The governor who cut government: Puerto Rico's Luis Fortuno on the economic benefits of slashing the state.

• Author: Welch, Matt
• Position: Interview

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LUIS FORTUNO is the country's most accomplished governor when it comes to reducing the size of government, having slashed spending by 20 percent in his two-plus years as Puerto Rico's chief executive. A native of San Juan, Fortuno is a corporate lawyer who has moved in and out of politics during the last two decades, taking posts in the mid-1990s as head of the Puerto Rico Tourism Company, the island's Hotel Development Corporation, and then the Department of Economic Development and Commerce. Long active in both the Republican Party nationally and the New Progressive Party (NPP) of Puerto Rico locally, Fortuno narrowly won the office of resident commissioner for Puerto Rico in 2004, making him the unincorporated territory's official nonvoting member of the U.S. House of Representatives. In November 2008, with Puerto Rico deep in the throes of a fiscal and economic crisis, Fortuno and the NPP were swept into power by historic majorities.

Can a pro-statehood, pro-immigration Republican who believes in contracting out infrastructure and rethinking the drug war somehow influence the mainland GOP in 2011? At a time when the fiscal day of reckoning is dawning from California to Wisconsin to New Jersey, Fortuno has a compelling story to tell: The economy can improve when you reduce the size of government.

Editor in Chief Matt Welch spoke with Fortuno in February, when the governor was visiting Washington, D.C., to attend the Conservative Political Action Conference (CPAC). For the video version of the interview, go to reason.tv/video/show/puerto-rico-governorluis-for.

reason: What did you run on back in 2008, and what did you discover once you checked under the hood of the state?

Luis Fortuno: We knew we were going to be facing a serious fiscal situation, but it was three times as bad as we thought it would be. I had said that we needed to shrink the size of government, and that I wanted to actually put back in the people's hands the money that they had earned working every day, and that was my pledge.

However, when I came into office, we didn't have money to meet our first payroll; we had to take out a loan. It was really bad. So our cuts are deeper than in any other part of the country because of this dire situation that we face. Actually, the rating agencies were about to throw us into junk status, and we had to buy time to avoid that happening.

In the first two years, we have been successful in slashing the size of government by 20 percent. And because of that, we have commenced lowering taxes across the board.

reason: You had to go to New York to talk to the rating agency heads. How did that meeting go?

Fortuno: Even before being sworn in, I knew that they had been lowering our rating year after year and we were at the brink of being thrown into junk status. So in December '08, I flew up to New York, met with rating agencies, acknowledged that we had a problem. I thought it was bad, but it was much worse. But at least we told them that we had a plan. We bought six months, and we immediately started working on that plan and delivering on that plan. And that's why our rating has come up.

reason: Let's get to the size of the problem. What was the budget deficit, what was the state of the economy, and how has that changed in two years?

Fortuno: Our recession commenced two full years before it started in the rest of the country. So the economy really was at a standstill at best. Secondly, our state budget deficit was the largest, proportionally speaking, in the country.

reason: Actually worse than California? Illinois?

Fortuno: Much worse proportionally. Forty-four percent of revenues was deficit. So we didn't have a choice. It's not like we wanted to do it this way or that way, or we knew it was going to be 20 percent--we just did what was right.

reason: And unemployment at the time was more or less--

Fortuno: Close to 17 percent.

reason: Concretely, what were the first steps that you took to cut the size of government?

Fortuno: Well the first step was to cut my...