Is there negative rent in Puerto Rico?

Welcome to public housing in Puerto Rico, a realm of high intentions and low outcomes. The island has America’s second-largest public housing system, after New York’s. Roughly 125,000 people inhabit 54,000 apartments, paying rent according to a federal formula: Rent, plus utilities, must be no more than 30 percent of a household’s adjusted income.

Paychecks here are small, and the tenants’ rents are never enough to cover the system’s costs. So Washington subsidizes the rest, currently to the tune of $254 million a year.

It isn’t the housing that’s making Ms. Ramos want to leave. It’s the crime and a culture of cheating.

“Negative rent!” she exclaims. “It doesn’t exist in other parts of the world, but in Puerto Rico, sí!”

Public housing experts say “negative rent” is theoretically possible; Ms. Ramos says she sees it all around her. She pays to live in the projects, but other people have found ways to be paid.

That is from Mary Williams Walsh at the NYT.  And here is some more detail on negative rent:

Federal Housing and Urban Development records say that 36 percent of the families in Puerto Rico’s housing projects have incomes of zero. By law, tenants with no income must pay $25 a month. This turns into “negative rent” when their electric bills are factored in.

That’s because Washington gives public housing tenants a “utility allowance,” which is normally deducted from their rent. But if someone is paying just $25 a month, for example, and gets a utility allowance of $65 a month, they’ll end up with a “negative rent” of $40. It’s paid in cash.

Some people pocket the money and stiff the Electric Power Authority, a government monopoly with a bad track record for bill collections. The Power Authority is responsible for $9 billion of the government’s $72 billion debt. It could use the money.

Ms. Ramos suspects that if rates go up, Washington will send bigger utility allowances — and people living on “negative rent” will get more money.

Solve for the equilibrium, as they say…

Comments

Puerto Rico has its own Olympic team. Perhaps it should have its own country?

Here is a really brilliant idea.

Let's use immigration policy to turn the entire USA into a large Puerto Rico.

What could possibly go wrong?

Here's a really great idea: comment on the article in the comment section to that article. Keep your obsession with trains to yourself.

The federal government is providing 2,000 dollars a year so that 125,000 people can have housing? How can we ever afford F-35s if we allow such wastrels to have a roof over their head?

'Solve for the equilibrium, as they say…'

Or try this - 65 dollars a month for 12 months equals 780 dollars a year, and all you have to do get this princely sum is to live in public housing. That probably pays for a nice Cadillac for each member of the household, at least in a country that officially worships Reagan - https://en.wikipedia.org/wiki/Welfare_queen

Well, another cynical comment might be with inflation being negative, negative rent might be a plus if greater than the negative inflation rate.

But more seriously, a lot of places that have great weather like Puerto Rico are "tropical paradise jails", meaning they're great to visit but hell to live in. Lots of such places exist in Greece (Greek islands with no water) and the Philippines, as well as areas like the Polynesian islands. Or for your Washingtonians, maybe the Atlantic ocean beach towns during the off-season (though I'm sure Virginia Beach, VA is OK off-season and Ocean City MD probably too).

I've been to Ocean City, and I was impressed with how filthy the sand at the beach was. I wondered how much of that was sewage. All of the beaches I've visited in California were very clean, like a beach should be.

The federal government is providing 2,000 dollars a year so that 125,000 people can have housing?

No, so 125,000 people rent from the municipal housing authority rather than a private landlord.

Public housing is a fine example of the mess which can ensue when the state won't stay in its lane.

ZIRP. Solve for the equilibrium.

Gee, giving away lots of "free" stuff contributes to a culture of cheating and dependence. Only leftists would have failed to foresee it or make ridiculous comparisons to excuse it.

I think the main point of disagreement is about who is most heavily involved in the cheating and dependence.

For example, you have dependent companies which cheat, all of which run and owned by extraordinarily wealthy people, but who, in their hundreds and thousands, require greater collective handouts than those who, in the million and tens of millions, are ... getting a "free ride in a slum".

So, while we're complaining about who's dumb about "free stuff", let's actually count who's getting how much free stuff. And we haven't even started to factor in all the "free stuff" that comes in the form of government protected monopolies (licensing, patents, etc.), whereas, last I checked, the government has not exactly been going to bat for the meat packers or teamsters recently.

Tell me when I start getting a benefit from having a small tropical island on the dole, like I do from patents existing.

Like the patent where RIM had to pay hundreds of millions of dollars to a USA patent troll on the basis of a patent that said "uh ... some text goes from one device to another", a the same point in time that nearly every smart phone on the market offered precisely such an SMS service?

It is reality that, in many countries, those who are already ahead manipulate the system to entrench their advantage, screw the rest. It is much better in America than in some other places, but not to say it is all peachy.

One down, a couple of million to go. Do you really think that all patents have negative value in the same way having PR as part of the US does?

How do you benefit from agricultural subsidies? And if you don't like Puerto Rico, Go Home! Puerto Rico Sí, Yanquis No!

Hey, you want it, I'm perfectly happy for Brazil to have its own colony in the Carribean

Brazil is the successor state -- the most important one at least-- of the union of the Portuguese and Spanish Empires from 1580 to 1640, therefore stands to resont hat the so-called Puerto Rico is a legitimate part of Brazil.

The only thing that bothers me about the "free stuff" crowd is that it's 100% on the U.S. we invaded the place, we've wanted to keep the island, so the mess is ours. Next we'll be complaining about all the "free stuff" we give to Native Americans or the "free rent" we pay to Cuba to use Guantanamo or all that "free money" we sent to Mexico to pay for the land in the Southwest that we didn't just take in a war.
The issue is we want the island to live up to the standards of the rest of the U.S., but they have the same resources and connections as the rest of the Carribean. If Puerto Rico had their own country with their own currency, the end result would be either foreign aid, or huge remittances which basically amount to the U.S. propping up their economy indirectly.

You mean it's 100% on some dudes 100 years ago who are all dead?

Over 50% of the population lives on the mainland now, so... yeah

The American system is broken beyond repair.

Blow it up. Vote for Trump, don't be a chump.

Trump for president of Brazil? I can get behind that.

Never!

He'll make your crappy soccer team Great Again. Iraq? RSA?

Evidently mistakes have been commited in the last few years (I had never heard of this coach and most of his choices of players before), and the IOC blatant anti-Brazilian bias doesn't help either, but it hardly matters for Brazilians thrive and show their real selves in adversity. When twelve Brazilian soldiers were sieged by hundreds, hundreds and hundreds of Paraguayan invaders, they were told to surrender, but they declared they would rather die than surrender their glorious flag, and their names became legend. As our forefathers fought the savage Paraguayan aggressor, we will fight the savage Dane and conquest the gold medal. The USA sent their president, a Nobel Prize winner, to take the Olympic Games from us (Chicago? Surely, you're joking, Mr. Feynman!), but we showed the world that Yes, We Can! Now, against all odds, we achive victory, victory at all costs, victory in spite of all terror, victory however long and hard the road may be; for without victory, there is no survival. The American people in their righteous might will win through to absolute victory.

http://americanpowerblog.blogspot.com/2016/08/how-brazils-lula-conned-world.html

Most of those problems have already been fixed. The fire in the Olympic Village was promptly extinguished with no loss of human lives whatsoever. Stricter building regulations have been introduced since fatal accidents happpened earlier this year and no loss of human life has come to pass since the beginning of the Games. The visiting athetes have been installed in the most modern and confortable rooms money can buy. Brazil has crushed the terrorist groups that planned to attack the Olympic Games. Non-stop foot patrols are in action, the tanks are ready to roll should the need arise, systematic and stringent vigilance has been instituted at airports, stadiums and key public places (compare it with America's inability or unwillingness to protect its own citizens from mere marathons to gay night clubs). All in all, the Rio-2016 Olympic Games have been an unmitigated success that will serve as an example of what can be achieved when a people dares to dare being great.
It is sad that Americans can't be gracious in defeat and deal with the simple fact at hand: Rio crushed their precious little Chicago. And concerning the WSJ, its record dealing with Latin America is exccedingly poor, to say the least. They were gung-ho about Menem and Salinas and helped those two conmen to swindle their own peoples. WSJ supported the 90's reforms in Brazil, and after them Brazil was poorer than it was before (although lots of rich Americans made big bucks with our disgrace, so I guess there's it in the WSJ's defense). No wonder they need to pretend bureaucracy, incompetence and corruption only made their appearance in Brazil after their puppets were kicked out of power. I never voted from Mr. Lula or Mrs. Rousseff, I've always voted for third party candidates, but, if worse comes to worst, I would rather have them in charge than the kind of kleptocrat the WSJ gladly supports ("and human beings are an afterthought" is the best possible description of the kind of regime has supported for Brazil and Latin America at large in the last 30 years).
Evidently mistakes have been made and Brazil is a work in progress, but we will deal with that mistakes the same way our forefathers dealt with the Paraguayan aggressor, with the utmost resolution and relentless bravery. We know that we are Brazilians and in our righteous might we will win through to absolute victory. It is not a matter of "if", it is a matter of "when", and the answer is "sooner than anyone thinks". Make no mistake, our country is marching on.

The tanks are rolling, and now there is no stopping us.
http://olimpiadas.uol.com.br/noticias/redacao/2016/08/05/blindados-do-exercito-escoltam-acesso-de-chefes-de-estado-ao-maracana.htm

To solve for equilibrium, we need the axiom that people respond to incentives, so if we punish people for working via high local taxes, and if we pay people not to work via federal subsidies, many people won't work ...

You forgot to count for the people who CAN work because they could afford sufficiently decent clothes to show to a job interview, maybe pay for the bus to get to the job interview and all that stuff.

Incentives matter. Some people need a hand. I don't know why those cannot be wrapped up together as obviously true, but there is a special breed of human who cannot internalize both of these concepts at the same time.

Hey, the center is a pretty well settled position in the political spectrum for a reason - it just doesn't make quite as much noise. It's hard to write lots of really awesome blog posts/comments when your message is: 'we need to find the right balance'. Much easier just to write polemics that assume only of the two principles you mention holds true.

Okay, but everyone is given enough money to pay for those things. Have you ever seen a poor person who could not afford decent clothes (other than hobos who choose to live on the street)?

A lot of those zero-income tenants are working in the black market - there's no way they're making ends meet on $40/mo alone.

The Free Stuff Army marches on and will crush the equilibrium.

Solve for the only way to be sure, as Ellen Ripley would say.

There is no Free Stuff Army. There's a conspiracy of politicians and social workers.

Those social workers are so damn powerful! It must be why their median compensation is so high.

They're an attentive public, as are the twits in the educational apparat. If you want to know why we cannot have nice things, it's because the people in those apparat have passions and interests, which are dead set against the nice things.

The whole of the US will be like Puerto Rico soon

This isn't a Puerto Rico exclusive thing. I used to work in public housing in Philadelphia, and I'd say about 25% of my residents got a utility check every month.

when a multinational hides billions from the taxman, it's clever accounting. when a spic rips off uncle sugar for $25, it's time to clutch those pearls!

So you think that the government taking money from someone is the same as the government giving someone taxpayer dollars?

Yes. You benefit from roads, police, judicial system, national defense, patent system etc. Not paying your fair share for them is taking a handout, just like receiving money to compensate for your utility bill is.

"Fair share?"

What is that and who decides?

That obviously varies by person and there is no right answer. You can quible that the rich are overtaxed, im just saying not paying your fair share is equivalent to getting a handout

"What is that and who decides?"

It's a Representative Democracy, so the people do. And obviously the corporations are paying their fair share, because other wise it would be illegal. This is really just an attempt at a Tu Queue fallacy.

@jwatts,

the people don't decide in a representative democracy, legal does not equal fair, i think you mean "Tu Quouo", and you'll have to do a better job at explaining how that's applicable here.

darn it, i misspelled my misspelling correction. It should be "Tu quoque"

"Tu quoque ... and you’ll have to do a better job at explaining how that’s applicable here."

ibaien is attempting to discredit the core of the argument by pointing to an unrelated position and claiming some form of hypocrisy as if the two positions are related. There is no logical direct connection between multinational taxes and the subsidies to Puerto Rican public housing. It's merely an attempt to distract from the argument instead of making a substantial rebuttal.

If all the money from taxes were spent on such projects, you would have a point. But most of the tax money plus government debt is actually spent on redistributive programs.

Then there is the question of "fair" share. It seems to me that everybody benefits equally from, say, National Defense. So everybody should be paying the same price for it. That would be "fair". Maybe I could be convinced that people should pay a percentage of their income. Maybe. But that percentage should be the same for everybody. That would be fair. Obviously you don't agree. That's because what you see as self-evidently fair doesn't seem fair to me.

Also, when a "mutinational" is taxed, it is ultimately the shareholders, employees, and customers (depending on elasticities of supply/demand) who pay the taxes. Shareholders are already taxed when they get the money out, they are already paying for roads, police, judicial system, etc., all the good things that pretty much everybody agrees paying for.

Definitely agree "fair" is subjective. But I very much disagree that everyone benefits the same from government spending, even sans direct redistribution. If you've got billions of dollars in wealth being protected by the national defense, the patent office, and the judicial system you benefit much more then someone with no wealth at all (you could argue some government expenditures such as rent seeking monopolistic rights--things lobbied for--actually hurt the poor at the expense of the rich).

Kevin, the patent office is totally funded by the fees paid into it by patent applicants, so they clearly have paid their fair share. And if you want the judicial system (civil part at least) to be completely funded by fees I'd be all for it. Same for roads and police. Voila, everyone pays their fair share.

@poorlando, ok, patent policing then rather then actually giving out patents, and i don't understand the rest of your point. It doesnt matter if you think there's an alternate more fair system, the system is what it is, which is what we are currently discussing

Then there's the cold blooded way to look at it. For $2k per, the Feds house 125k peeps in Puerto Rico. These same US citizens would cost 10x that much to house in the US.

its almost as if the two places have different cost of livings and real estate costs. learn economics and lurk more.

I think his point is that by paying them $2K a piece we keep a lot of the less industrious Puerto Ricans on the island versus coming to the mainland. It's a policy that both Hillary Clinton and Donald Trump can both get behind.

Why, you don't think she'd prefer them to cross over and, say, turn Florida blue?

Maybe, however I strongly doubt she'd publicly get behind cutting their subsidies to encourage it.

Well, we failed since 4 million Puerto Ricans moved to the U.S.

We haven't failed. As citizens, all Puerto Ricans can move wherever they like.

Unsolicited suggestion

1. Limit aid to Puerto Rico and its municipalities to federal disaster relief, payments-in-lieu of taxes on federal property, small rental payments contractually agreed to, small indemnities (awarded by hearing examiners) when regulatory decisions demand capital expenditures, and an unrestricted grant to the territorial government computed by a formula which includes local product per capita, local population, and local (private sector) compensation per worker as arguments. They can supplement this grant with their local tax collections and allocate funds however they care to. Limit federal welfare programs available in Puerto Rico and other dependencies to Social Security, Medicare, student aid, travel vouchers for medical care.

2. Incorporate into federal bankruptcy law provisions which would allow territories to seek protection on a par with municipal governments.

3. Eschew any subsidies or tax preferences which promote municipal borrowing.

4. Incorporate into the enabling legislation of the territorial government provisions which replicate those in state constitutions which place constraints on public sector borrowing and require referenda for long-term bond issues.

5. Have a special subdivision of the Comptroller-General's office undertake financial, performance, and engineering audits of the territorial governments, Puerto Rico especially. Make provisions for particular agencies to be put under federal trusteeship.

6. Scrap the labor laws and shipping laws so injurious to Puerto Rico's economy.

7. As for what's done by the Puerto Rico government:

(a) Why not replace all local welfare programs and services? Have vouchers, insurance, and allowances to pay for medical care, long-term care, and schooling. Replace the school system with voucher-funded private schools w/ regents' examinations for quality control. Have a public defender's office and legal aid society. Have something akin to a negative income tax. Eschew anything else.

(b) Do something about the crime. The homicide rate is 5x the national mean.

Make them a state and sic the IRS on them, then watch that black market economy disintegrate.

Puerto Rico would get away with a lot less if it was a state, and the Navy would still have Vieques. West Virginia, New Mexico, etc... Can't aford the sort of crap boriquenos take for granted.

While we're making unsolicited suggestions, mine is give them their independence.

Yes, but ONLY if they give up their American citizenship.

No one is going to go for these ideas because of the effects they will have on mainland tax law, which is much more complicated and costly than you would expect. #1 Kind of makes sense as far as cutting off the money goes, but would be an eyesore for a large number of legislators with PR residents in their district.
#2 will raise the borrowing costs by an insane amount by itself, which will push the government directly into insolvancy (where it might go anyways) while also increasing the costs for every other territory most of which are actually managed well enough.
#3 would completely kill the borrowing market for hundreds of cities in the U.S. and also tick off alot of rich taxpayers which benefit from these bonds. Never going to happen.
#4 is again going to cause headaches for the remaining territories and likely won't affect PR. Also, there's no reason why the governments couldn't do it for themselves if it was actually beneficial. So it amounts to more overreach by Washington for no benefit.
#5 Hey, no problem there, more oversight is better than nothing. May not actually solve anything, but at least we'll no what the problem is.
#6 The shipping laws are some of the issue, but the labor laws are the same as elsewhere in the U.S. is it wise to just create one section where it's the wild west again?
#7 Vouchers only work when the private sector wants to take over. There's not alot of evidence of that happening. And the best case is still slightly worse service for a slightly lower price.
#7 (b) Great, I'm sure the legislature can just wave their magic anti-crime wand and make it go away.

Only the remarks that implicate tax law at all concern removing tax preferences for municipal interest have anything to do with tax law.

#2 >will raise the borrowing costs by an insane amount by itsel

Somehow, local governments manage to sell municipal bonds with non-usurious coupons. Don't know where you been.

don't a lot of economists on this blog advocate for cash payments to the poor? Just sayin!

Yeah...and it's precisely because a simple cash payment doesn't have the administrative overhead and disastrous incentives of traditional welfare programs, as typified by this article.

The Puerto Rico Electric Power Authority is a Government-owned corporation, created by an Act of Congress. As of 2013, electricity rates were $0.23 - $0.28 per kilowatt-hour, around 2.5X the mainland average. The agency covers cash deficits through borrowing. The for those familiar with utility finances, its financial and operating information make particularly interesting reading.

The woman is teaching in a private high school school and earning a salary so low that she qualifies for food stamps and subsidized rent, and the story isn't about how private education doesn't adequately compensate it's labor inputs, it's a story about the absurdity of negative rent which would be 40 bucks a month if people lived in the dark. Cool.

I'm not interested in making the argument that public housing is good. I am interested in making the argument that "if only the free market was there" hand ringing is not supported by the evidence in the article. You would never create an article where a single working person complained they can't afford rent for their family because land owners are charging more than she can possibly afford, but you're all too happy to cluck your tongues and say I told you so when an individual who would have trouble caring for her family despite doing useful work complains that some of her neighbors are lazy.

Good post. Although it's also possible that the apartment owners are also in on the scam.

the story isn’t about how private education doesn’t adequately compensate it’s labor inputs

Why, what is she worth, and how do you know it?

If you want to end poverty and if you actually want to help people who typically end up in poverty then end welfare. Simple as that. Most drug and alcohol use by the poor is funded by welfare. Most of the crime committed is committed because of the drugs and alcohol and the absolute boredom of having nothing at all to do with someone else supporting you. Replace welfare with workfare. A simple program where anyone can show up at a workfare office and be employed for a day, a week, a month, a year etc. at minimum wage with normal tax and SS withholdings. If on the other hand you want to destroy lives and increase the numbers of lazy rentseeking bums pushing out children that become thugs then keep giving them free stuff.

Most drug and alcohol use by the poor is funded by welfare. Most of the crime committed is committed because of the drugs and alcohol and the absolute boredom of having nothing at all to do with someone else supporting you. Replace welfare with workfare

Last I checked, there were about 4 million people on the TANF rolls, as against about 90 million people who are fairly impecunious absent transfer payments or subsidies. Employment to population ratios have varied between 0.57 and 0.64 for the entire post-war period, in spite of the big run up in welfare dependency after 1958 (partially reversed after 1996).

"If you want to end poverty and if you actually want to help people who typically end up in poverty then end welfare. Simple as that."

Evidently there was no poverty in the old times.

Yes, but poor people in the olden days had a sense of shame and the cops didn't mind being rough with them. That kept them in line.

Indeed there was poverty before welfare. It was quite uncomfortable without the thousands in cash, food and housing that is now provided by the tax payers. So as a result most people choose to work and become self-sufficient rather than wallow in poverty. Some did not. Ask yourself a simple question; if you have children would you choose to treat then the way the government treats welfare recipients? That is would you provide for their every need and discourage them from working while encouraging them to have children they could neither afford nor care for? Would you discourage them from ever getting married or trying to become self sufficient? We have 50 million people on welfare and probably 95% of them are physically and mentally able to work but choose not to because they prefer welfare. That is the predictable and expected result of a welfare system.

This has to be one of the stupidest things I've read on this blog. These programs were created by people who actually lived through the Great Depression and knew what real poverty was like. And considering how the country managed to avoid the same strife and misery during the Great Recession, I'd say they are doing exactly their job. And if you'll look at the actual numbers, the vast majority of people who use these programs leave within 2 years and get back on their feet. You're basically slapping people when their down just to try and support some kind of pointless ideology that doesn't even have any facts backing it up. And there's nothing "conservative" about that.
And if you want to know why so many people are on drugs and alcohol, maybe you should look at the crappy healthcare options and especially terrible support for mental health issues before you blame "boredom".

AFDC (now TANF) was a little-noticed appendix to the Social Security act. It was expected to be a small widows pension. It remained fairly inconsequential for another 20-odd years.

"a realm of high intentions and low outcomes": unless you have an intentionometer, you can't know that.

It is time now:

It is GOVERNMENT Housing
GOVERNMENT schools
GOVERNMENT healthcare

"Public" has little, or nothing to do with it.
Let's call it what it is.

That is unfairly pejorative!

If the the US government can't get Puerto Rico right after 100+ years, anyone who things Washington can get anything done right either at home or abroad is a fool.

Instead of thinking of Puerto Rico as a poor part of the United States, maybe we should think about it as a rich part of the Caribbean?

PR is second only to the Bahamas in GDP per capita.

Worth remembering. I wonder how much PR over performs if you remove subsidies from the mainland - still better than the Caribbean average or not?

That's going to be tough to estimate.

The island receives around $20B/year in federal subsidies. That's around 20% of GDP.

I suspect the accounting which gave you that $20 bn number is pretty dubious.

Maybe a UBI or an hourly wage subsidy with strong enforcement instead of public housing would make them honest.

To me it would seem a fairly simple solution, just have the government pay the utility directly & then figure out how much (or whether) to charge the tenant from there.

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