How Puerto Rico Can Learn From Nebraska
Economic issues have always been evident in many places in the world. Many of us remember when the city of Detroit essentially went bankrupt.
I was speaking with my Mother on the telephone recently and she was telling me about an article in the Sunday newspaper she reads. Mom lives in Nebraska and the paper is the Omaha World Herald.
Recently a reporter by the name of Russell Hubbard wrote an interesting article about debts for Nebraska and other States. Also mentioned is Puerto Rico. After reading the article, I wanted to delve in further, and hopefully make some wise sense to the Governor of Puerto Rico and the legislature here.
Before we move further, let me first give a slight economics lesson. Look at the following picture before scrolling down.
Debt to GDP
Government economic lesson
Every State and every nation has debts. Much like a family, we have a certain amount of money coming in, and a certain amount of money that goes out in the form of debt.
In a family situation, we have our income that comes in. The debt consists of such things as the:
- electric bill
- water bill
- rent or house payment
- car payment
As in the picture above, we can do the same procedure by breaking down the amount of money coming in versus the amount of money going out.
In States and countries, the amount of money coming in would be examined by looking at the Gross Domestic Product. Taxes are taken from that GDP which then covers debts incurred by the State or country.
In the chart, the debt to GDP shows where the best State, the worst State and Puerto Rico compare to each other. Now let me explain the States and their averages.
The State with the best debt to GDP outlook is Nebraska. Nebraska averages 1.5 cents of debt on every dollar earned in Gross Domestic Product.
The State with the worst debt is Rhode Island. Rhode Island averages 22-23 cents of debt on every dollar earned in Gross Domestic Product.
The average of all States is 12 cents of debt on every dollar in GDP.
Puerto Rico averages 68 cents of debt on every dollar of Gross Domestic Product.
We have all heard about the economic instability of Greece. Where do they stand in this picture? Greece averages $1.75 of debt to every $1 of GDP.
And I thought my financial situation was bad!!!
Why is Nebraska doing so well?
There is a very simple answer to this question...the State legislature uses wisdom in spending.
Nebraska made a law years ago. Within the State Constitution, the State is banned from having more than $100,000 in bond debt. This alone is the major factor in stopping the State from being in financial woes.
Revenue bonds are allowed in which the sale of those bonds are backed by money collections that are guaranteed.
Nebraska Governor Pete Ricketts explained it in a simple way: "We act like adults...we pay for things when we have the money. We do not spend money we do not have."
For many years, Nebraska rejected Statehood knowing that the Federal Government would create more debt for the Midwest territory. Before adopting Statehood, Nebraska made sure all their T's were crossed and i's were dotted.
This is where I am going in relation to the island I now live on...Puerto Rico.
Puerto Rico needs to learn
I call upon representatives from Puerto Rico to travel to Nebraska and learn from the government there.
Knowing the people of Nebraska, the majority have a desire to help others. I believe they would be willing to mentor people who travel from this enchanted island.
Puerto Rico has a mass amount of natural resources. The fruit and vegetable production, along with coffee and sugar, if handled correctly, could bring the debt down substantially. The people just need to find the proper way to do it.
The debts need to be handled like Nebraska. No more borrowing from Peter to pay Paul. Politicians need to take cuts in their pay and stop trying to take it from the lower classes. The government made the debt, and now they want the people of Puerto Rico to pay their mistakes.
It can be fixed in different ways. The people are the ones who will make it work, but not if the government is taking what few items create comfort for the Puerto Rican people.
It really doesn't take a financial wizard to understand this process.
It takes responsible spending and a government who cares about the future of its people. Instead of worrying about what they can get in their pocket, care about what will be in Puerto Rico 5, 10 or 20 years from now.
Take a trip to Nebraska Governor Padilla and learn.
© 2015 Greg Boudonck
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