Economy and Crime Spur New Puerto Rican Exodus
FEB. 8, 2014
SIGNS OF STRUGGLE The makeshift shelter of a homeless person in downtown Ponce, a city on Puerto Rico’s southern coast. Alvin Baez/Reuters
But the artisanal soap business that Mr. Sotomayor built is barely hanging on amid rising costs and taxes, and sales that have sunk by 40 percent in five years. Crime is rampant; his girlfriend was nearly carjacked at gunpoint recently. So last month he boarded a flight to Orlando, Fla., to interview for a job at a rum distillery in the hope of joining the ever-growing Puerto Rican diaspora.
“I don’t see it improving,” said Mr. Sotomayor, a 47-year-old chemical engineer. “I see it getting worse. It’s the uncertainty. What am I going to do — wait until it gets worse?”
Puerto Rico’s slow-motion economic crisis skidded to a new low last week when both Standard & Poor’s and Moody’s downgraded its debt to junk status, brushing aside a series of austerity measures taken by the new governor, including increasing taxes and rebalancing pensions. But that is only the latest in a sharp decline leading to widespread fears about Puerto Rico’s future. In the past eight years, Puerto Rico’s ticker tape of woes has stretched unabated: $70 billion in debt, a 15.4 percent unemployment rate, a soaring cost of living, pervasive crime, crumbling schools and a worrisome exodus of professionals and middle-class Puerto Ricans who have moved to places like Florida and Texas.
A woman walking past a closed restaurant in Ponce.Alvin Baez/Reuters
The situation has grown so dire that this tropical island, known for its breathtaking beaches, salsero vibe and tax breaks, is now mentioned in the same breath as Detroit, with one significant difference. Puerto Rico, a United States territory of 3.6 million people that is treated in large part like a state, cannot declare bankruptcy.
From bottom to top, Puerto Ricans are watching it unfold with a mixture of disbelief and stoicism. Alejandro García Padilla, who was elected Puerto Rico’s governor by a sliver of a margin in 2012, said that after he began to wade deeply into the island’s economic and social quagmire, his fight-or-flight instincts kicked into high gear.
“I thought about asking for a recount,” Mr. García Padilla, 42, said with a grin during a recent interview in La Fortaleza, the 500-year-old government residence, recalling, among other things, the $2.2 billion deficit. “But now it’s too late.”
A sense of pessimism pervades on the island. Streets are lined with empty storefronts in San Juan and in smaller cities like Mayagüez; small businesses, hit hard by high electricity, water and tax bills and hurt by drops in sales, have closed and stayed closed.
Schools sit shuttered either because of disrepair or because of a dwindling number of students. In this typically convivial capital, communities have erected gates and bars to help thwart carjackers and home invaders. Illegal drugs, including high-level narcotrafficking, are one of the few growth industries.
Puerto Rico, about 1,000 miles from Miami, has long been poor. Its per capita income is around $15,200, half that of Mississippi, the poorest state. Thirty-seven percent of all households receive food stamps; in Mississippi, the total is 22 percent.
But the extended recession has hit the middle-class hardest of all, economists said. Jobs are still scarce, pension benefits for some are shrinking and budgets continue to tighten. Even many people with paychecks have chosen simply to parlay their United States citizenship into a new life on the mainland.
Puerto Rico’s drop in population has far outpaced that of American states. In 2011 and 2012, the population fell by nearly 1 percent, according to census figures. From July 2012 to July 2013, it declined again by 1 percent, or about 36,000 people. That is more than seven times the drop in West Virginia, the state with the steepest population losses.
“I don’t see it improving. I see it getting worse. It’s the uncertainty. What am I going to do — wait until it gets worse? ALEXIS SOTOMAYOR, 47, a chemical engineer turned artisanal soap maker who is looking for work on the United States mainland Dennis Rivera for The New York Times
A Lack of Hope
Coupled with a falling birthrate, the decline is raising worries about how
Puerto Rico will thrive with a rapidly aging population and such a large
share of jobless residents. Of the island’s 3.67 million people, only
one million work in the formal economy. The island has one of the lowest
labor participation rates in the world, with only 41.3 percent of
working-age Puerto Ricans in jobs; one in four works for the government.
“Today, Puerto Ricans with jobs are moving to the U.S.,” said Orlando
Sotomayor, an economist at the University of Puerto Rico and the brother
of Alexis. “Even people in their 40s and 50s, college professors with
complete job security, are doing so. Some are starting all over. The
phenomenon is highly uncommon and underscores the lack of hope that the
ship can or will be righted.”
The current exodus rivals the one in the 1950s, when job shortages on the
island forced farmers and rural residents to find factory work in cities
like New York and Boston. Today, it is doctors, teachers, engineers,
nurses, professors who are leaving Puerto Rico behind.
Just about everyone in Puerto Rico has a relative who left recently for
Florida, New York, Texas or Virginia, among others. But the decision is
never easy. Fathers leave behind children. Houses must be rented or sold
at a loss in a glutted market. Businesses must be shut. And English
must be polished, or in some cases learned, in a hurry.
Alexis Sotomayor said that on his January flight to Orlando, two acquaintances
sitting nearby were also headed there hoping to find work. “Going out
there in the morning and returning in the evening, after an interview,”
he said.
After Coca-Cola laid him off in 2001, Mr. Sotomayor started experimenting
with distilling plant extracts. He found he could make natural soaps and
decided to go into business for himself, a move that would allow him
more time to spend with his children.
Business boomed for years. So much so that he moved his homespun facility out of
his house in 2005 and into a small building he bought in San Juan. He
found that he was earning more money making soap than working as a
chemical engineer.
Then in 2008, the recession pounded at his door. For five years, he has
tried to lift his business; he went to fairs around the island, set up
booths in shopping malls, promoted his flower-infused soaps, candles and
lotions on television. He divvied up his store last year and decided to
rent out half the building. He let go two of his four employees.
STAYING AFLOAT Mr. Sotomayor set up his natural soap business in San Juan after Coca-Cola laid him off in 2001. Dennis Rivera for The New York Times
But his expenses mounted, including $600 a month in power bills, more than
double what consumers pay on the mainland. The sky-high cost is a
consequence of Puerto Rico’s inefficient government-run monopoly on
electricity and its 67 percent dependency on petroleum for electric
power. Other utilities are exorbitant, too. Last year, water rates rose
60 percent in a bid to help cut the state-run water company’s debt.
The cost of private tuition for his children, a total of $2,000 a month, is
one nonnegotiable expense for him. Like most middle- and upper-class
Puerto Ricans, he long ago lost faith in the island’s troubled public
schools. Public school enrollment has plummeted in recent years, in part
because of declining birthrates but also because of the schools’ poor
quality.
“Many parents, even lower-middle-class parents, put all their money into
their children’s private school, even if sometimes they have to live in
rented houses,” said Nilsa Velazquez, an economics professor at the
University of Puerto Rico who plans to move to Virginia with her family
this summer.
For many, the high rate of violent crime has been the capper. There were
1,136 murders in 2011, a record and far higher than the mainland’s rate.
It fell to 883 homicides last year, a point of pride for the governor.
But the damage had been done. Life here has always been full of trade-offs,
including a high cost of living. Now, though, there is little left to trade.
‘Live Here Just to Survive?’
“Between making less money and not knowing when someone will jump you, that
pushed the quality of life very low,” Alexis Sotomayor said. “To live here just to survive? No, thanks.”
For Ms. Velazquez, the tenured professor who lives in Mayagüez, and her
husband, who works for the Air Force Reserve, the mental calculations
were similar. She is 50, she said. The last thing she wanted to do was
give up her job as an economics professor, move her two teenage children
and uproot her 76-year-old mother, who speaks no English and has never
left the island.
But she has grown so disillusioned with the University of Puerto Rico
Mayagüez — one of the crown jewels of the island’s higher-education
system, where she has worked for nearly three decades — that she no
longer views it as a viable option for her children. In the face of
continuing economic stress, the University of Puerto Rico has suffered
the loss of a steady stream of valued professors and funding for
important research projects. Even tenured professors have left, Ms.
Velazquez said.
Mr. Sotomayor’s factory thrived for years, but now rising expenses are driving him out of business.Dennis Rivera for The New York Times
“The most important thing for me is my children’s education, and the second
is my quality of life,” she said. “You see all of these fees and taxes
going up, but the streets are terrible.”
This summer she will try to rent out her house rather than selling it and
take a loss, and will move to Fairfax County, Va., where her husband
will work for the federal government and her children will attend a top
public high school. As an economist with a law degree, she is hoping to
find some kind of job.
“I thought I could do anything in Puerto Rico,” she said. “Now that is gone.”
The frustrations of Mr. Sotomayor and Ms. Velazquez speak to the depth of the island’s economic problems.
The origins of the crisis, though, stretch back more than a decade. Tax
incentives have long been a draw for corporations seeking to do business
in Puerto Rico, and the island in turn has benefited from its ability
to offer such breaks, in large part structuring its economy around them.
Tax laws were once abundantly generous, which fueled the spread of
factories that made textiles and pharmaceuticals, among other things.
That came to a crash in 2006, after the 10-year phaseout of a subsidy
that provided American firms operating in Puerto Rico with tax-free
income. Changes to the global economy and the worldwide recession
exacerbated the situation. Since 1996, factory jobs on the island
spiraled from 160,000 to 75,000.
Little was done to try to revamp the island’s economic framework. Instead,
deficits climbed and pensions spun out of control. In 2006, the
government shut down for two weeks because it lacked the cash to meet
expenses. The governor moved to raise taxes. In 2010, the next governor
reduced taxes and laid off 33,000 government workers. But Puerto Rico’s
governors began borrowing even more heavily to get out of the economic
logjam.
“It was cheap and easy to borrow,” said Mike Soto, the president of the
Puerto Rican Center for a New Economy. “It got to the point where we
tapped out what we can borrow.”
Painful Corrections
UNDER PRESSURE Gov. Alejandro García Padilla has taken steps to fix the ailing economy, like rebalancing pensions and raising taxes. Dennis Rivera for The New York Times
Last year, Mr. García Padilla, the first governor from the countryside, took
over. With the island’s economy a shambles, and credit agencies
threatening a downgrade to junk status, he had no choice but to take
swift action.
Economists have given him credit for acting to remedy problems that have festered
for decades. In one year, he moved to overhaul three major pensions,
including for teachers, that were on a pace to run out of money soon.
Two of them are still pending final court approval. He reduced the
deficit by 70 percent. And he is holding the four main debt-laden
government-run companies more accountable and insisting on more
transparency.
Vowing not to lay off any more workers, he raised taxes sharply to provide
much-needed revenue and moved aggressively to promote incentives to
entice wealthy investors, like the hedge fund billionaire John Paulson,
who has invested in an exclusive beach resort and condo complex. A
number of businesses have left the island, scared away by the groaning
economy and the high cost of electricity. But others have arrived or
expanded, like Eli Lilly, Seaborne Airlines and Cooper Vision.
