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Puerto Rico files for biggest ever U.S. local government bankruptcy

reuters.com

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Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#11

Post by creaghpatr »

A few months ago I discussed this with friends and suggested the government subsidize cheap flights to Puerto Rico, say $30 for a round trip flight from Atlanta, scaled up depending on domestic distance.

This would cost taxpayer money but would drive a ton of tourism to Puerto Rico (albeit temporarily) and pump a bunch of money into their economy, defibrillator style. I've never been there but given a cheap round trip flight I would easily go and spend money.

The alternative appears to be some kind of bailout and/or debt restructuring and I don't see that working out in the long term, which would presumably cost taxpayers even more money.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#12

Post by dragonwriter »

djsumdog wrote: post #2

Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation?

> Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation?

In the narrow sense, traditional municipal bankruptcy would have been available to it in this situation (and creditors would have acted with that knowledge, which would likely have forestalled it getting to the current situation) were that the case.

More broadly, PR would have greater influence in federal policy were it a state with voting representation in Congress and electoral votes for the Presidency, which would also make it less likely that things would have gotten this bad.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#13

Post by bpodgursky »

toomuchtodo wrote: post #7
EternalData wrote: post #3

I feel like local governments are going to be the first to really be affected by significant pension overlays that are not properly accounted for -- a lot of pension funds assume rates of return that are historically farcical. I think the industry average used to be about 8%. "During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually." htt…

I think the concern is overblown. States will need to backstop local governments, and the federal government will backstop the states. Benefits will get (mostly paid); taxes will go up (they have to, they're at unsustainable historic lows). This is not the end of the world.

> and the federal government will backstop the states

I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift.

I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + Medicare commitments it can't handle.

I'd rather see failures and bankruptcies at a local level, which will maybe convince other municipalities to reform before they collapse. I don't want everything centralized into one giant US federal government default. That's not a better plan.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#14

Post by vkou »

EternalData wrote: post #3

I feel like local governments are going to be the first to really be affected by significant pension overlays that are not properly accounted for -- a lot of pension funds assume rates of return that are historically farcical. I think the industry average used to be about 8%. "During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually." htt…

There weren't any public pension funds at the start of the 20th century.

If we instead look at time periods during which the industry average was considered to be 8%...

https://dqydj.com/dow-jones-return-calculator/

1960-1990 = 9.5% average return.

1960-2000 = 11.5% average return.

It's largely pointless to talk about inflation-unadjusted average-rate-of-return for long time periods. A 12% YoY return when inflation is at 15% is terrible. A 5% YoY return when inflation is at 0% is amazing.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#15

Post by chimeracoder »

djsumdog wrote: post #2

Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation?

> Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation?

Puerto Rico's economy has been crippled by the Jones Act, which affects all US states/territories that rely solely on sea transportation for trade with the US. Hawaii is the only state that fits that description, and they've also been suffering deeply due to the Jones Act, although not as badly as Puerto Rico (for reasons due to the specifics of Hawaii's economy, not its statehood).

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#16

Post by toomuchtodo »

bpodgursky wrote: post #13
toomuchtodo wrote: post #7

Earlier quoted context omitted.

I think the concern is overblown. States will need to backstop local governments, and the federal government will backstop the states. Benefits will get (mostly paid); taxes will go up (they have to, they're at unsustainable historic lows). This is not the end of the world.

> and the federal government will backstop the states I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift. I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + Medicare commitments it can't handle. I'd rather see failures and ba…

> I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift.

Agreed. That shift is going to happen though. Seniors are not a cohort you can ignore. They vote like clockwork.

> I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + Medicare commitments it can't handle.

I don't, but we should've been setting aside these funds. We didn't, and we'll still need to pay out even at a reduced benefits level.

> I'd rather see failures and bankruptcies at a local level, which will maybe convince other municipalities to reform before they collapse. I don't want everything centralized into one giant US federal government default. That's not a better plan.

Reform will not happen. That's code for "cutting benefits". As long as the US government maintains the ability to tax, it will not default. Social Security keeps a third of seniors out of poverty. 45 percent of Puerto Rican's are already in poverty. Cutting benefits further? That's not tenable.

No one held government accountable over the last several decades, and now we're stuck with the fallout.

EDIT: Because of ye olde' HN throttling limits:

Most seniors don't pay taxes, due to marginal tax rates. Seniors will vote all day to keep their benefits intact. I don't blame them.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#17

Post by craigyk »

knob wrote: post #5

I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not…

Not just overspending, but also quite a bit of corruption. I remember my parents complaining that PR senators got better job perks than US senators.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#18

Post by [deleted] »

bpodgursky wrote: post #13
toomuchtodo wrote: post #7

Earlier quoted context omitted.

I think the concern is overblown. States will need to backstop local governments, and the federal government will backstop the states. Benefits will get (mostly paid); taxes will go up (they have to, they're at unsustainable historic lows). This is not the end of the world.

> and the federal government will backstop the states I think it's unlikely the federal government will be backstopping pension problems in IL and CA anytime soon, without a dramatic congressional shift. I think you underestimate how much taxes will need to raise to cover these liabilities. The federal government already has its hands full with SS + Medicare commitments it can't handle. I'd rather see failures and ba…

[deleted]

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#19

Post by appetizer »

djsumdog wrote: post #2

Puerto Rico should really be a state by now. Would it being a state given it any distinct advantages (or are there any specific problems in light of it not being a state) in this type of situation?

If a real challenge was made to Puerto Rico's territory status since the US conservatorship was based on racist premises, wouldn't it be more likely to get kicked out of the union than assigned statehood? At least by Supreme Court analysis of the constitutionality of the conservatorship.

I suppose if that happened there would be immediately enough consensus to gain statehood from both Puerto Ricans and US Congress.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#20

Post by knob »

vkou wrote: post #10
knob wrote: post #5

I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not…

> We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to…

I will admit that you are right on that. It's a tough spot to be in.

I bought, and yet to fully read, "Debt - The first 5000 years". One of the things the book states at the start is what you are saying: Not every debt has to be paid off. One of the risks creditors take is the possibility of having a debt not paid back.

I also remember how Haiti was, to this day, punished via monetary means. Haiti wanted freedom? Fine... they will (and did) cripple the entire country.

Another example from the book: Madagascar. The French invaded, and took out their Queen. Then imposed taxes on the population as to get back the money they invested in the invasion/war. wtf

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