“You never let a serious crisis go to waste,” Rahm Emanuel infamously said when he was President Obama’s White House chief of staff. So it is with the legislation that President Obama signs into law Thursday that offers Puerto Rico a process for managing its crushing debt.
This bill is behing heralded as a rare moment of bipartisan cooperation to solve a serious crisis, in this case the default by Puerto Rico on more than $1 billion of general obligation bonds on July 1. The island’s government has already missed payment deadlines on other bonds.
But for Julio López Varona, a leader at Make the Road Connecticut and a member of Hedge Clippers, a coalition of grass roots organizations dedicated to exposing the damage to working people interests done by hedge funds, the legislation solidifies what he calls an “experiment in extreme capitalism” – one that is already having extreme consequences on the people who live on the island.
The legislation – which has the acronym PROMESA, Spanish for “promise” – imposes on the island’s approximately 3.5 million residents a financial control board that will determine how the government spends its money and how businesses on the island are regulated. That control board would have the power to slash government spending in order to ensure that Wall Street investors who purchased Puerto Rico bonds would be paid.
It also allows the federal minimum wage on the island to be lowered to $4.25 an hour for workers 24 and under. Plus, businesses in Puerto Rico would not have to comply with regulations that would increase the number of workers eligible for overtime pay that will go into effect December 1. That means workers earning as little as $24,000 a year could be asked to work 50, 60, 70 hours or more a week without earning an extra dime in pay.
The legislation sends an unmistakable message: If you are a financially struggling Puerto Rican – and that is most of the island’s residents – you will be expected to sacrifice more: fewer government services, lower wages and higher taxes. For the wealthy, it says, in so many words, “We got your back.”
López Varona has seen the toll that Puerto Rico’s financial troubles have had first hand. His family lives on the island, and he was just there a few weeks ago.
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One of the first things López Varona noticed in San Juan, he said, is that “there’s not a lot of traffic.” Usually, San Juan, Puerto Rico’s capital, is a highly congested mix of island residents, government workers and tourists. But, he said, “there has been such a huge migration of people that you literally have space on the street to drive. That’s a little thing, but it shows how bad things are.”
But a lack of traffic is the least of the island’s problems. This past school year 100 schools have had to close, special needs teachers have gone without pay for months and hospitals have run out of electricity, López Varona said. The government has stopped funding pensions for government employees. The unemployment rate on the island is above 11 percent. “There is a humanitarian crisis in Puerto Rico,” he said.
But at the same time as middle class residents with the ability to move out of the island are doing so, CNN Money reported last year that millionaires are moving in – 250 people with a net worth of $1 million or more have moved into the island since 2012, according to CNN Money. “Puerto Rico is trying to lure wealth from the mainland U.S. with generous tax exemptions or cuts on corporate taxes, personal income, capital gains and other sources of profit,” the site says, adding that “some say the tax exemptions could make Puerto Rico the next Singapore – an extremely wealthy tax haven.”
Democratic presidential candidate Hillary Clinton supported this legislation, calling it “imperfect” but nonetheless joining a number of House and Senate Democrats who felt pressured by the July 1 default deadline to agree to many of the demands of conservative Republicans and Wall Street lobbyists.
Sen. Bernie Sanders, on the other hand, was among the Democrats who voted against the bill, calling it on the Senate floor “legislation smacking of the worst form of colonialism, in the sense that it takes away all of the important democratic rights of the American citizens of Puerto Rico.”
The legislation also fits into a long and foul pattern of conservative and Wall Street interests locking arms in disregard of the needs and interests of citizens of municipalities that got into financial trouble often because of the conditions created by the conservatives who now use those conditions to strip people of their self-determination. The residents of the District of Columbia experienced this in the 1990s; the residents of Flint, Michigan saw this more recently with disastrous results. Few people believe it is coincidence that this happens most often, and with the most ferocity, to communities of color.
Puerto Rico would be in different financial shape if there was real, holistic economic development on the island. Instead, there was a conservative game of top-end tax breaks to lure businesses – in the early 2000s, it was notably pharmaceutical companies – who stayed a few years for the tax breaks and then left when they found an even better tax deal elsewhere. Add an obsession with giving tax breaks to the wealthy with the addictive drug of tax-free Wall Street debt, mix in the mysterious change that stripped from Puerto Rico the ability to declare a Chapter 9 bankruptcy, and you get the shame we see today – working-class American citizens stripped of economic opportunity, democratic rights and basic dignity, and told they have to bear with the “imperfect” while the fat cats finish their feasting. At least for them, this crisis has not been a waste at all.