by Joseph Coletti
Senior Fellow, Fiscal Studies, John Locke Foundation
North Carolina’s balanced budget requirement should make it difficult to repeat Puerto Rico’s troubles. NPR and Frontline report the island’s finances and physical infrastructure were battered even before Hurricane Maria hit last year. The budget troubles:
Rather than cut spending to make up for declining tax revenue, the Puerto Rican government went the other way. It borrowed money….
In 2014, Puerto Rico and a group of banks teamed up for another bond deal. At $3.5 billion, it was the largest municipal junk bond offering in U.S. history.
Puerto Rican officials told NPR and Frontline they needed the cash to make payroll….
Fifteen months later, Puerto Rico announced it couldn’t pay its debt. The island was broke.
The bond funds crashed. Many Puerto Rican investors lost savings, retirement funds or their pensions. The government started closing hospitals. There was little money to shore up bridges or strengthen the electrical grid.
And then, on Sept. 20, 2017, a Category 4 hurricane came barreling into Puerto Rico. The island was left to face the wrath of the storm in a place starved of investment for years by a government that had to borrow to pay its bills.