A Rude Awakening

Our electricity bill arrived the other day, and my eyes nearly popped out of its sockets when I saw how much we owed. Adding insult to injury, we had received the bill just after having lost power for three days due to Irene. Those of us who live in Puerto Rico have always had to spend much more on our electric bills than our counterparts on the mainland. According to the U.S Energy Information Administration, the average retail price of electricity per kilowatt in the U.S is $0.11 cents back in February of this year. On the island, the average cost per kilowatt for households this past June was $0.28. If Puerto Rico was a state, it would have the second most expensive electric costs. The most expensive is Hawaii, at $0.31.

As a blog reader once pointed out to me, those of us who pay our electric bills (at unsubsidized prices) are subsidizing those who aren't. In fact, some churches, hotels, public housing projects (aka caserios) and municipalities can keep their lights on 24 hours a day, as they practically get electricity for free (and some in fact do). Another reason why electricity is so expensive in Puerto Rico is because many people steal electricity (not to mention water as well). This has led to an estimated $700 million loss between 2009 and 2010. The fact that 70% of the island's energy comes from petroleum exacerbates the problem. The situation has gotten so dire that some restaurants are directly passing the high energy prices on to its customers, listed as the "AEE Adjustment" on their bills.

During the past few weeks, la Autoridad de Energía Eléctrica (the Puerto Rico Power Authority), a government corporation, has come under fire in its billing tactics. The AEE uses a formula which weighs heavily current oil market prices. Jeniffer González, President of the island's House of Representatives, has promised to implement significant changes as to how the AEE charges its customers. High energy costs is a serious impediment to the island's economy, as consumers have less money to spend on other household goods. In addition, for businesses, it increases operating costs to a much more dramatic level. Meanwhile, the Fortuño administration is placing its bets on the Via Verde gas pipeline to help alleviate the island's skyrocketing energy prices.

The "D" Word

While listening to National Public Radio's Planet Money, which recently did a podcast titled "How Much Debt is Too Much?" and analyzed the debt to GDP ratio (the amount of money you owe divided by your annual income) of countries such as Greece, Italy and the U.S, I couldn't help but look up Puerto Rico's figure. As mentioned in the podcast, when a country takes on too much debt, it can stifle economic growth. This would subsequently make the country borrow even more money, and lead to a potentially dire future if no budget changes are implemented in the long run. Turns out that the island's debt to GDP ratio in 2010 was 56.7% (an estimated $14,289 worth of debt per resident in Puerto Rico). In comparison, California, for all its budget problems, the ratio is currently a little over 19% (or roughly $10,009 per resident in the Golden State). As for the U.S, the ratio is almost at 100%. Greece, which has of course made worldwide headlines for its huge economic woes, has a ratio of a whopping 150%.

Historically, according to Harvard economist Ken Rogoff, countries start running into trouble when the debt to GDP ratio goes above 90%. Puerto Rico is certainly not considered to be a Greek tragedy but, if it were a state, the island would have the worst per capita debt in the U.S. In an effort to reign in spending and decrease its debt (as well as improve its standing with credit rating agencies such as Moody's and Standard & Poor's) thousands of government workers have been laid off and certain governmental agencies have even ceased to exist, as they have merged with other departments. In the latest attempt to decrease government debt, and beef-up its coffers, Gov. Fortuño decided to cede the operations of one of the most heavily transited highways on the island to a Goldman Sachs-led consortium. This group had reportedly placed a $1.08 billion bid for this venture. The government is now also hoping to privatize the island's largest airport and is looking for takers. Puerto Rico also has a severly underfunded public pension system, which Moody says is worse than what most states in the U.S mainland are confronting.

Thou Shall Not Covet

In an attempt to beef up its coffers, and strike a blow at tax evaders, the Puerto Rican government introduced the IVU Loto (its acronym stands for impuesto sobre las ventas y uso). The premise behind this idea is to have consumers demand retailers for a receipt, and money would be the natural incentive. The IVU tax was introduced back in 2007, and is levied on all purchases (except for essentials such as bread, water and milk) at 6% islandwide. Ever since its introduction, the amount received by the Department of Treasury (el Departamento de Hacienda) has been much less than what the government had projected. Tax evasion is the culprit, according to Treasury officials, as only half of the island's businesses are said to remit IVU tax payments. According to the government, the solution to this conundrum is to implement a lottery receipt system. Perhaps the folks over at Treasury were inspired by some Latin American countries, and some as far-flung as China, that have successfully implemented their version of an IVU Loto. In China, tax revenues from businesses have reportedly seen a significant increase.

On the island, the IVU Loto has already gotten off to a rocky start. Although it was supposed to roll-out in the beginning of this year, very few businesses have the IVU Loto system installed in their cash registers. One of the reasons for this long delay is due to the legal battle involving one of the contractors hired to implement the IVU Loto system. As I dig out a bunch of receipts from wallet, including from the major chains such as Walgreens, Bed, Bath & Beyond, among others, none have the 10 digit IVU Loto number. It wasn't until last week, when I finally got a receipt from a restaurant, that I was reminded of my shot at winning some hard cash! Come to think of it, if I hadn't paid with a credit card, I probably wouldn't have gotten a receipt. In any case, I didn't get lucky this time.

Aside from the government's failure, thus far, to fully implement the IVU Loto system, religious leaders have also cried foul. Their argument is that Tenth Commandment clearly states "thou shalt not covet." Participating in the IVU Loto is considered to be a form gambling, which is against their religion. Other critics contend that the IVU Loto will not incentivize underground businesses to emerge from the shadows. The root of the problem is the inefficiency and lack of trust in the local Puerto Rican government. In the meantime, at least some of us sinners will have a shot at winning $1000 every week. That is, of course, if we should actually get a receipt with the IVU Loto number on it. At the moment though, it doesn't seem as though people noticed or care much for it, as some of the IVU Loto winners haven't even bothered to claim their prize money.

To check and see if you have a winning IVU number, click here, and be sure to select "Ganadores."

(Note: The IVU Loto logo was obtained from the website of el Departamento de Hacienda)

Got Milk?

I winced the other day, as I reached into the fridge at the supermarket to grab a gallon of milk. The price tag read $6.00 and, mind you, it's not even organic. Taking into account the 7% sales tax (1% municipal and 6% island), a gallon of milk in Puerto Rico costs consumers $6.42. This reflects an overall 7.14% increase in prices, as a quart of milk is now $1.50 and a half gallon is $3.00, before taxes. On January 20th, a federal judge approved the increase, ruling in favor of the lobby groups representing dairy farmers. Due to a 20% increase in cow feed, and other operating expenses, many farmers and milk processors found themselves with no other choice but to go to court and demand for this new increase in milk prices. Exacerbating the situation is the fact that the island imports an estimated 80% its food, and likely includes the cow feed.

Puerto Rico is not an anomaly though, since food prices throughout the world are expected to increase. Nevertheless, consumers are less than thrilled at having to pay more for milk. Ironically, Tres Monjitas and Suiza Dairy, the island's two principal milk processing plants have sided with consumers. They fear that this price increase will lead to a decrease in milk consumption. Indeed, during the past two weeks or so, I've noticed most of the milk gallons in the supermarket were dangerously close to expiring. In case you're wondering how much organic milk costs in Puerto Rico, I actually have never seen it sold on the island. I've been trying to convince my other family members to drink soy milk, which I purchase frequently at Costco. After doing some calculating, it's actually cheaper and it's organic.

Correction: the 6% island tax does not apply to necessities such as milk and water. However, the 1% municipal tax does apply. A gallon of milk should cost a total of $6.06.