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Originally published Saturday, February 15, 2014 at 6:06 AM

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Rocky economy, crime spur new flight from Puerto Rico

Puerto Rico’s ticker tape of woes stretches unabated: $70 billion in debt, a 15.4 percent unemployment rate, a soaring cost of living, pervasive crime, crumbling schools, and a worrisome exodus of professionals and middle-class Puerto Ricans who have moved to places like Florida and Texas.


The New York Times

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SAN JUAN, Puerto Rico — Alexis Sotomayor has many reasons to stay in Puerto Rico: his two children, his gossip with his mother, and the balm of salt and sun that leavens his life on the island.

But the artisanal soap business Sotomayor built is barely hanging on amid rising costs and taxes, and sales that have sunk by 40 percent in five years. Crime is rampant; his girlfriend was nearly carjacked at gunpoint recently.

So last month he boarded a flight to Orlando, Fla., to interview for a job at a rum distillery in the hope of joining the ever-growing Puerto Rican diaspora.

“I don’t see it improving,” said Sotomayor, 47, a chemical engineer. “I see it getting worse. It’s the uncertainty. What am I going to do — wait until it gets worse?”

Puerto Rico’s slow-motion economic crisis skidded to a new low this month, when Standard & Poor’s as well as Moody’s and Fitch Ratings all downgraded its debt to junk status, brushing aside austerity measures taken by the new governor, including increasing taxes and rebalancing pensions. But that is only the latest in a sharp decline leading to widespread fears about Puerto Rico’s future.

In the past eight years, Puerto Rico’s ticker tape of woes has stretched unabated: $70 billion in debt, a 15.4 percent unemployment rate, a soaring cost of living, pervasive crime, crumbling schools and a worrisome exodus of professionals and middle-class Puerto Ricans who have moved to places like Florida and Texas.

The situation has grown so dire that this tropical island, known for its breathtaking beaches, salsero vibe and tax breaks, is now mentioned in the same breath as Detroit, with one significant difference. Puerto Rico, a U.S. territory of 3.6 million people that is treated in large part like a state, cannot declare bankruptcy.

From bottom to top, Puerto Ricans are watching it unfold with a mixture of disbelief and stoicism.

Alejandro García Padilla, elected Puerto Rico’s governor by a sliver of a margin in 2012, said that after he began to wade deeply into the island’s economic and social quagmire, his fight-or-flight instincts kicked into high gear.

“I thought about asking for a recount,” García Padilla, 42, said with a grin during a recent interview in La Fortaleza, the 500-year-old government residence, recalling, among other things, the $2.2 billion deficit. “But now it’s too late.”

A sense of pessimism pervades.

Streets are lined with empty storefronts in San Juan and in smaller cities like Mayagüez. Small businesses, hit hard by high electricity, water and tax bills and hurt by drops in sales, have closed and stayed closed.

Schools sit shuttered either because of disrepair or because of a dwindling number of students. In this typically convivial capital, communities have erected gates and bars to thwart carjackers and home invaders. Illegal drugs, including high-level narcotrafficking, are one of the few growth industries.

Extended recession

Puerto Rico has long been poor. Its per capita income is around $15,200, half that of Mississippi, the poorest state. Thirty-seven percent of all households receive food stamps; in Mississippi the total is 22 percent.

But the extended recession has hit the middle class hardest of all, economists said. Jobs are still scarce, pension benefits for some are shrinking, and budgets continue to tighten. Even many people with paychecks have chosen simply to parlay their U.S. citizenship into a new life on the mainland.

Puerto Rico’s drop in population has far outpaced that of U.S. states.

Coupled with a falling birthrate, the decline is raising worries about how Puerto Rico will thrive with a rapidly aging population and such a large share of jobless residents. Of the island’s 3.67 million people, only 1 million work in the formal economy.

The island has one of the lowest labor participation rates in the world, with only 41.3 percent of working-age Puerto Ricans in jobs; 1 in 4 works for the government.

“Today, Puerto Ricans with jobs are moving to the U.S.,” said Orlando Sotomayor, an economist at the University of Puerto Rico and the brother of Alexis. “Even people in their 40s and 50s, college professors with complete job security, are doing so. Some are starting all over. The phenomenon is highly uncommon and underscores the lack of hope that the ship can or will be righted.”

After Coca-Cola laid Alexis Sotomayor off in 2001, he started experimenting with distilling plant extracts. He found he could make natural soaps and decided to go into business for himself, a move that would allow him more time to spend with his children.

Business boomed for years. So much so that he moved his facility out of his house in 2005 and into a small building he purchased in San Juan. He found that he was earning more money making soap than working as a chemical engineer.

Then in 2008, the recession pounded at his door.

For five years, he has tried to lift his business. He went to fairs around the island, set up booths in shopping malls, promoted his flower-infused soaps, candles and lotions on television. He decided to rent out half of his building. He let go two of his four employees.

But his expenses mounted, including $600 a month in power bills, more than double what consumers pay on the mainland. The sky-high cost is a consequence of Puerto Rico’s inefficient government-run monopoly on electricity and its 67 percent dependency on petroleum for electric power.

Other utilities are exorbitant, too. Last year, water bills rose 60 percent in a bid to help cut the state-run water company’s debt.

The cost of private tuition for Sotomayor’s children, a total of $2,000 a month, is one nonnegotiable expense for him. Like most middle- and upper-class Puerto Ricans, he long ago lost faith in the island’s troubled public schools.

Crime, failing schools

Public-school enrollment has plummeted in recent years, in part because of declining birthrates but also because of the schools’ poor quality.

“Many parents, even lower-middle-class parents, put all their money into their children’s private school, even if sometimes they have to live in rented houses,” said Nilsa Velazquez, an economics professor at the University of Puerto Rico who plans to move to Virginia with her family this summer.

For many, the high rate of violent crime has been the capper. There were 1,136 murders in 2011, a record and far higher than the mainland’s rate. It fell to 883 homicides last year, a point of pride for the governor.

But the damage had been done. Life here has always been full of trade-offs, including a high cost of living. Now, though, there is little left to trade.

“Between making less money and not knowing when someone will jump you, that pushed the quality of life very low,” said Alexis Sotomayor, the soap maker. “To live here just to survive? No, thanks.”

This summer Velazquez will try to rent out her house rather than selling it and take a loss, and will move to Fairfax County, Va., where her husband will work for the federal government and her children will attend a top public high school. As an economist with a law degree, she is hoping to find some kind of job.

“I thought I could do anything in Puerto Rico,” she said. “Now that is gone.”



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