March 11, 2005
Copyright © 2005 PUERTO RICO HERALD. All Rights Reserved.
Puerto Rico’s Bloated Public Sector: How Do You Fix It?
Did you know that 1 in 3 salaried employees in Puerto Rico works for the Government?
Did you know that the Commonwealth government is organized into 130 government agencies while Florida, with a 75% larger population gets its public sector work done in just 14 government departments?
Did you know that the ratio of Puerto Rican public employees to the overall island population is greater than in any state of the Union?
Economists agree that Puerto Rico is in the midst of a "fiscal crisis," caused in large measure by an excessively large and inordinately inefficient public sector.
In last week’s Puerto Rico Report, John Marino informed Herald readers that, according to a recent study by the local Manufacturer’s Association, "the size of government (employment) is ‘asphyxiating’ the island’s economic growth." In a stark comparison of the island’s public sector with that of Connecticut — a state with nearly an equivalent population — the Commonwealth government maintained 6 workers on the public payroll for each 1 in Connecticut. Expressed in numbers, Puerto Rico pays between 300,000 and 320,000 employees — depending how you count -- with taxpayer’s money while Connecticut gets along with approximately 49,000 public employees.
When Puerto Rico’s public sector is compared to the island’s population, it shows that there is 1 public employee for every 13 Boricuas, a staggeringly high ratio when compared to the fifty states of the Union. Using the Connecticut example once again, the ratio is 1 public employee to 58 residents of that state. The states of the Union that come closest to matching Puerto Rico’s public employee-to-population ratio are Hawaii and Alaska with 1 to 21 and 1 to 26 respectively. For Puerto Rico to match Hawaii’s ratio, it would need to release well over 100,000 public employees.
Using data compiled in March 2003 by the U.S. Census Bureau, the average public employee-to-population ratio of all fifty states is roughly 1 to 50. Illinois has the widest ratio at 1 to 94, with California, Florida and Nevada nearby in the rankings at 1 to 91. For Puerto Rico to reach the enviable ratio of Illinois, the Commonwealth would need to reduce its public workforce to around 42,000 — somewhat under that of Connecticut and in doing so, furlough some 250,000 public workers, or 85% of its government workforce. For the island to achieve the average state ratio of 1 to 50, some 220,000 government jobs would need to go.
Obviously, such drastic reductions in force are both politically and economically impossible in the short and medium term.
Politically, each one of those public employees represents a vote and, with the razor-thin margins of victory in the 2004 election branded onto the conscientiousness of elected officials, none will want to face blocks of angry fired workers in 2008.
Economically, there is already an 11.2% (December 2004) unemployment rate on the island and an insufficient private sector base to absorb sacked public workers. Since 2001, Puerto Rico’s private-sector employment has dropped by some 50,000 salaried jobs to a present figure of 775,300.
In spite of the risks, the newly elected Governor, Aníbal Acevedo Vilá, must do something. He is facing a billion-dollar-plus deficit that is projected to grow unless decisive measures are taken. He is showing an aversion to increase government revenues through taxes, so is being forced to look at his bloated workforce as potential target for cuts. La Fortaleza is now considering a plan floated by the island’s Office of Management and Budget that could save the government a reported $100 million, without cutting jobs. In his “State of the Commonwealth” address to the Puerto Rican Legislature on Tuesday, Gov. Acevedo promised hiring freezes, early retirements and department reorganizations as steps he will implement as budget lowering tactics.
Not being discussed are privatizing public utilities and other government functions, in the way that former Governor Pedro Rosselló privatized the telephone company in his second term, a move that arguably cost his New Progressive Party (NPP) enough votes in the 2000 election to lead to the election of former Popular Democratic Party (PDP) Governor Sila Calderón over NPP challenger, Carlos Pesquera.
With Commonwealth spending at almost 1/2 of the island’s GDP (gross domestic product — the sum of the value of all goods and services produced on the island) and little prospect of significantly increasing private sector employment any time soon, Gov. Acevedo is faced with a dilemma that he inherited from other administrations going back fifty years. At no time in the history of the Commonwealth, however, has the problem been as urgent.
In her February 15th article in Caribbean Business, Elisibeth Roman states that "unless something is done now to bring the Commonwealth’s fiscal crisis under control, Puerto Rico’s taxpayers will continue to face higher taxes for decades to come while receiving fewer and lower-quality services from the government." She also points out that the intractable fiscal mess is causing an alarming exodus from the island to the mainland. Some estimates place the entire Puerto Rican population as about evenly divided between island and mainland with the former declining and the latter growing rapidly.
This phenomenon creates the additional irony that a relatively massive public sector is servicing fewer and fewer islanders.
Since the Governor needs all the advice he can get to reduce the impact of his massive public sector on his large and growing deficit, this week he will get it from Herald readers.
What should Gov. Acevedo Vilá do to reduce public sector jobs?
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