That appears to be the situation in Puerto Rico at present.
Hundreds of Puerto Ricans took to the streets of the island's capital on Wednesday to protest austerity measures as anger builds over an unrelenting economic crisis that has hit the working class especially hard.
Protesters clutched posters decrying austerity measures including new taxes, increases in utility bills and looming furloughs and cuts to a public pension system facing nearly $50 billion in liabilities.
"They're taking advantage of us poor workers. We did not steal. We are not corrupt," read one poster held up by 70-year-old Eva Feliciano, a retired government worker who said she sometimes cannot afford to buy the groceries she and her husband need.
There's more at the link.
The trouble is, those protesters refuse to recognize that they bear the ultimate responsibility for Puerto Rico's economic shambles. For decades, they voted for politicians who borrowed money (i.e. issued bonds) to pay for essential services, rather than tax the residents of the island. Those residents were more than happy to take the services and keep their money . . . but eventually, as always happens, the bills came due. For various reasons (mostly blamed by Puerto Ricans on the US government, rather than their own spendthrift ways), Puerto Rico's debt has ballooned. The New York Times summarizes:
Puerto Rico’s public debt has ballooned because of a failing economy and an inefficient government that has spent more than it has taken in for years, often borrowing to close the gap.
Much of the borrowing is in the form of municipal bonds. As the size of the debt grew, so did the complexity, with some branches of government issuing bonds on behalf of others, or backstopping each others’ debts, until it became nearly impossible to keep track of it all. Even then, demand for Puerto Rico’s bonds was strong because they pay interest that is tax-exempt in all jurisdictions.
In addition, Puerto Rico owes billions more in pensions to retired public workers.
The government created a health insurance program for low-income people in 1994, but did not establish a way to pay for it. In 1996, Washington started phasing out a tax break for American companies with subsidiaries on the island, removing a significant driver of economic growth.
Bond debt: $24 billion.
Unfunded pensions: $7 billion for the three main funds, for teachers, judges and general employees.
Bond debt: $72 billion.
Unfunded pensions: $34 billion.
The island’s credit was downgraded well into junk range. Even so, Puerto Rico managed one last bond sale, oversubscribed at $3.5 billion.
Bond debt: Still about $72 billion, because Puerto Rico has lost market access.
Pensions: $49 billion.
Again, more at the link.
It's perhaps comforting to think that Puerto Rico's problems are unique . . . but they're not. More than a few US states are in equally dire financial straits. They appear either unwilling or unable to do anything about them, too. For example, just this week, Kentucky was warned that its state pension system was in terrible trouble, and had to be fixed now, rather than patched up yet again.
An independent consultant recommended sweeping changes Monday to the pension systems that cover most of Kentucky’s public workers, creating the possibility that lawmakers will cut payments to existing retirees and force most current and future hires into 401(k)-style retirement plans.
Echoing a message often repeated by Governor Matt Bevin, the PFM Group told the Public Pension Oversight Board that lawmakers must make dramatic changes to fix one of the worst-funded pension systems in the country.
“This is the time to act,” said Michael Nadol of PFM. “This is not the time to craft a solution that kicks the can down the road.”
The group, which was hired by Bevin, offered only recommendations. Any changes to the pension system would come during a potential special legislative session in October.
If the legislature accepts the recommendations, it would effectively end the promise of a pension check for most of Kentucky’s future state and local government workers and freeze the pension benefits of most current state and local workers.
. . .
Nadol said changing the benefits of current employees and retirees is the only way to significantly reduce Kentucky’s pension liability.
“All of the unfunded liability that the commonwealth now faces is associated with folks that are already on board or already retired,” he said. “Modifying benefits for future hires only helps you stop the hole from getting deeper, it doesn’t help you climb up and out on to more solid footing going forward.”
More at the link.
Kudos to Kentucky's governor, senate president and house speaker, who commissioned the study and said bluntly, "We will not kick the can down the road. We were elected to fix this problem and we will. The fiscal abuse of Kentucky’s retirement systems is over." However, (unsurprisingly) the recommendations met instant resistance from state workers and pensioners, and from state politicians whose elections depend on the votes of those workers and pensioners.
Many other US states are in similarly dire financial straits. The Mercatus Center at George Mason University provides annual fiscal rankings for all 50 states, and rates Kentucky as 47th out of 50; but that still means three states (Massachusetts, 48; Illinois, 49; and New Jersey, 50) are in worse shape. You can read the rankings here, with details for each state.
Puerto Rico is one of several fiscal 'canaries in the coal mine'. We can mock its citizens for protesting a situation for which they're largely responsible, but there are far too many US states in a similar mess. I don't know what the outcome for Puerto Rico will be, but I'm pretty sure that at least some US states will be effectively bankrupt before very long. That's not going to be pretty for those living there, who are going to see their taxes rise, services become less efficient and less available, and the economy of the state in general take a pounding.