Puerto Rico’s $300-an-Hour Demographer Catches Heat From Bondholders
Some of the most contentious numbers in Puerto Rico’s bankruptcy are population projections: How many taxpayers will be living on the island 10, 20, or 50 years from now? Any attempt to gauge the commonwealth’s fiscal prospects—and hence its ability to pay bondholders—depends in great measure on the reliability of those figures. Yet the consultant hired to calculate them has no demography degree, speaks little Spanish, and lives in Hong Kong.
Lyman Stone, 27, whose last full-time job was as an economist at the U.S. Agriculture Department, has interests that range from fertility in the Northern Mariana Islands to gentrification in Cincinnati. These are among the topics he’s addressed in a self-published blog titled “In a State of Migration.” Last year, the federal panel tasked with turning around the island’s finances took a chance on the outsider, who had been disseminating—for free—the internet’s best-read Puerto Rico population projections.
Stone bills $300 an hour to forecast one of the hardest-to-estimate variables in the $74 billion restructuring—one with implications for tax collections and ultimately the value of Puerto Rico’s debt. Some bondholders say he lacks the right qualifications and that his projections are too dire and will cost them money. Others say he’s a savant who has mastered the statistical study of populations in his spare time.
“If they can’t find an actual error in the work, then I’m not sure what the criticism is,” says Stone, who quit his U.S. government job in June and moved to China to do missionary work for the Lutheran Church. “My professional motto is Molon labe, a classical expression of defiance attributed to King Leonidas of Sparta that means ‘Come and take it.’ ” (Stone’s father is an Old Testament and ancient languages scholar.)
Natalie Jaresko, the executive director of the Financial Oversight & Management Board for Puerto Rico, says the panel is pleased with Stone’s work. “We listened to a wide variety of voices, including academic voices,” she says. “We liked the way he was measuring, what he used in terms of his analysis, the data he was willing to look at and collect.”
Puerto Rico’s population had been shrinking for years, a side effect of the economy’s long and painful decline, and Hurricane Maria accelerated the trend. Stone estimates that the number of residents fell by about 5.1 percent, to 3.17 million, in the fiscal year that ended in June, and projects it will dwindle to about 2 million by 2050.
With fewer people, Puerto Rico has diminished ability to reap tax revenue and fund debt payments. The island and its creditors reached an initial agreement on a deal involving securities known as Cofinas, which would have some bondholders taking haircuts amounting to close to half their investments. But billions more remain to be negotiated. Investors prefer a generous population estimate that could boost bond values in a settlement. By the same logic, the island’s elected government would want to tamp down expectations. The board is on the commonwealth’s payroll but operates autonomously, and its projections and policy prescriptions have managed at various times to irk Governor Ricardo Rosselló and bondholders alike.
Charles Doraine, president and chief executive officer of Doraine Wealth Management Group in Corpus Christi, Texas, believes the board is trying to paint the situation worse than it is. “Anyone who wants to make it look as bad as possible is who they’re going to hire,” says Doraine, whose firm oversees investments in sales tax-backed Puerto Rico securities. “The worse it looks, the better it is for Puerto Rico’s perspective.”
Robin Deshayes, a bondholder with Santa Barbara, Calif.-based Miltonian Capital Management, questions Stone’s credentials. “I don’t think that Mr. Stone’s background as an agricultural economist (specializing in cotton) for the USDA qualifies him as a demographics expert for Puerto Rico,” she wrote in an email.
Stone says he took classes on migration while earning his master’s in international trade and investment policy at George Washington University. He also taught himself how to mine mobile-phone location, Google search, and school enrollment data, among other things, for information on population flows.
The self-described conservative tweets prolifically. He’s used the platform to spar with opinion journalists and argue that abortion opponents who can’t stomach Trump should abstain from voting. He also writes for Vox and the Federalist, a conservative news site where he has weighed in on birthright citizenship, which he supports, and Iowa Representative Steve King, a Republican whom he says is a bad public servant but not a Nazi. (Bloomberg News has consulted Stone on Puerto Rico, Venezuela, and state-to-state migration.)
While there’s little data with which to judge the accuracy of his long-term Puerto Rico projections, Stone’s time as the board’s demographer coincided with a data input error in June that produced an overly negative estimate, as Stone and the board have acknowledged. The error drove up the 30-year projected surplus by $4 billion.
Pennsylvania State University assistant professor Alexis Santos—who has a Ph.D. in applied demography and conducts Puerto Rico research—says post-Maria population projections are fraught with peril. The event was unique, and it’s still difficult to make out the extent of effects on migration and fertility patterns.
Stone knew little about Puerto Rico in January 2016, when a Twitter follower requested he try his hand at the subject. “I was shocked by the response,” he says. “I got much more traffic than I was used to getting on my humble little blog.”
By the time Hurricane Maria swept through the island, Puerto Rico had become a recurrent theme on his blog, and Stone got a surprise invitation to the island to make a presentation at one of the fiscal control board’s “listening sessions,” which convened experts in various disciplines to discuss key issues. The Kentucky native dominated discussion at the Nov. 16, 2017, event, a video of which is available on YouTube. “I’m looking forward to reading your blog after I leave here,” said fellow panelist Mario Marazzi, the then-head of the Puerto Rico Statistics Institute. The next month, Stone signed a contract to work for the board.
Stone, who also has an affiliation with Demographic Intelligence, a Charlottesville, Va.-based consulting firm that counts JPMorgan Chase, Pfizer, and Procter & Gamble among its clients, says he’s happy to engage with critics. In August, he hosted a videoconference call in which he presented his methodology and took questions from dozens of journalists, investors, lawyers, and academics.
Two listeners questioned why gross national product data was being fed into computer models to generate population projections, rather than the other way around. Shouldn’t the economy rise and fall with the number of people making and consuming goods? At first, Stone said there were no conclusive studies on the matter that would force him to account for such a feedback mechanism. Pressed on the matter, he changed tack.
“I always appreciate more people doing good forecasting work,” Stone said. “The more the merrier is my attitude. I’d in fact rather not have a monopoly on forecasting Puerto Rico.” —With Michelle Kaske and Danielle Moran