Just Cut Spending

Fortuño Shows Us the Way

Puerto Rico’s chief executive believes in small government.

By Deroy Murdock

The gridlocked members of the congressional supercommittee should grab President Obama and decamp to a tropical island. Specifically, they should visit Puerto Rico, where a courageous leader is using free-market reforms to reinvigorate this previously moribund U.S. territory.

“We are clearly pro-growth,” says Republican governor Luis G. Fortuño. “And we do not apologize for that.”

Fortuño last Tuesday hosted a delegation of conservative luminaries who steamed into San Juan aboard the Holland America Line’s MS Eurodam, site ofNational Review’s latest Caribbean cruise.

Fortuño was inaugurated on Jan. 2, 2009, just 18 days before Obama. Since then, these two officials have marched in opposite directions, with opposite results.

“We were closer to the abyss than most states,” Fortuño says. “When I came into office, we were facing not just the worst recession since the ’30s, but the worst budget deficit in America, proportionally. We were literally broke. Actually, I had to fly up to New York to avoid a serious downgrade in our bonds. I came to realize actually that we did not have enough money to meet our first payroll. We had to take out a loan to do that. At that point, my wife asked me if we could ask for a recount.”

So, what did Fortuño do?

Unlike the free-spending Obama, and G. W. Bush before him, Fortuño declares: “We cut expenses.”

Fortuño set an example by giving himself a 10 percent pay cut. He trimmed his agency heads’ salaries by 5 percent. That bought him the credibility to chop overall spending by 20 percent. He booted some 20,000 government workers, through attrition as well as layoffs, saving $935 million. (Compare that to Bush/Obama’s 11.7 percent hike in the federal civilian headcount since the Great Recession began in December 2007 — excluding temporary Census jobs.) Fortuño has shifted remaining government workers from old-fashioned, statist defined-benefit pensions to modern, market-friendly defined-contribution plans.

Ranked No. 51 in 2009 — behind every state of the Union — in proportion of deficit to revenue, Puerto Rico now is 15th, with the $3.3 billion deficit Fortuño inherited (44 percent of revenues) now machete’d to $610 million (7.1 percent). Fortuño’s reforms, including merging government agencies, led Standard & Poor’s to upgrade Puerto Rico’s credit rating for the first time in 28 years. S&P, of course, famously downgraded U.S. sovereign debt last August, an historical first. Meanwhile, America’s national debt screamed past the $15 trillion mark on Wednesday.

Fortuño has sliced taxes. The corporate tax rate plunged last January from 41 percent to 30, en route to 25 percent in 2014. He cut average individual tax rates by one quarter this year, and plans to cut them in half within six years.

“You needed to obtain an average of 28 permits and endorsements to do anything,” Fortuño says, regarding regulatory relief. “You had to go to 20-plus different agencies to do that. Today, you go to one agency, and you get your permit there, or you can go to PR.gov, and get it online.”

As Fox Business Network’s John Stossel reported last June, some 250 Puerto Rican police officers previously scrutinized liquor-license applications. Fortuño now has a couple of civil servants handle those duties, with the process conducted largely online. Those cops now patrol the streets and pursue actual criminals.

“We have created a better business climate, and it shows,” Fortuño summarizes.

A five-year property-tax holiday and the scrapping of capital-gains and death taxes have helped push sales of existing homes up 35 percent this year (while they fell 7.9 percent on the mainland) and sales of new homes soaring by 92.2 percent (while they sagged by 9.9 percent up north).

CVS, Nordstrom’s, Pet Smart, P. F. Chang’s, Saks Fifth Avenue, and Victoria’s Secret all are opening stores in Puerto Rico. “They’re coming in brand new, for the first time, ever,” Fortuño says. Blu Caribe pharmaceuticals, Honeywell, and Merck are expanding manufacturing facilities. Venezuela’s Banesco is the first new bank to open in Puerto Rico in 13 years.

“Things are happening,” Fortuño smiles. “We are moving in the right direction. We are creating jobs in the private sector, not in the public sector, the way we should be. So, we can keep lowering taxes.”

Governor Fortuño in his office in San Juan’s 471-year-old La Fortaleza palace. Photo: Deroy Murdock.

Fortuño and I speak in his stunning baroque office in La Fortaleza, a former Spanish colonial castle completed in 1540. La Fortaleza is the western hemisphere’s oldest continuously operated executive mansion. Over the years, it has been seized by British and Dutch invaders as well as pirates of the Caribbean.

Fortuño is a political consultant’s dream. The father of triplets is a principled, well-spoken, and cheerful graduate of Georgetown University (my alma mater). He also seems to take a shot each morning of whatever his very first predecessor, Juan Ponce de León, discovered when he embarked from here to Florida in 1521 to find the Fountain of Youth. Though Fortuño looks 35, he is 51.

“I exercise,” Fortuño says. “I run races. That helps. Lots of water, and get some rest.”

Fortuño has been a fan of this publication for decades.

“I was a subscriber to National Review when I was a college student,” he says. “My roommate would get Sports Illustrated. I would get National Review. It shaped my thinking dramatically. I used it as a guide to what was happening in Washington at the time.”

Ronald Reagan and Margaret Thatcher are among Fortuño’s other inspirations. Volumes by and about those visionaries grace Fortuño’s bookshelves. A small sign on his desk replicates one in Reagan’s Oval Office. It explains Luis G. Fortuño’s success, begs Washington to listen, and simply reads: “It CAN be done.”