Puerto Rico Provides a Lesson Regarding Free Stuff

Bernie Sanders says he will give us all sorts of stuff for free. But that will not make anyone happy, as Puerto Ricans are beginning to understand. The Puerto Rico Electric Power Authority has been giving out power for free. The results have been catastrophic:

[The city of] Aguadilla has 19 city-owned restaurants and a city-owned hotel, a water park billed as biggest in the Caribbean, a minor-league baseball stadium bathed in floodlights and a waterfront studded with dancing fountains and glimmering streetlights.

Most striking is the ice-skating rink. Unusual in a region where the temperature rarely drops below 70 degrees, the rink is complete with a disco ball and laser lights.

Signs warn skaters not to wear shorts.

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“Imagine how much it costs to have an ice-skating rink in the tropics,” said Sergio Marxuach, policy director at the Center for a New Economy, a nonpartisan research group in San Juan.

And that is the catch. What most likely would be the biggest recurring expense for these attractions — electricity — costs Aguadilla nothing. It has been provided free for years by the power authority, known as Prepa.

In fact, the power authority has been giving free power to all 78 of Puerto Rico’s municipalities, to many of its government-owned enterprises, even to some for-profit businesses — although not to its citizens. It has done so for decades, even as it has sunk deeper and deeper in debt, borrowing billions just to stay afloat.

Now, however, the island’s government is running out of cash, facing a total debt of $72 billion and already defaulting on some bonds — and an effort is underway to limit the free electricity, which is estimated to cost the power authority hundreds of millions of dollars.

But like many financial arrangements on the island, the free electricity is so tightly woven into the fabric of society that unwinding it would have vast ramifications and, some say, only worsen the plight of the people who live here.

If only they had not become reliant on the free electricity. Being $9 billion in debt, Prepa won’t be able to provide it indefinitely.

Like Social Security, this unsustainable mess dates from FDR’s administration:

The free power dates from 1941, when the utility was established by Rexford Tugwell, a member of Franklin D. Roosevelt’s brain trust and the last American governor of Puerto Rico to be appointed by the president of the United States. He contended that for electricity to benefit the people, it had to be owned by the people, and he created Prepa by nationalizing the handful of private electric companies then on the island.

The private companies had paid local property taxes, but publicly owned Prepa did not. Free electricity was intended to make up for the lost tax revenue.

City governments were supposed to pay Prepa for energy use that exceeded lost tax revenue, but that has proved to be unworkable.

If the power authority were to demand immediate payment from them, it could set off a domino effect of defaults and insolvencies.

So the power remains free, and continues to be wasted on frivolous projects like tropical skating rinks — until Prepa goes bankrupt and there is no more power. The Puerto Rican government is too deep in hock to be much help.

Already Prepa once threatened to cut off power to the main airport in San Juan. Despite or rather because of the power being free, “Nobody’s happy,” according to Eduardo Bhatia, president of the Puerto Rico Senate.

No worries; American taxpayers will surely bail out Puerto Ricans, who no doubt will do the same for us if Sanders gets elected. Just kidding.

On a tip from R F. Cross-posted at Moonbattery.

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