The Greatest Heist: Causes and Solutions for Puerto Rico’s Crisis

An Open Letter to Members of Congress, the Senate and The White House

Speaker Paul Ryan has committed that the U.S. Congress will deal with the Puerto Rican crisis in February 2016. As a member of the U.S. Congress, or the U.S. Senate, or as a member of the Obama administration, you will be considering multiple options to handle the crisis. One of those options is the creation of a Federal Fiscal Board with powers to administer the U.S. possession. This is a guide for what you will find once you begin to submerge in the deep waters of the failed so-called “free associated state” of Puerto Rico, and its shattered and bankrupt Caribbean showcase.

During the 17th century Spain literally abandoned its colonies in the Americas. Puerto Rico was no exception. For 100 years few ships came from Spain, and the Puerto Rican archipelago was subjected to pillage, invasions, corsairs, pirates and chaos. It is a known fact that the Americas were colonized by Europeans transported from prisons to ships and converted into soldiers looking for gold and riches. With this background you may conclude that the virus of greed and corruption were transported by the conquerors into the soon-to-emerge American colonies and, subsequently, emerging countries and nations.

It all looks like “Pirates of the Caribbean,” the successful movie franchise from Disney. But Puerto Rico is not a movie.

Departments of Puerto Rico under Spanish rule in 1886 (Public Domain)

On this 3,500-square-mile island live 3.5 millions American citizens. Since 1898, we became an American territorial possession. During the first 48 years of American control, Washington appointed military and civilian governors to run the territory. In 1946, after the end of the “Good War,” the U.S. Government decided to allow the citizens of the possession to elect their own governor. Congress allowed and approved the territory’s Constitution, and it was adopted in 1952. The possession was officially branded and named by Governor Luis Muñoz Marín as “the free associated state,” a hollow name permitted by Washington to appease the pro-independence and liberation movements at the United Nations throughout the world in order to maintain control.

Twenty years later, in 1973, the great party of corruption and resolving all budget holes with bonds and loans financing began. Governor Rafael Hernández Colón of the Popular Democratic Party (PPD) obtained loans for a total of $3 billion dollars during his first term. It was the same amount taken in loans by the previous administrations of governors Luis Muñoz Marín, Roberto Sánchez Vilella and Luis A. Ferré combined. The following image shows each governor’s level of responsibility for the present public debt crisis:

Hernández Colón promoted “The 600 Club,” a group of bankers, builders, businessmen, lawyers and others who contributed great sums of cash to his re-election campaign. At the same time, he began a “double talk” and confusing discourse to create sovereign rights for the “free associated state” while praising the “permanent union” with the United States. Subsequently, Hernández Colón was defeated, after a major scandal of real estate transactions involving public property with his brother José. During his administration, the number of public agencies increased from 54 to 70, and the territorial government became the biggest employer of the archipelago. The corruption virus began to spread, despite the warnings and recommendations of austerity measures as a result of an economic study made by Nobel-winning economist and Yale University professor James Tobin.

Rafael Hernández Colón

During the administration of Governor Carlos Romero Barceló, a member of the pro-statehood New Progressive Party (PNP), substantial amounts of public money ($68 million) were used to hold the VIII Pan American Games. The hosting of the Pan American, Central American and Caribbean Games became a main course for future Popular Democratic Party administrations in their quest of promoting Puerto Rico “as a nation and sovereign regional power.” Many of the sport complexes and facilities were abandoned and/or imploded. At the same time, under Romero Barceló’s tenure, the public payroll continued to increase and the number of agencies grew from 70 to 102.

Carlos Romero Barceló

The policy of hiding budget deficits and playing the “regional super power” game was continued during the next two terms of Hernández Colón (1985-1992). He obtained $5.64 billions in new loans. He used part of the money to build a mega Puerto Rico Pavilion at the Seville World’s Fair and Exhibitions. He began a new trend of building mega projects like the failed Teodoro Moscoso Bridge and the megahotel Ponce Hilton, that was sold for less than 25% of what it cost to build. He increased government payroll and agencies from 102 to 124.

The two terms of Governor Pedro J. Rosselló (PNP) were the most emblematic of public corruption and failed megaprojects. Despite the love relationship of Puerto Ricans with their cars, Rosselló proceeded to build a limited metro system financed with bonds and federal funds, costing more than $2.2 billion dollars and granting the juicy multibillion contract to Siemens, a company with one of the most corrupt records in the world. His Secretary of Education was indicted for corruption in the use of Tittle I funds, and federal law enforcement officers found more than $1 million in cash under his bed. The Rosselló administration obtained loans from 1993 to 2000 in the amount of $13 billion: more than Hernández Colon’s three terms combined. Government payroll increased at a record number of 307,000, as well as the creation of new agencies from 124 to 138.

Pedro J. Rosselló

During the period of 1989 to 1993, a non-profit organization, the Instituto del SIDA (the HIV Institute), managed to obtain millions in federal funds which ended up as cash donations to gubernatorial and mayoral candidates, of both parties, in the 1992 general election, taking monies for treatment and health care from patients with the terrible disease. This practice began during the election of 1988. The donations were given in exchange for additional contracts to treat patients which HIV. A few political sardines, the head of the Institute and its Executive Director, were indicted and convicted, but the big political sharks “escaped criminal prosecution.”

In 2001 the administration of Sila María Calderón (PPD), whose son worked at the time for Goldman Sachs, continued the previous administration’s policies of covering up the budget holes in expensive and ineffective social programs.

Sila María Calderón

Calderón weakened the Government Development Bank by using $1.2 billion of the bank’s capital for a “Trust for Special Communities.” The program was highly criticized and, as of today, no one has seen any of the project’s construction objectives. In one term, Calderón obtained $10.27 billion for budget covert operations and refinancing public debt, generating multi-million dollar fees to the bonds underwriters. Insolvency of public finance was in the air due to absence of administrative leadership in reducing gigantic and inefficient government programs and bureaucracy.

Aníbal Acevedo Vilá’s turn in the governorship was more of the same. The governor, a member of the PPD continued with the previous administration’s lending money to corrupt and failed municipal governments, increased public payroll in the tens of thousands and continued to spend public funds in international sports games. Who can forget the $300 million invested in the “Port of the Americas” in Ponce, where not even a small fishing boat has used, and or the awarding of contracts to Spanish construction corporations and New York architectural firms paying tens of millions of dollars for failed projects? Acevedo Vilá’s record shows obtaining loans in the amount of $15.95 billion and continued financing failed and deficit-infected municipal governments with Government Development Bank loans. His neo-nationalistic status proposal ignited the largest population exodus in Puerto Rico’s history, mostly to Florida, North Carolina, Virginia and Ohio, all battleground states in national election.

Aníbal Acevedo Vilá

In 2009 the people of Puerto Rico elected Luis Fortuño, a Republican pro-statehood governor who vowed to cut government spending, reduce government bureaucracy and agencies. The previous PPD governor appointed, in the last months of his administration, more than 12,000 temporary government jobs. Fortuño did not have the chutzpah to fire the illegal appointments that he was barred from doing it by law. Acevedo Vilá left Fortuño a multi-billion dollar deficit, and the new governor was forced to obtain an emergency loan of one billion dollars from Banco Popular in order to continue governmental operations and services. Fortuño inherited a deficit of $3.306 billion dollars.

Luis Fortuño

But instead of really implanting badly needed reforms and reducing government spending, Fortuño opted to refinance debt, obtain new loans and continue with business as usual. He easily won the top spot as being the governor with the largest public debt increase: $16.55 billion dollars. He continued with the policy of spending in megaprojects like the Bayamón-Toa Baja light train and the Kennedy Avenue failed windmill, megadesign contracts for projects that never got off the ground, and lending money to mayors of deficit-ridden municipalities. The same happened with refinancing existing public debt while his brother was working at UBS, a key underwriter of Puerto Rico’s government financing.

Governor Alejandro García Padilla (PPD) assumed the governorship with the campaign promise that he would not fire a single public employee. In order to maintain the status quo, the Popular Democratic government imposed more than 109 new taxes and tariffs, increasing the tax burden to the Island’s population by more than $3 billion. These massive taxes generated thousands of bankruptcies of businesses and individuals.

Alejandro García Padilla

Today, Puerto Rico has 25% of its housing stock empty or abandoned, creating massive losses to the shrinking banking community of the territory. García Padilla’s economic policy propelled massive population exodus of 82,000 in 2014 and more than 85,000 in 2015. Together, losing 167,000 citizens and imposing $3 billion in taxes has caused economic devastation—a serious economic contraction in a dying territorial economy.

For the past 40 years, gubernatorial and municipal administrations have been spending through bonds and loans, job creation in the public sector and the greatest heist of pillage and corruption in Puerto Rico’s modern history. All the governors from 1973 to 2015 have invested limited funding to promote local manufacturers, medium and small businesses, and require investors who benefited from major tax incentives to re-invest profits locally to expand operations, job creation and strengthen the economy. Instead, all of these governors spent more than $20 billion in government consultants contracts, advertising, public relations, lobbyists and law firms.

How About a Puerto Rico Reconstruction Plan?

When you have a dying patient, you must know what caused the disease and identify where the problem is. The disease has been caused by corrupted administrations and the absence of a coherent strategic plan to develop a strong manufacturing, business, banking and a petroleum-free based energy policy. We need a complete and total crisis plan and not a partial or patching solutions. Three GOP senators —Lisa Murkowski, Orrin Hatch and Chuck Grassley— clearly stated that Puerto Rico needs a long-term solution. It is time to focus on one. Here are some ideas:

Solutions to the Crisis

• Create a Federal Fiscal Administration Board to RUN the government of the territory until the public debt is negotiated and a solid, Congressional-backed plan to solve the Island status is in place. Congress should consider making Puerto Rico an incorporated territory and a multiple phase to integrate the Island as a state of the union. Why? Both the Gallup International organization, made two polls, and the El Nuevo Día have conducted studies that indicate that more than 92% of the population will move to the United States if Puerto Rico becomes an independent country, or a free associated republic. The cost to the U.S. Treasury if this happens will be enormous since salaries in the states of the union are higher in providing services and resources to the new population and Puerto Rico will not be feasible as a society and working economy with less than 350,000 people.
• Assignment of substantial Federal and local funding to fight government corruption at the territorial and municipal levels. There MUST be a comprehensive and total policy of zero tolerance to corruption. The U.S. Attorney’s Office, the FBI and Homeland Security know how these administrations, elected officials, cronies, and partners in crime have funneled billions of public funds to tax havens through friendly Puerto Rican banks with large international operations. They know who the crooks are! They know their money paper trails! The only limitation that they have is the resources and personnel to investigate and prosecute the culprits.
• Reduce government agencies from 143 to 35-40. The state of Florida with 19 million people has 39 state agencies. Puerto Rico has 100 plus more agencies that it needs to eliminate.
• Reduce the 78 municipalities to 8 counties. We have simply too many city governments with only 8 running their operation in the black, and the rest, 70, with major operational deficits.
• Use the $2,500,000.00 approved by Congress and The White House to celebrate a Statehood yes or no plebiscite to solve the archipelago’s status. This is the long-term solution and the one that will keep and increase our population if statehood is ratified. The Federal Fiscal Board should develop a four-phase plan: a) Fixing the finances; b) incorporating Puerto Rico as a U.S. territory; c) Plebiscite on statehood yes or no and 4) statehood.
• Approve and implement a Federal Enterprise Zone, using the model of the legislation drafted by Congressman Jack Kemp and Roberto García, to promote and attract investments and economic development for a period of 10 years until Puerto Rico achieves political equality under statehood. This Enterprise Zone must include a tax credit for jobs creation.
• Develop an incentive program to attract population. We need to bring people back to the Island. The present cost of living and taxes limits the development of a successful program.
• Exploit Puerto Rico’s location and Latino culture to attract investment and development from Latin America that will also promote job creation in the states of the Union in the $7 trillion a year Latin American economy.
• Develop Puerto Rico as a major trans-shipment port.
• Restructure Puerto Rico’s Education Department.
• Restructure Puerto Rico’s Health Department.
• Establish a new policy of approving capital-intensive and job-creation projects in 90 days or less.
• Eradicate drug trafficking and the shipment of 100 tons of drugs, using Puerto Rico as a springboard to the U.S. and Europe.
• Reuse the Roosevelt Road facility in Ceiba as a major defense military and intelligence gathering base. This will send a strong message that the U.S. will not abandon the 3.5 million American citizens in the territory.
• Develop a multiple phase tax programs to promote investments and job creation until economic milestones are achieved.
• Reinstate the Office of the Inspector General in order to prevent corruption and government waste.
• Develop a comprehensive energy program in order to eliminate the dependence on petroleum-based fuels. Present energy costs are a deterrent to the establishment of manufacturing plants and businesses with high energy consumption.

Puerto Rico is facing the most defining moment in its modern history. It is not an issue of Republicans versus Democrats or conservatives versus liberals. It is a humanitarian issue and cause. Its requires strong leadership, bold and creative actions.

The Federal Fiscal Control Board, reporting to the Congress and the Executive branch, once it is approved, will find out the territory’s true state of financial conditions. The track record and historical facts of the disastrous policies and devastation in the administrations of the past nine governors is there. The foundations of the territory have been shattered. People’s trust in its democratic institutions has been destroyed not only by corruption in the executive branch, but corruption in the judiciary and the police.

The continuation of the same is not acceptable and Congress and the White House must act in order to avoid a “humanitarian crisis” and the dismembering of the people of Puerto Rico, forcing them to move to mainland. We cannot give any credibility to the suggestion that the White House is avoiding solutions in order to fuel the massive population exodus in order to secure the control of the White House in the upcoming elections.

In 2001 I warned President George W. Bush, Vice President Dick Cheney and Condoleeza Rice that statements from the White House treating Puerto Ricans like a foreign neighbor or with segregation policies were going to promote population loss. After receiving a traditional response of thanks from the Deputy Assistant to the President, Rubén Barrales, the intended message was lost in the presidential bureaucracy. I failed to describe the massive proportion of the exodus to battleground states. A policy of approving partial solutions or parchment will not solve the crisis. If Washington procrastinates now, this is what is going to happen:

• At least one million American citizens from Puerto Rico will move to the mainland. That’s the projection of the U.S Census Bureau for 2050.
• The economy of the territory will weaken to disastrous proportions because those moving are the middle class. The middle class is the engine that provides growth to the economy.
• Banks will continue to fail, costing billions to the FDIC.
• Property values, which have already lost between 40 to 60% of their prices, and will continue to deflate. As of today Puerto Rico has more than 300,000 empty houses, 25% of its housing stock.
• Bankruptcies in the private sector and small businesses will continue to grow.
• The federal government losses in home loans, small business financing and public debt as public corporations collapse, losing tens of thousands of clients that moved to the United States.
• The Treasury’s cost in providing assistance and services will double because it is at least 50% more economical to provide the same in the territory.
• The destruction of the people of Puerto Rico, families, friends and a culturally rich society will be in the national conscience as a catastrophic and humanitarian crisis further eroding the weakened image of the government of the United States in the international community, especially in the Caribbean basin and Latin America.

Our citizens are not responsible for the lack of resources to federal and territorial law enforcement in order to investigate and prosecute those responsible for the pillage of a Caribbean den of thieves. They are not responsible that their elected officials and political leaders betrayed their trust. We deserve better.

In 2012, Puerto Ricans voted for political equality through statehood with all its responsibilities, obligations and benefits. Doing nothing is not an option. Passivity and benign neglect are simply a crime against humanity.

End segregation, discrimination and inequality for 3.5 million American citizens who have served the nation well.

The time to act is now.

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Franklin D. López is a journalist, writer, broadcaster, builder, equality warrior, political prisoner and a free man. He tweets from @trueblue51, and you can read more of his essays at FranklinDelanoLopez.com.