If Fortuño Loses, So Will Conservatives

Originally published by Politic365 here.   Say what you will about Governor Luis Fortuno and his policies on the tiny Caribbean island of Puerto Rico, but there is little doubt […]

Originally published by Politic365 here.  

Say what you will about Governor Luis Fortuno and his policies on the tiny Caribbean island of Puerto Rico, but there is little doubt that his experiment has become the petri dish for the conservative platform.  The only question is whether the results will be used to prove that implementing conservative policy leads to victory . . . or political suicide.

This is the impression the Governor gave Politic365 after a discussion on his economic policies and the impact he believes they will have on the rest of the country.  Given that he is one of the few elected officials (among even fewer Hispanic leaders) across the country to have an all-or-nothing attitude about his conservative platform, he’s 100% right.

Over the last several years, as Conservatives and Liberals have been pitted against each other to determine the best approach to the overall U.S. economy, the unemployment rate has broken a record no one wanted it to.  According to the Congressional Budget Office, the period from February 2009 until February 2012 has been the longest period of high unemployment since the Great Depression.

In addition to unemployment, the national deficit has skyrocketed, increasing more than 50% from $10 trillion to $15 trillion.  Our annual deficit has increased, leading to downgraded credit ratings for the first time in our nation’s history. The labor force has contracted even as our population has grown. Gas and food prices have increased substantially.  Burdensome business regulations have swollen.  Business ownership and entrepreneurial activity has declined. Homes sales have fallen. Consumer confidence has sunk, and, even if current tax cuts are extended, the total tax burden (as a percentage) on individuals is expected to rise to the highest level in history in the next few years.

But, as bad as it has been on the mainland, Puerto Rico’s economy was much worse before Governor Fortuño took office.  “We really had nothing to lose,” said the Governor in a discussion over the weekend, who laid all his political capital on the line and implemented some of the most hardcore Conservative policies the nation has seen.

His first objective?  Make cuts, drastic cuts.  Slashing the government’s payroll by eliminating more than 30,000 government jobs from a tiny and very poor island, the Governor lost a lot of friends, but piqued the interest of conservatives across the U.S.

The result?  An 80% decrease in the island’s budget deficit, on track to a near-future balanced budget and the first positive credit rating change in decades.

“It was a hard time, but it wasn’t a hard decision,” said the Governor who claims his first official trip to New York was to convince credit rating agencies not to continue with their promised rating decrease.  “We had to borrow money just to cover our first payroll, but our budget has been improving ever since.”

Although the Governor and his staff took pay cuts to prove that they were willing to personally sacrifice, cutting tens of thousands of jobs when the unemployment rate was already near 16% was extremely unpopular and perhaps the most politically risky position a governor has taken in the country.

But Fortuño had a plan and he has, so far, stuck to it.

Even though the government was broke, his administration introduced tax cuts for businesses and individuals.  It may seem counterintuitive to learn that tax revenues have subsequently increased by more than 13% over the last year. However, as these tax cuts were combined with massive business deregulation, businesses have flourished by double digits for the first time in 6 years, according to the Governor.

Simultaneously, employment has effectively shifted from the government payroll to a private one.  As businesses have grown, excise taxes have improved dramatically and unemployment has also begun to drop, slowly falling from a 17% high to nearly 13% this February, according to the Government Development Bank of Puerto Rico.

Home prices and sales have fallen across the mainland U.S. with no reversal in sight through 2013, according to a recent survey by Zillow, Inc.  Determined not to allow the same in Puerto Rico, Fortuño’s administration introduced tax incentives that have contributed to one of the greatest home-sales turnarounds this country has ever seen, with existing and new home sales increasing more than 50% over the last year.

After proving to themselves that tax cuts may produce positive government income, the Governor and his Secretary of Economic Development were especially excited to about the most interesting news for businesses looking for higher profit margins.  Those who relocate their “headquarters” to Puerto Rico can now take advantage of a 4% tax rate.  (See more about this incentive in a Politic365’s exclusive interview with Puerto Rico’s Secretary of Economic Development in the coming days.)

The problem is that these conservative policies, which Fortuño claims as “long-term” solutions, have taken a while to be validated, potentially losing a lot of re-election votes along the way.  Residents of Puerto Rico are only just now, in an election year, beginning to prove their faith in the stability of the economy by spending more on goods, local tourism, housing, and car sales.

Will the economic benefits trickle down to the pocketbooks of voters before Puerto Rico’s gubernatorial election in November?  That’s the question political leaders are now asking themselves around the country.

If Fortuño fails to convince the island of his administration’s successes, conservatives across the country will lose and Hispanics may be unwilling to trust another Governor on the right again.

But if Fortuño does prove successful, the results could be two-fold.  Conservative policy may finally have the starkest example of how it can turn an economy around, and it may also set an example of how elected officials can sway the heavily-touted Hispanic vote.

JUSTIN VELEZ-HAGAN is a Senior Contributing Writer and Commentator for Politic365.com.  He is also the National Executive Director of The National Puerto Rican Chamber of Commerce and an international developer of senior living facilities.  He can be reached at Justin@Politic365.com.