Forget Greece; Puerto Rico is the debtor Americans need to watch

People celebrate the outcome of the bailout deal referendum at Syntagma Square in Athens, Greece, July 5. (Eirini Vourloumis / The New York Times)

People celebrate the outcome of the bailout deal referendum at Syntagma Square in Athens, Greece, July 5. (Eirini Vourloumis / The New York Times)

Greece is in the headlines today, after voters there rejected the “austerity” measures other European nations had demanded in exchange for yet another bailout of the debt-riddled nation. The 61% to 39% result, supporting the position of the country’s relatively new left-wing government, leaves little doubt as to the Greeks’ stance on the measures and a great deal of doubt as to whether the country can remain in the euro currency zone or even the European Union.

Closer to home, we have an all-too-similar situation that is of less geopolitical importance, although it could have much more impact on how the United States handles what is shaping up world-wide as a century of reckoning with overly generous past promises as they come due.

That situation is playing out in Puerto Rico, where the debt has hit some $73 billion and Gov. Alejandro Garcia Padilla says the island territory can’t make good on all the payments it owes creditors. American bankruptcy law allows municipalities to declare bankruptcy to reorganize their debts, as Detroit and Jefferson County, Ala., have done. But states and territories cannot.

Puerto Rico suffers from some of the same problems as Greece: It uses a currency over which it has no control and which is more attuned to larger, healthier economies; many of its most productive citizens (and businesses) choose to leave for greener pastures; and its government has proven incapable of reining in its finances to bring them into balance, worsening the first two problems. Puerto Rico has the additional problem of facing the same minimum wage set nationally, one thing even Greece isn’t burdened with.

The real problem for the U.S. is not that it has a territory drowning in debt. It’s that Puerto Rico is hardly unique.

As a percentage of its GDP, Puerto Rico’s debt is a little less than 70 percent. The worst states, according to this report by the nonpartisan States Project, are Hawaii (61%), New Jersey (54%) and Ohio (51%).

Puerto Rico’s debt per capita is about $20,300. Taking from the States Report data and extrapolating it based on common GDP and population figures, a number of states blow away that figure: Alaska ($39,600), New Jersey ($33,800), Hawaii ($33,500), Connecticut ($32,300), Ohio ($25,900), Illinois ($25,200), to name a few.

And last but not least, the absolute dollars involved are much larger in some states than the $72 billion Puerto Rico owes: Illinois ($324.4 billion), New Jersey ($302.2 billion), Ohio ($300.5 billion) and — even though it’s in much better shape than Puerto Rico from a debt/GDP standpoint and slightly better off per capita — the biggest of them all, California, at $750.1 billion.

All told, states are estimated to owe $4.5 trillion, in addition to $2.8 trillion of debt for local governments (which, again, are already allowed to declare bankruptcy).

How Congress handles Puerto Rico’s problem will almost certainly shed some light on the future of these similarly profligate states. And how markets react — all that money is, after all, owed to somebody — will tell us whether that solution is sustainable across a nation of debtor states.

Reader Comments 0

71 comments
LogicalDude
LogicalDude

It would help if we knew the source of the debts.  Some states issue bonds. Is that the bulk of debt, or are there other debts that states use to pay for stuff? 

Puerto Rico is in an odd situation being a US Territory, not a state.  Would it help if they were a state and got full support from the US Feds? 

Otherwise, would it help if they completely went on their own as their own independent country? 


With all the facts in the article, comparing PR to other states, it doesn't tell us enough about who is owed and solutions. 

Kyle_Wingfield
Kyle_Wingfield moderator

@LogicalDude Debt is debt, and if you can't make your payments it hardly matters why you borrowed it. That said, for all states it's estimated to be $2.9 trillion in unfunded pension liabilities, $627 billion in unfunded retiree benefits (mostly health care), and $1 trillion in borrowing (e.g., bonds). I don't have the breakdown for Puerto Rico, but again, if you can't pay, you can't pay.

There may be some differences between states and territories, but neither can declare bankruptcy to reorganize their debts. 

MarkVV
MarkVV

When conservatives start complaining about states’ debt, the question is when they start to assign blame – to the poor and low income people. Because obviously – in the conservatives’ lexicon – the cause of those debts are the social programs for those groups of people. It cannot be that the taxes of the rich are too low to cover the needs, or that too many business incentives are given to rich companies. It cannot be that the low incomes are too low – note theadditional problem of facing the same minimum wage set nationally” in Kyle’s reasoning – so that people on those incomes pay little or no taxes, which would otherwise reduce the debt. Nothing like that could be considered, because it would endanger further accumulation of wealth in the hands of a tiny section of the population.

LilBarryBailout
LilBarryBailout

@MarkVV

Most of the serious debt problems at the state level are tied to benefits for retired state employees.  Government self-dealing at its finest, and to hell with the tax payer.

Don't let that spoil your whine though.

FIGMO2
FIGMO2

Too bad it's so sunny down in Puerto Rico. Were it not, they could always tax a cloud.

schnirt

Tech companies oppose Chicago tax on "cloud" services

Dusty2
Dusty2

Isn't there a business blog?  I know that  big debt for anybody or any place is bad news.  That is  why I stay out of debt.. 


Puerto Rico hummmm.....  I need a nice economic vacation. Wonder if they still have lights burning down there?



MarkVV
MarkVV

Whether Greece will be better or worse off because of the “No” vote remains to be seen, and whoever here claims to know the answer just talks through his/her hat. There is, of course, a 50% probability to be right, whatever someone predicts.

Kyle_Wingfield
Kyle_Wingfield moderator

@MarkVV "There is, of course, a 50% probability to be right, whatever someone predicts."

That is of course pure rubbish, as Nate Silver's website tries to explain every day. Just because there are two choices, it does not follow that each is equally probable.

Jefferson1776
Jefferson1776

Good money chasing bad.... again don't lend to those who won't pay back.

LilBarryBailout
LilBarryBailout

@Jefferson1776

Tell that to the clowns in our own federal government who are busy shoveling student loan money out the door to buy votes, knowing that much of it won't ever be paid back and will go on the tax payers' credit card.

Infraredguy
Infraredguy

Liberal thinking is that Puerto Rico can't go bankrupt unless their Government quits spending money

MHSmith
MHSmith

If we wind up with a President Sanders would anyone care to venture a guess on how much time it will take for the United States to wind up like Greece? 



Hedley_Lammar
Hedley_Lammar

@MHSmith Considering we are nothing at all like Greece I would guess.....


Never


Making rich people pay more taxes will only lessen our debt


When one family , The Waltons, owns more than 40 percent of Americans something is wrong. 


And they earned it the old fashioned Republican way. They sat on their duffs and inherited it. 

Infraredguy
Infraredguy

@HeadleyLamar take everything the Waltons have, it should keep the Federal Government  solvent for at least a month

MHSmith
MHSmith

@HeadleyLamar @MHSmith



Hooey, bw . The U.S. becomes a little more like Greece with each passing day. 




You need to rephrase your Waltons statement...




"Today the Walton family of Walmart own more wealth than the bottom 40 percent of America."




Those old Waltons  inheriting all that wealth! grrrrr :( 




Don't let your wealth envy get the better of you: 


"Where much is given much shall be required"  

MarkVV
MarkVV

@MHSmith  No, because that would require making assumptions not based on evidence.

Hedley_Lammar
Hedley_Lammar

@Infraredguy @HeadleyLamar take everything the Waltons have, it should keep the Federal Government  solvent for at least a month


Spread it around and it will do a lot more than that 

stogiefogey
stogiefogey

Time was, not that long ago, when not paying your bills and being a bankrupt was dishonorable and shameful. Then came the 1979/80 federal government financial rescue of Chrysler and we started down a slippery slope toward this deadbeat/safety net/bailout mentality we seem to have today. Run up tens of $ thousands in credit card debt and student loans, then whine that you're a "victim" when the bill comes due. Greece is the poster child.


Just watch, at the end of the day Puerto Rico will find a way to lay off their debt on the U.S. taxpayers. 

Hedley_Lammar
Hedley_Lammar

@LilBarryBailout @HeadleyLamar @MHSmith  If you want to reduce spending and debt, austerity works every time it's tried.


No it doesnt.


If that reduced spending causes the economy to go in the tank it makes things worse


As it has in Greece.

MHSmith
MHSmith

@LilBarryBailout @MHSmith In lieu vote for more poverty and starvation?


Nah you and austerity might not give a hoot but I do, so I'm voting intelligently for setting spending priorities and limits, slowing down the pace of borrowing and replacing some progressive taxes with other non-progressive sources of revenue. Reforming pensions SS Healthcare and scrutinizing military spending. Reviewing every regulation on the books and ridding us of the ones that protect profits and prevent marketplace competition.        

Caius
Caius

Re the US debt which somehow got drug into the discussion down below: except for fees the feds raise on their own, passports, copies of documents, etc, all money spent by US presidents was actually spent by Congress who has the Constitutional duty to tax, spend and borrow.


See Article I, section 8................

MHSmith
MHSmith

@Caius


Yeah, and that same old Congress has a Constitutional duty to do all that taxing spending and borrowing responsibly even when we want more money and they want more votes to retain power.  



LilBarryBailout
LilBarryBailout

@Caius

Congress didn't authorize spending a dime giving handouts to Obamacare enrollees in states that chose not to build their own exchanges.

That was all Obama.

Just as one recent counter-example to your claim.

RafeHollister
RafeHollister

I see where Illinois just borrowed 1B dollars in order to service a 600 million dollar debt.  Now that is progressive thinking for you, borrow your way out of debt.   At least they are trying a new approach and not following the Obamaonomic plan of spending your way out of debt.  Both plans have the same result however, larger debts for the next generation.  Party on! 



Hedley_Lammar
Hedley_Lammar

@RafeHollister Considering Illinois sends in a lot of money to support poor rural states they probably figured they needed the extra money


That surplus will end up down South. 


I know Kyle will tell you one has nothing to do with the other but in a Macro sense they certainly do. 

Kyle_Wingfield
Kyle_Wingfield moderator

@HeadleyLamar "I know Kyle asked me to back up my statement, and I haven't, but I'll repeat it here anyway."

RafeHollister
RafeHollister

@HeadleyLamar @RafeHollister Using your Visa to pay the monthly payment on your Mastercard may work for you Headley, but it is not good, actually bankrupt, economical policy for Illinois, no matter why they need the money.

notagain
notagain

I call it the residue from the Bush administration.Also helicopter Bernanke increase in he national money base from 850 billion to 2.1 trillion.(cash and reserves)

Mandingo
Mandingo

If  Congress has to come up with some type of plan , Puerto Ricans  had better get use to being on their own. They will most likely come to the conclusion they have to relocate to greener pastures.

Claver
Claver

@Mandingo At the least, I think Congress should repeal the Jones Act, which imposes restrictions on shipping goods to PR that do not apply to the mainland.  The artificial constraint on  transportation options pushes up prices higher than necessary.  That is not something you want when you need to jump start an economy.

LilBarryBailout
LilBarryBailout

@Mandingo

There's no need for Congress to fix Puerto Rico's problem.  They can just default on the chumps who lent them money and then live with the consequences of their irresponsible leftist governing philosophy.