By now you’re familiar with the sights of devastation from Puerto Rico after Hurricane Maria. What you may not know is just how bad things were for the U.S. territory before the storm hit. It’s a story of corruption and waste and—Puerto Rican officials say—a lesson for all of us.
Alberto Martinez was born and raised in Puerto Rico. He recorded these pictures after Hurricane Maria.
Alberto Martinez: Puerto Rico was already suffering a financial crisis, now it’s been wrecked by Hurricane Maria.
Martinez also showed us around Puerto Rico over the summer before Hurricane Maria. For all intents and purposes, already bankrupt.
Alberto Martinez: This is the Ponce de Leon Avenue on Santurce. My school is on this avenue…
A college professor, Martinez is planning to include Puerto Rico’s example in a course at the University of Texas on money and corruption.
Alberto Martinez: Now it’s just a bunch of shut down storefronts with graffiti.
He blames more than a decade of poor tax and business policies, and big banks that convinced politicians to borrow like there was no tomorrow.
Alberto Martinez: Sales taxes are too high. Rent prices are too high. Business to business expenses are too high. So if you can’t do business in Puerto Rico and the customers just don’t have the money, eventually store after store have to shut down.
Rodrigo Masses has also been tracking Puerto Rico’s financial downfall, as the head of a group representing manufacturing and service industries.
Sharyl Attkisson: Puerto Rico racked up, as of 2016, $118 billion dollars in debt and unfunded pension liabilities with no way to pay it back. In simple terms, what's your understanding of how we got here?
Rodrigo Masses: Well basically, you know the answer is very simple: in the way that all countries get in debt. We tried to finance debt with debt. And in the end, we forget to grow the economy, or we cannot grow the economy, and therefore there's no way to comply with our obligations.
Sharyl Attkisson: Who do you blame for getting in that situation in the first place?
Rodrigo Masses: I think we blame ourself, ourselves are to fault in this process. So, we together, politicians, of public sector, we are the one to blame.
It’s the reason why before Hurricane Maria, Puerto Rico governor Ricardo Rossello already faced a near impossible climb.
Sharyl Attkisson: With the fiscal crisis, you were handed quite a mess.
Ricardo Rossello: That's right.
Sharyl Attkisson: You knew this going in.
Ricardo Rossello: We just didn't know the magnitude of it. We knew it was bad.
On his first day as governor last January, Rossello declared a fiscal emergency and ordered government operating expenses to be cut across the board.
Sharyl Attkisson: How bad is it in a word or two?
Ricardo Rossello: This might be hard for some of our viewers to explain to. But we had sort of a bank, a government-owned bank, which had the purpose of developing infrastructure and so forth but, essentially, became another agency, and did not serve its purpose. It became a black hole in and of itself. Government was ran, essentially, as a big Ponzi scheme, and we were at the last level.
Sharyl Attkisson: It sounds like, at least, mismanagement and perhaps even corruption.
Ricardo Rossello: Yes, certainly. Certainly, mismanagement, certainly a total lack of accountability in Puerto Rico, managerial foresight, and certainly corruption.
As Puerto Rico silently accrued deep debt, a stunning 46 percent of Puerto Ricans fell into poverty. And government became wildly bloated.
Puerto Rico’s current Secretary of Education makes more from her government work than the US Secretary of Education, who is not taking the salary. Puerto Rico’s chief of security makes 50% more than the head of the FBI.
The whole territory is smaller than Los Angeles County: just 100 miles long and 35 miles wide. But it has 78 municipalities, each with its own separate governing structure. 78 mayors, 78 legislatures. And 135 government agencies.
Ricardo Rosello: Well, I have 135 agencies, which we have in Puerto Rico, can I consolidate many of them? Can I eliminate some of them? We are doing that path. So our expectations is, by the end of the four years, we're going to reduce 135-agency government to about a 35-agency government. That's going to provoke a lot of savings for Puerto Rico.
Sharyl Attkisson: And criticism.
Ricardo Rossello: And criticism, but I ran on that platform.
The governor’s supporters are behind him. But his austerity measures aren’t popular with residents like single mom Ana Candelario. With basic groceries costing more than the U.S. average, she and other government workers may be facing a pay cut.
Ana Candelario: Last week I went to the bank to make an arrangement to reduce my mortgage and also the student loan that I have right now.
Even if Puerto Rico wanted to ignore its fiscal crisis, it couldn’t…
Congress took control last year by passing PROMESA: the Puerto Rico Oversight, Management and Economic Stability Act. A seven-member board appointed by President Obama was given the power to restructure and negotiate with creditors.
Then, Maria hit.
Rob Bishop: They have to start over again. So they came up with a plan originally; this changes the dynamics of that plan. So they're] gonna have to redo the overall funding plan again.
Congressman Rob Bishop heads the congressional committee that oversees Puerto Rico.
Sharyl Attkisson: Can you explain how Puerto Rico's bad financial situation will impact how they recover from the hurricane?
Rob Bishop: It exacerbates the problem for them. When you're that far in debt and you have to restructure everything, including the grid, yes, it makes it more difficult to borrow money. People are not going to lend money if they don't think it's going to be paid back.
As the fiscal oversight board PROMESA goes back to the drawing board, it’s drawing criticism for the money it’s spending—to rein in Puerto Rico’s spending. The Congressional Budget office estimates that operating PROMESA will cost $370 million over five years.
PROMESA executive director Natalie Jaresko is getting paid $625,000 a year. 50% more than the salary of the President of the United States.
It’s one reason PROMESA has stoked longstanding resentment of U.S. domain over Puerto Rico.
Alberto Martinez: “This sign right here, “No white person, no rich person represents us. Go to hell the fiscal control board and the gringo government,” that is the American government.
Sharyl: The head of the Fiscal Board is making $625,000 a year, which is roughly 50% more than the President of the United States. What do you think of those criticisms that they have about the cost of this?
Rep. Rob Bishop: That's one of the things we will be looking at in oversight hearings as time goes on. This is not an easy process.
As Puerto Rico grapples with its double disasters: the hurricane and fiscal crisis, Governor Rossello warns there are lessons for those of us on the mainland.
Gov. Rosello: There needs to be a continuous question asked on any country, the United States, or any country, if I continue this rate of debt or you know fiscal liabilities, where am I going to end up in ten years? What is that going to have in terms of the impact to services we can give our communities and our citizens? What's that going to do to healthcare, for example, or education? So, yes, it is a critical question that needs to be asked.
Alberto Martinez: Twenty years ago it used to be a main business center, instead now we have dozens and dozens of shut down stores.
As for Professor Martinez, he says he’s got all the material he needs to teach the Puerto Rico section of his college course on money and corruption.
Alberto Martinez: The synopsis would be: Puerto Rico allowed itself to be hoodwinked by big bankers into creating debt it could never possibly pay. There were no consequences for the politicians, and there still are no consequences. Instead, they're filthy rich and this is happening in many other places throughout the states.
Jaresko, the head of the fiscal board appointed to guide Puerto Rico, was busy on the job and not available for an interview. As for her $625,000 salary, a spokesman told us her success in her former job as Finance Minister of Ukraine qualifies her to lead Puerto Rico's long road to recovery in its "long-running financial crisis of staggering complexity."