have had similar experiences.

When Illinois was debating pension reform in 2012, it saw nearly 4,750 state employees retire over a 12-month period. That was almost as many as the prior two years combined.

As Houston worked out pension reform over this past year, more than 400 police officers submitted their resignations -- a number more than double the annual average.

These retirement surges don’t necessarily increase the government's unfunded pension liability, but they could cut into how much a government hopes to save in the long run. That's because potential savings like raising the retirement age or increasing worker pension contributions will apply to fewer active employees.

But the biggest damage, it seems, is in losing massive amounts of institutional knowledge.

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