Wednesday, April 30, 2014

Boom time in Texas: Jobs, traffic, water worries

Americans have flocked to Texas in search of a piece of the state's booming economy as much of the rest of the country struggled.

Now, the state's largest cities are seeing crowded highways, strained water supplies and other pressures that have come with the growth. And Texas politicians—protective of the small-government, low-tax policies many of them believe are at the root of the state's success—are grappling with how to pay the price of prosperity.

Aided by the promise of plentiful employment and a low cost of living, Texas added 1.3 million people from 2010 to 2013, more than any other state, according to the U.S. Census Bureau. The Lone Star State's population has pushed past 26 million and is projected to reach 40 million by 2050.

Half of the 10 American cities with the largest population increases in the 12 months ended July 1, 2012, were in Texas, according to the Census Bureau. Houston, the nation's fourth-biggest city with about 2.2 million people, added 34,625 residents, second only to New York. Austin added 25,395 and now has some 843,000 residents, more than San Francisco.

The state's outsize growth is a matter of pride for Republican Gov. Rick Perry, who has touted the "Texas Miracle" as proof that its lower taxes and lighter regulations are effective job creators. 

Texans paid 7.5% of their income in state and local taxes in 2011, compared with 11.4% in California and 9.2% in Florida, according to the most recent data from the Tax Foundation, a research organization.

But the size and pace of the population spurt is becoming more difficult to manage, presenting public officials with a challenge: How to beef up public infrastructure without straying from their small-government philosophy.

"We are already straining our systems for water, power, schools and roads," says Texas State Demographer Lloyd Potter, appointed by Mr. Perry in 2010. "And they'll continue to be stressed unless we invest more heavily."

Mr. Perry believes that the state's low-tax, low-spending model is fundamentally sound. In a speech last month, he said: "No state can tax and spend its way to prosperity, but with the right policies you can grow your way there." In a recent prepared statement, he added that "we can make principled investments in our future without raising taxes."

His spokeswoman says the governor's approach "is not something we're walking away from anytime soon."

On the state level, Texas spends less per resident than all but three states: Florida, Georgia and Arizona, according to a Wall Street Journal analysis of the most recent state-government finance data from the U.S. Census Bureau. It ranked 45th in the nation in per-capita highway expenditures in 2012, spending about $260 per person, less than California's roughly $300 and well below the $493 spent by Oklahoma, according to the Journal analysis.

Texas lawmakers and citizens generally oppose raising taxes, but many say state or local governments have to find a way to fund additional investment in roads and other public infrastructure.

"We all want to go around and beat our chest that Texas is the best place to do business, but we need to pay for the infrastructure needs that go with growth," says Republican state Sen. Kevin Eltife of Tyler.

Many states were hit hard by the recession, but the Texas economy barely contracted. It shrunk by 0.5% in 2009, the state's economic trough, and expanded by 4.1% in 2010, according to data from the Bureau of Economic Analysis. From 2010 through 2012, it grew faster than that of any other state except for North Dakota, which is bustling thanks to an oil boom.

Texas, too, has benefited from a renaissance of oil-and-gas drilling tied to hydraulic fracturing. It also has added jobs in construction, technology, and health care, economists say.

The emerging growth strains haven't slowed Texas' economic momentum. The state added 310,000 jobs in the 12 months ending in March and boasts an unemployment rate of 5.5%, well below the national rate of 6.7%. Nor have they slowed the tide of out-of-staters moving in, especially from California. Roughly a quarter of the people who migrated to Texas from elsewhere in the country between 2006 and 2012 were leaving the Golden State, according to a report by the Federal Reserve Bank of Dallas.

Gov. Perry and others say the lack of an income tax and the state's light-handed approach to regulating businesses has helped it compete with other big states.

Toyota Motor Corp. said Monday it will open a new North American headquarters in Plano, a suburb of Dallas, creating about 4,000 jobs, many of them now based in California.

When Epicor Software Corp., a maker of business software, announced it was relocating its headquarters from Dublin, Calif. to Austin in February, company president Joe Cowan cited the city's growing tech focus and the state's "business-friendly climate."

The growing population is taxing the infrastructure. The Texas Department of Transportation estimates that it receives $5 billion less a year from the state than it needs to meet current demands for road construction and repairs. The state's 2012 water plan estimated regional and local entities would need $53 billion to meet additional water infrastructure needs by 2060. Roughly two-thirds of the state is currently in drought.

In a speech this month, Federal Reserve Bank of Dallas President Richard Fisher called water scarcity the state's biggest potential threat. He recommended that the state issue a 100-year bond to tackle its long-term water needs, telling an Austin audience, "You need to solve this problem now."

Mr. Perry and Republican Lt. Governor David Dewhurst backed two ballot measures to shift existing state funding to road and water projects. State voters last year approved the creation of a $2 billion water fund, and they will consider another measure in November that would authorize more than $1 billion annually in added transportation spending.

Texas officials have proposed belt-tightening measures to reduce spending in some areas to allow investment in others, though not all the ideas have proved popular.

Last year, the Department of Transportation unpaved some rural roads because it couldn't afford to repair pockmarks left by oilfield-related traffic. The agency planned to convert 83 miles of road to an unpaved surface but later halted the project after lawmakers in the Republican-led legislature complained.

HEB Grocery Co., which has more than 350 stores in Texas and Mexico and $20 billion in annual sales, has become so frustrated with traffic congestion in its home state that it recommends increasing state gasoline taxes to fund construction and maintenance, says Ken Allen, a consultant who advises the company on transportation issues.

"Higher tax rates would cost us millions of dollars a year, but the cost of congestion is a hidden tax," says Mr. Allen, formerly HEB's head of transportation logistics. "We are behind in Texas on infrastructure and are getting more behind every year."

Mr. Eltife, the Republican state senator, says he would favor a modest increase in gas taxes or temporarily raising the overall sales tax rate to fund transportation needs. He says the state increasingly is financing road projects by issuing debt, and that Texas is approaching a constitutional limit on the amount of debt it can issue. "I get bashed for wanting to raise taxes, but I'd rather tell the truth to taxpayers," he says.

The chairman of the Texas senate's transportation committee, Republican Robert Nichols, says most legislators oppose funding transportation by increasing taxes because of concern it could imperil job growth. Mr. Nichols, a former commissioner of the Texas Department of Transportation, says lawmakers have favored alternatives such as striking partnerships with private developers to build toll roads, which eases congestion in a way that is "off the books of the state."

One point of tension is how states and municipalities should divide the costs. The state traditionally has footed part of the bill for needs such as roads and water. Some of the state's large cities, which are feeling the biggest burdens of the growth boom and are racking up debt, are hungry for more state money.

The state's six biggest cities, including Austin and Houston, owed more than $39 billion in debt in 2012, an amount that had grown by 46% since 2003 to pay for roads, water systems, schools and other services, according to a report last year by the Texas Bond Review Board, a state agency that monitors debt financing.

"The state used to provide local communities with more revenue to invest in important infrastructure, whether it is water or transportation," says San Antonio Mayor Julián Castro, a Democrat. He says the city sold $30 million in bonds in 2012 to help fund construction of highway interchanges. In the past, he said, "the city had never put up local money for what should be a state project. We did that because the name of the game in Texas transportation is [for local communities] to 'show me the money' to the state."

A spokeswoman for the state's transportation department says that as costs rise and funding becomes scarce, "it's imperative communities come to the discussion with ideas on how to address growth."

San Antonio, the nation's seventh-largest city with nearly 1.4 million residents, draws a majority of its water from an underground aquifer that began the year at its lowest point since a record drought of the 1950s. It has raised municipal water rates 20% since 2011, and will increase them by another 20% in the next four years, partly to raise money for new water projects, including a $400 million desalination plant intended to treat brackish groundwater.

San Antonio's city-owned water agency is taking on added debt to help cover the costs of the plant, including a loan of about $109 million from the state. The city had about $9.8 billion in debt last year, up about 70% since 2004, according to data from the Texas Bond Review Board.

The desalination plant, expected to be the biggest such inland facility in the country when it is finished in the mid 2020s, will only supply 15% of the city's annual demand. Officials are already proposing an expansion.

The San Antonio Chamber of Commerce warned in February that the city won't be able to meet future demand for water and could face thousands of job losses and billions of dollars in lost sales in a drought scenario, unless it comes up with new water sources. City officials play down the concerns.

"The only inconvenience San Antonio residents or businesses will suffer in the future is a limit on water for lawns and landscaping," says Greg Flores III, a spokesman for the San Antonio Water System.

In the state capital, Austin, a college town and hipster enclave turned major metropolis and emerging technology hub, rapid growth has caused extreme traffic snafus on the city's two freeways, forcing officials to belatedly weigh adding mass transit.

Austin has the fourth-worst vehicle congestion in North America, according to Inrix Inc., a firm that collects and ranks data on automobile traffic.

Mayor Lee Leffingwell, a Democrat, says Texas has failed to adequately fund Austin's growing transportation needs, but so too has the city itself, noting that many Austinites remain unwilling to admit that their hometown is now a big city. "Our philosophy has been, if we don't build it, they won't come," he says.

That hasn't worked. The Austin metro area grows by roughly 100 new residents daily, on average, snarling roads and stoking anxiety that the city's vaunted laid-back way of life is eroding.

Over the past decade, the number of registered vehicles in Travis County, where Austin sits, has grown by 52% to more than one million. Meanwhile, the number of hours that peak-time travelers were delayed in traffic more than doubled between 1991 and 2011, according to the latest data from the Texas A&M Transportation Institute.

Michelle Dahlenburg, a 35-year-old Chicago transplant, moved to Austin in 2008 to get a graduate theater degree and stayed because of the city's vibrant arts community. But traffic and skyrocketing rents in her adopted hometown have her occasionally longing for home.

"I can't go anywhere in town without bumper-to-bumper traffic," says Ms. Dahlenburg.

The city has one rail line. Austin voters in November will consider a bond measure that would generate at least $200 million to expand the city's bus and rail networks, among other improvements. If approved, the measure would increase Austin's debt, which grew from $4.7 billion in 2008 to $5.6 billion in 2013, according to the Texas Bond Review Board.

"We are in an unenviable pinch point where our congestion is horrific, but it'll be 15 years, at a minimum, before we can provide high-volume alternatives," says Ryan Robinson, Austin's demographer.

Write to Nathan Koppel at nathan.koppel@wsj.com and Ana Campoy at ana.campoy@wsj.com
As economy prospers, state copes with crowded highways, strained water supplies

By Nathan Koppel and Ana Campoy

Boom time in Texas: Jobs, traffic, water worries

Puerto Rico unveils 1st balanced budget in years

SAN JUAN, Puerto Rico (AP) — Puerto Rico's governor on Tuesday presented the territory's first balanced budget in more than a decade, fulfilling a promise to cut spending at a time when the island's economic problems have spread fear among U.S. investors.

Gov. Alejandro Garcia Padilla proposed more than $1.4 billion in cuts and adjustments by consolidating 25 government agencies and imposing an average 8 percent spending cut for most agencies, among other things. He also pledged $775 million to pay off debt — $525 million more than in last year's budget.

The $9.64 billion budget aims to strengthen and revive the economy as the U.S. territory enters its eighth year in recession and struggles to reduce some $73 billion in public debt.

The budget does not call for layoffs or new taxes.

"We are finally paying off the debts of the past," Garcia said during a televised address to a joint legislative session. "Our island needs radical changes. For too long, previous proposals have only been cosmetic or sought a collective applause."

The governor is scheduled to formally submit the budget Wednesday, and legislators will debate it in upcoming weeks, with approval needed before June 30. Last year's budget stood at $9.77 billion.

U.S. investors and bondholders were awaiting details of the budget and are expected to monitor its impact on the economy after Puerto Rico sold a record $3.5 billion in general obligation bonds last month in part to generate more liquidity and refinance debt.

David Tawil, co-founder and portfolio manager of New York-based Maglan Capital, praised Garcia's push for a balanced budget, although he said reservations remain.

"It's an important achievement beyond the financial soundness," Tawil said. "It is all critical and goes a long way but may not necessarily be sufficient."

Opposition legislator Lourdes Ramos criticized Garcia for not acknowledging the island's contracting economy, the lack of jobs and dwindling funds. "It was disappointing," she said of his speech.

Hundreds of unionized workers gathered outside the seaside Capitol to protest the cuts.

Puerto Rico economist Gustavo Velez said the last balanced budget for the U.S. territory's government was in 1999, with governors borrowing over the past 14 years to finance deficits while violating the island's constitution requirement for balanced budgets. He said the government borrowed an estimated $29 billion from 2004 to 2013, adding that the money wasn't put into public works but rather was just used to let the island live beyond its means.

"That should never have occurred," he said, adding he feels Garcia had no other option but to balance the budget. "This is happening because of the current fiscal reality. They cannot go to the market to borrow more money. ... They have no choice but to face reality, to operate with the resources they have."

Garcia, a lawyer who became governor in January 2013, inherited a more than $2.2 billion deficit and the highest unemployment rate compared with any U.S. state, among other economic problems.

He has sought to diversify the economy and strengthen its industrial base, attracting international companies with tax incentives while also courting wealthy investors such as New York hedge fund executive John Paulson.

Earlier this month, German company Lufthansa Technik announced it would invest $20 million on a facility for aviation maintenance, repair and overhaul, while Arizona-based Honeywell Aerospace said it would spend $24 million to expand its business on the island.

Garcia also has made changes to two major public pension systems, noting they would run out of money soon if nothing was done. He also previously implemented new taxes and various measures to help generate some $1.5 billion in new revenue.

The island of 3.67 million people is struggling economically. More than 450,000 people have left in the past decade, and just 41 percent of working-age Puerto Ricans are in the labor force, compared to 63 percent in the U.S.

Puerto Rico unveils 1st balanced budget in years

Tuesday, April 29, 2014

Ailing Puerto Rican Economy Shows Slight Improvement in March

Puerto Rico’s economy shrank 0.8 percent in March relative to the same month of last year, a notable improvement over the 2.5 percent annual contraction the island posted in February, the Government Development Bank for Puerto Rico said.

The March decline was the smallest since January 2013.

Even so, the U.S. commonwealth’s economy suffered an accumulated drop of 3.4 percent from July 2013 to March 2014 compared to the same period of the previous fiscal year, according to the GDB-PR’s latest Economic Activity Index, released Friday.

The index Puerto Rico uses to measure economic performance is based on four indicators: non-farm payroll employment (which fell 0.5 percent in March compared to March 2013), electric power generation (which was unchanged), gasoline consumption (up 20.2 percent), and cement sales (down 2.2 percent).

The employment drop in March was due to the elimination of 9,500 public-sector jobs, the GDP-PR noted.

The bank said public-sector employment fell 3.5 percent last month while private-sector employment edged up 0.8 percent thanks to the creation of 5,300 new jobs.

Non-farm payroll employment fell 1.7 percent in the first nine months of the current fiscal year compared to the July 2012-March 2013 period, while electric power generation declined 3.2 percent, gasoline consumption was down 0.6 percent and cement sales plunged 14.2 percent.

Puerto Rico’s economy has been mired in recession for most of the past seven years and its debt was downgraded to junk status by the Big Three credit rating agencies - Standard & Poor’s, Moody’s and Fitch - earlier this year.

Ailing Puerto Rican Economy Shows Slight Improvement in March

Puerto Rico Governor to Present Balanced Budget and a Four-Year Plan

Puerto Rico Gov. Alejandro García Padilla will propose a balanced budget and a four-year economic plan Tuesday night, his chief of staff told The Bond Buyer.

It will be the first time in more than 20 years that a Puerto Rico governor will present a balanced budget, chief of staff Ingrid Vila Biaggi said in an interview Monday. The proposal will be a "transcendental moment," she said.

In addition the governor will unveil a four-year agenda of measures for economic recovery, Vila Biaggi said. Many of these will be drawn from recommendations from the taskforce on growth and competitiveness that she led, she said.

The government will primarily achieve balance through cuts in government spending, Vila Biaggi said. There will be some revenue increases as well, though.

The governor will propose the consolidation and reorganization of several government agencies starting in the coming fiscal year. Puerto Rico's fiscal year starts on July 1.

The changes will make the government more agile and efficient, though the budget contains no government layoffs, Vila Biaggi said.

The balanced budget will be a tremendous achievement for the government, she said. When the governor came into office in January 2013 there were projections of a government deficit of over $2 billion for the fiscal year. The governor's team reduced that in the early months of 2013. Since then the team has brought the deficit down to $640 million in the current fiscal year, Vila Biaggi said.

The governor originally planned to balance the budget in fiscal year 2016. Now, he will do it a year earlier, in fiscal 2015, she said.

In March 2014, Nuveen Asset Management published a piece questioning the governor's new promise for a balanced budget. In their piece, "Puerto Rico's $3.5 billion GO Deal: Cure or Symptom?," Nuveen vice presidents Sawn O'Leary and Molly Shellhorn said that the March $3.5 billion bond sale included about $423 million in capitalized debt service interest for fiscal years 2014, 2015 and part of 2016. It included $270 million for fiscal year 2015. This money is to be used to pay at least some of the debt service bills coming due, they wrote.

While $270 million would be about 2.6% of fiscal 2014 budget, it is unclear what it will be in the fiscal 2015 since Vila Biaggi declined to release the spending and revenues figures for the budget.

"A budget that relies on bond proceeds to partially pay for debt service as it comes due is, by definition, not a structurally balanced budget," O'Leary and Shellhorn said. "By virtue of earmarking $269.8 million of bond proceeds for fiscal 2015 debt service, Puerto Rico has already failed to deliver on its promise of a balanced budget in fiscal 2015."

Asked about the analysts' statements, Vila Biaggi said that for the first time in a long time the budget has zero deficit financing and repays interest.

The governor's budget and other proposals will be subject to revision and approval or rejection by Puerto Rico's Senate and House of Representatives.

by

Puerto Rico Governor to Present Balanced Budget and a Four-Year Plan

Puerto Rico Budget Won’t Include Borrowing, Official Says

For the first time in two decades, Puerto Rico plans to balance its budget without selling debt, said Governor Alejandro Garcia Padilla’s chief of staff.

Garcia Padilla’s proposed financial plan for the fiscal year beginning July 1 relies mostly on spending cuts, Ingrid Vila Biaggi said yesterday in a telephone interview from San Juan. The administration will also raise additional funds through “revenue enhancements,” she said.

The 42-year-old governor will release the plan as soon as today. He’s set to give his State of the Commonwealth speech at 5:30 p.m. local time, where he will also announce a four-year roadmap that will “transform” Puerto Rico’s economy and social demographics by 2018, Vila Biaggi said.

“It is a budget that will serve as a foundation to building Puerto Rico’s recovery,” Vila Biaggi said.

The governor will also release a capital-improvement plan, she said. Vila Biaggi declined to give specific details on the budget or capital plan.

The four-year agenda will provide opportunities and identify actions to reposition Puerto Rico’s economy, Vila Biaggi said. The Puerto Rican economy has declined in five of the past seven fiscal years. The commonwealth and its agencies owe $73 billion, according to bond documents.

The long-term strategy won’t include restructuring the island’s debt load, she said.

“We are not, at this point, contemplating any type of restructuring in the public corporations or in the central government,” Vila Biaggi said.

The three largest rating firms dropped Puerto Rico credit below investment grade in February because of limited liquidity, after citing the use of deficit financing in earlier downgrades.

Puerto Rico sold $3.5 billion of tax-exempt general-obligation debt March 11 at 93 cents on the dollar to balance budgets and repay debt, the biggest junk-rated muni borrowing ever. The bond traded yesterday at an average price of 89.78 cents after trading as low as 86 cents on April 11 and as high as 99 cents on March 12, data compiled by Bloomberg show.

To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Mark Schoifet



Puerto Rico Budget Won’t Include Borrowing, Official Says

Monday, April 28, 2014

Levain Bakery is the First European Artisan Bread Market

Levain Bakery, situated in Aguadilla, Puerto Rico, is the first-ever artisanal chef in the area. It provides about 20 different types of European artisan bread. Levain Bakery has been playing farmers’ marketplaces around Puerto Rico for 5 years and their items have been aspect of choices across the island, from resorts to bars to dining places and cinemas. Weekly, they make about 300 bread and pastries for two regional farm owners’ marketplaces and offer out within 2 times.

Owners Jose O. Rodriguez, known as JO for brief, and his spouse Joy, released their home-based company, developing a professional kitchen right in their own house. Now, with requirement improving and their customers increasing, they have begun to take their company to the next stage by developing their very own brick-and-mortar artisan bakery and store right in the center of western Puerto Rico. JO and Joy have begun an Indiegogo strategy to audience finance their project.

Levain Bakery is designed to increase $11,000 through Indiegogo to release. The several has already properly secured most of the financing and needs continues from the strategy to add as any force for their goals.

With the release of the Levain Bakery, not only with JO and Joy’s desire be noticed, they will also be able to provide their group healthy, hand designed artisan breads, from the traditional focaccia, ciabatta, baguette, to an extensive range of sourdough. All of our sourdough breads are hand designed from our very own Levain lifestyle, Joy contributes. Levain Bakery’s breads are designed using long-standing artisan techniques and through the starting of their first shop, they will be able to bring these customs ahead and provide everyday accessibility their breads.



Levain Bakery is the First European Artisan Bread Market

Puerto Rican Government Tries to Seduce Wealthy US Investors





The Puerto Rico government is aiming to persuade wealthy investors to invest in the U.S. territory at a two-day conference. The island has struggled to recover from a recession lasting almost eight years.

Bringing two hotels to Puerto Rico's capital San Juan is hedge fund billionaire John Paulson. Paulson's New York-based firm Paulson & Co. is investing $260 million this year on the project.

About 200 executives attended the two-day conference that began on Thursday, most of them from the U.S. Paulson's company, and Puerto Rico's Department of Economic Development & Commerce organized the meeting.

Puerto Rico hoped to attract investmentors with the business summit. One major benefit to investing in Puerto Rico is a law that allows new residents to avoid taxes on capital gains. Capital gains are the main revenue source for many high-end investors.

Paulson believes Puerto Rico's economy is getting better and will reach its peak in three to four years.

"We are investing here because we feel we are getting involved in the ground floor," he said. "I think tomorrow the island will develop into the Singapore of the Caribbean."

Puerto Rico has been hit hard by the poor economy. The 14.7 percent unemployment rate is worse than any U.S. state, and it holds $70 billion in public debt. Even so, the island was able to sell a record $3.5 billion in bonds in March.

"We proved that Puerto Rico is not Detroit, it's not Greece," Gov. Alejandro Garcia Padilla said at the meeting's opening. "We proved that Puerto Rico is not heading to a default on its obligation, but to a fiscal and economic recovery."

U.S. investors are awaiting a budget proposal from Garcia on Tuesday. Garcia promises a balanced budget, the first one in more than 20 years. He also pledged to eliminate an $820 million deficit, but his plan to do so is unknown. Garcia believes he will erase that deficit without layoffs; his focus is on big investors bringing new money to the archipelago.

"This is not only about keeping government spending in line, but about generating wealth in Puerto Rico, job investment and trade," he said. "It's this economic activity that at the end of the day will make a difference."

One example of a big investor is Nicholas Prouty of Putnam Bridge Funding. His company invested $450 million on a renovation of a marina complex in Fajardo. Prouty also moved to Puerto Rico from Connecticut, surprising his friends in the U.S.

"People move from Puerto Rico, they don't move to Puerto Rico," Prouty recalled one New York hostess telling him.

Prouty was one of the speakers explaining the benefits of investing in Puerto Rico. He and other speakers highlighted tax benefits, private schools and bilingual and skilled workers on the island. Attendees of the conference received brochures bragging of homes with ocean views and cultural events in Puerto Rico.

Recent investment announcements by Lufthansa of Germany and Honeywell Aerospace of Arizona has pleased the Puerto Rican government. Lufthansa is planning a $20 million investment and a new aviation facility while Honeywell will invest $24 million.

But, even with these positive announcements, Richard Carrion of Banco Popular says the government needs to focus on the low labor rate of eligible citizens in Puerto Rico and the over 450,000 who have left the island in the last decade.

"Those are the needles we've got to move," he said. "We need to get growth back in the equation."

This two-day event was the largest of its kind in Puerto Rico history.

By Robert C. Weich III

Puerto Rican Government Tries to Seduce Wealthy US Investors

Saturday, April 26, 2014

Paulson as Cheerleader for Puerto Rico Sees Rich Influx

The billionaire hedge-fund manager has bought municipal debt of the commonwealth, invested in its hotels and is building a vacation home in one of its most exclusive resorts. Paulson’s firm is working on 10 real estate deals in the territory known for its low taxes, according to Alberto Baco Bague, secretary of economic development and commerce for Puerto Rico.

“Puerto Rico will become the Singapore of the Caribbean,” Paulson, 58, said yesterday at the 2014 Puerto Rico Investment Summit in San Juan, a conference designed to promote the territory and attract investors. “Opportunities to buy real estate here won’t last much longer.”

Paulson & Co., which is based in New York and oversees $22.8 billion, is adding to its Puerto Rico investments as the commonwealth and its agencies wrestle with a $73 billion debt load and an economy that’s shrunk in five of the past seven fiscal years. The three biggest ratings companies cut the island’s credit ranking to junk earlier this year.

Paulson’s firm is on track to invest $1 billion in the territory over the next two years through land purchases and properties to be torn down and rebuilt, Bague said in an interview yesterday. He said Paulson, who helped come up with the idea of the conference, will announce one of the deals within eight weeks.

Armel Leslie, a spokesman for Paulson with WalekPeppercomm, declined to comment on Baco’s remarks.

Capital Gains

Under a 2-year-old Puerto Rican law, new residents pay no local or U.S. federal taxes on capital gains, a move designed to lure wealthy residents. Singapore, the most-expensive Asian city for luxury homes after Hong Kong, according to property broker Knight Frank LLP, has a top tax rate of 20 percent and has encouraged hedge-fund firms to set up in the city-state.

Paulson, who briefly considered moving to Puerto Rico to take advantage of the tax law before abandoning the idea, said in yesterday’s speech that he’s seeking to develop sites to serve people he expects to relocate here because of the legislation.

The firm took a stake in the St. Regis Bahia Beach Resort and the Bahia Beach Resort & Golf Club in September. Paulson & Co. bought resort complex La Concha Resort and the Condado Vanderbilt, neighboring beach-front hotels in the capital city of San Juan, last month for $260 million, including costs to complete construction of the Vanderbilt.

Vacation Home

He’s the largest investor in the biggest bank, Popular Inc. (BPOP), and according to a person with knowledge of the matter, bought more than $100 million of Puerto Rico’s municipal debt. Paulson’s new residence will be a vacation home at the St. Regis resort, said the person, who asked not be named because the information is private.

Paulson is best known for making $15 billion betting against subprime mortgages as the 2007-2009 financial crisis hit. He considered relocating to eliminate taxes on his gains from money he has invested in his own hedge funds, four people who had spoken to him said in March 2013. He later said he decided against such a move “in light of the media attention.”

Puerto Rico, a self-governing territory, was ceded to the U.S. in 1898. It cannot file for bankruptcy protection as Detroit did in its historic filing in July.

Governor Alejandro Garcia Padilla, who took office in January 2013, has said he intends to repay bondholders on time and in full. Even so, the island’s Government Development Bank, which works on debt transactions, engaged restructuring specialists this year.

The bank said this month it hired FTI Consulting Inc., based in West Palm Beach, Florida, to help Puerto Rico’s public corporations operate self-sufficiently. New York-based Cleary Gottlieb Steen & Hamilton LLP, which worked on Greece’s 2012 sovereign debt restructuring and represents Argentina in debt matters, was also hired, according to the bank.

Millstein & Co., based in New York, was hired prior to a $3.5 billion debt sale in March to help evaluate financing proposals and to analyze the territory’s capital structure.

To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net Josh Friedman, Pierre Paulden



Paulson as Cheerleader for Puerto Rico Sees Rich Influx

Friday, April 25, 2014

Honeywell Aerospace To Establish Production Facility In Moca, Puerto Rico

Honeywell Aerospace will establish an electromagnetic compatibility and environmental test laboratory in a 73,000 square-feet facility at Las Américas Technology Park in Moca, Puerto Rico, in the northwest region of the island Commonwealth.

“This is an exciting time for Honeywell Aerospace and our employees,” said Tim Mahoney, President/CEO of Honeywell Aerospace. “Honeywell’s investment in the new lab will help us continue to design products that meet the increasingly complex needs of today’s aircraft. It is clear that Puerto Rico is becoming an important part of the aerospace industry.”

This will be Honeywell’s second Aerospace site in Puerto Rico, complementing its facility in Aguadilla. The planned new lab will support the firm’s global aerospace and defense operation in the areas of app and software development and aeronautics engineering design. Honeywell’s investment in construction, equipment and training is estimated at $35 million. The company expects its facility will be operational by third quarter of 2015.

“Honeywell’s expansion will create high-quality jobs for the western region of Puerto Rico, as well as new infrastructure that will secure Puerto Rico at the forefront of the aerospace and engineering segments. But the implications of this announcement are more profound. The expansion of Honeywell Aerospace represents an important achievement for our economic development strategy that seeks to diversify Puerto Rico’s industrial base”, said Governor Alejandro García Padilla.

As an incentive Puerto Rico Industrial Development Company will provide incentives for job creation, infrastructure and lease. “We are thrilled with the results that the aerospace cluster strategy is driving to Puerto Rico in terms of economic development and growth”, added Antonio Medina Comas, Executive Director of PRIDCO.

Honeywell Aerospace To Establish Production Facility In Moca, Puerto Rico

Thursday, April 24, 2014

Popular, Inc. to Focus U.S. Community Banking Strategy in New York and South Florida with Centralized Operations in Puerto Rico and New York - WSJ.com

-- Popular Community Bank (PCB) to improve operations and optimize invested
capital by concentrating on New York and South Florida markets and
divesting its regional operations in California, Illinois and Central
Florida

-- Sale of the regional operations including bank branches, deposits and
related loan portfolios is expected to result in a net premium of
approximately $25 million and an estimated noncash Goodwill write-down of
approximately $160 million

-- PCB to streamline back office operations and relocate centralized
functions to Puerto Rico, NY and SFL. An estimated restructuring charge
of approximately $53 million will be taken by PCB, and annual operating
expenses will be prospectively reduced by an estimated $45 million after
the reorganization is complete. This decrease in expenses offsets a
reduction in revenues that results from the sale of the regional
operations

-- The reduction in assets and an improved risk profile of the bank is
expected to reduce the amount of required capital, which, subject to
regulatory approval, may be re-deployed
SAN JUAN, Puerto Rico--(BUSINESS WIRE)--April 23, 2014--

Popular, Inc. (NASDAQ:BPOP) today announced that in order to sharpen its focus on key markets for its U.S. franchise, drive efficiencies and improve profitability, its subsidiary Popular Community Bank (PCB) will undergo a strategic reorganization in which it will divest its regional operations in California, Illinois and Central Florida and centralize certain back office operations in Puerto Rico and New York.

PCB will strengthen its mainland U.S. presence by concentrating on New York and South Florida. With a more clearly defined geographical footprint and leaner operation, the new PCB will be better able to focus on its core competencies, providing a full range of financial services and products to its commercial and retail banking customers.

Popular entered into definitive agreements to sell its regional operations, including 41 branches, approximately $1.8 billion in related loan portfolios, and approximately $2.1 billion in deposits, to three different buyers. The transactions will result in net premium of approximately $25 million and an estimated noncash Goodwill write-down of approximately $160 million.

The reorganization of PCB's centralized operations will result in an estimated charge of approximately $53 million, and annual operating expenses are expected to be prospectively reduced by an estimated $45 million after the completion of the reorganization. This decrease in expenses offsets a reduction in revenues that results from the sale of the regional operations.

The transactions, which are subject to regulatory approval and other closing conditions, are expected to close before the end of the year.

Mr. Richard L. Carrión, Chairman of the Board, President and Chief Executive Officer, said: "Popular remains deeply committed to serving mainland U.S. customers by building on PCB's success in New York and South Florida. We believe there are significant opportunities for the growth of our franchise in these markets as the banking sector and overall economy continues in its recovery. Focusing our efforts on these markets will ultimately enable us to better serve and grow our customer base, while strengthening the capital position of both PCB and Popular."

Leaner, More Focused Bank, Improved Profitability and Efficiency Ratios

The new PCB will have 49 branches in the New York/New Jersey and South Florida regions. As a more focused bank operating in two regions on the east coast, PCB will continue to offer a broad array of financial services for businesses and consumers, from lending, cash management, and other services to our commercial clients, to a full offering of consumer finance and transactional products including mobile banking and mobile check deposit.

This restructuring will lead to improved capital ratios and efficiency ratios at both PCB and Popular and increased return on capital for our U.S. business.

Reorganization of Centralized Back Office Operation

As part of the restructuring plan, PCB will reduce back-office expenses by closing its Rosemont, IL and Orlando, FL operations centers and transferring most of the support functions to Puerto Rico and New York. Of the 550 positions in the two current operations locations, 100 will be relocated to other offices in the U.S. and 200 will be moved to Puerto Rico for a net saving of approximately 250 positions. This transition is expected to be completed by the 1(st) quarter of 2015.

The reorganization will have an estimated cost of approximately $53 million, consisting of severance and retention payments, operational set-up costs, and lease cancelations.

Sale of California, Illinois and Central Florida Regions

Popular has entered into definitive agreements to sell regional operations to three different buyers:

-- In Central Florida, PCB will sell 9 branches with loans of approximately 
      $115 million and deposits of approximately $239 million to Harbor 
      Community Bank, a bank of approximately $629 million in total assets. 
 
   -- In Illinois, PCB will sell 12 branches with loans totaling approximately 
      $521 million and deposits of approximately $761 million to First Midwest 
      Bank, a bank with approximately $8.3 billion in total assets. 
 
   -- In California, PCB will sell 20 branches with loans totaling 
      approximately $1.2 billion and approximately $1.1 billion in deposits to 
      Banc of California, a bank with approximately $3.6 billion in total 
      assets. 
Mr. Carrión concluded: "We have selected the buyers of our regional branches with care to ensure that they are committed to the communities in which they operate and that our customers will continue to receive the same high quality of service that they have always received from us."

RBC Capital Markets, LLC acted as financial advisor to Popular. Sullivan & Cromwell LLP, New York, NY, acted as legal counsel.

About Popular, Inc.

Founded in 1893, Popular, Inc. is the leading banking institution by both assets and deposits in Puerto Rico and ranks among the top 50 U.S. banks by assets. In the United States, Popular has established a community-banking franchise that does business as Popular Community Bank, providing a broad range of financial services and products with branches in New York, New Jersey, Illinois, Florida and California.

    CONTACT: Popular, Inc. 
Investor Relations:

Brett Scheiner, 212-417-6721 begin_of_the_skype_highlighting 212-417-6721 FREE  end_of_the_skype_highlighting

Investor Relations Officer

or

Media Relations:

Teruca Rullán, 787-281-5170 or 917-679-3596 begin_of_the_skype_highlighting 917-679-3596 FREE  end_of_the_skype_highlighting (mobile)

Senior Vice President

    SOURCE: Popular, Inc. 
Copyright Business Wire 2014
Popular, Inc. to Focus U.S. Community Banking Strategy in New York and South Florida with Centralized Operations in Puerto Rico and New York - WSJ.com

Lufthansa Technik builds short/medium-haul aircraft MRO site in Puerto Rico, signs JetBlue as launch customer - Avionics Intelligence

HAMBURG, Germany, 24 April 2014. Lufthansa Technik, in cooperation with the Commonwealth of Puerto Rico, will create a new aviation maintenance, repair, and overhaul (MRO) facility in Puerto Rico to service short-haul and medium-haul aircraft.

Lufthansa Technik, having signed agreements with the government of Puerto Rico and the responsible port authority, plans to start work in the next three months on the construction of the new facility and expands its involvement in America. The new company, Lufthansa Technik Puerto Rico (LTPR), will be based at Rafael Hernández International Airport in Aguadilla, a former U.S. Air Force Base located on the northwest side of the Island.

The company will employ up to 400 workers and run a total of five overhaul lines. Initially, it will operate two lines for Airbus A320 C-checks and D-checks. The first layover is due to take place in 2015.





Elmar Lutter, managing director at the European overhaul facility Lufthansa Technik Budapest, leads the project.

"We are very grateful to establish with our partner a new overhaul facility in Puerto Rico. Lufthansa Technik Puerto Rico will be an important element in the long-term strategy of Lufthansa Technik's presence in the American market," says Lufthansa Technik CEO August Wilhelm Henningsen.

"This exciting partnership with Lufthansa Technik will create hundreds of high-skilled jobs and will be a cornerstone of the aviation industry we are developing in Puerto Rico," adds Alejandro García Padilla, Governor of Puerto Rico. "With its decision to locate this facility in Puerto Rico, Lufthansa Technik joins a growing list of international companies that are investing in Puerto Rico in recognition of our favorable business climate and geographical advantages."

"What companies like Lufthansa are realizing is there has never been a better time to invest in the United States," notes U.S. Commerce Secretary Penny Pritzker. "With assistance from our SelectUSA team, we were able to assist communities in Puerto Rico that are ready for investment, and - across the globe - help a great company, Lufthansa, invest in the United States. By helping build strong partnerships like this one, we are able to create jobs, spur economic growth, and promote American competitiveness around the world."





Lufthansa Technik has firm commitments from two major American launch customers for overhauls at the new site. One is JetBlue Airways. "This is very exciting news for Lufthansa Technik, the Commonwealth of Puerto Rico, and for JetBlue as well," says JetBlue CEO Dave Barger. "As the largest airline serving the people of Puerto Rico, we are honored to support and endorse Lufthansa Technik's plans to build a heavy maintenance base in Aguadilla, and we are very happy to be one of the first airlines to be serviced there when it opens."

Puerto Rico has a high potential of motivated and well-trained aircraft mechanics and engineers and a dedicated technical school is currently training 100 people in these skills, officials say. In addition, Lufthansa Technik is committed to training additional personnel through its subsidiary, Lufthansa Technical Training, in partnership with the University of Puerto Rico and the Commonwealth's Department of Education.



Lufthansa Technik builds short/medium-haul aircraft MRO site in Puerto Rico, signs JetBlue as launch customer - Avionics Intelligence

Honeywell Aerospace to open 2nd Puerto Rico plant

SAN JUAN, Puerto Rico (AP) — Honeywell Aerospace is investing $24 million to expand its business in the U.S. territory of Puerto Rico.

Gov. Alejandro Garcia Padilla says the Arizona-based aerospace industry company is opening a second plant that will begin operations in April 2016. He said Wednesday that 310 jobs will be created.

The plant will be based in the northwest town of Moca and will serve as a laboratory to support application and software development and aeronautics engineering design.

Honeywell Aerospace opened its first Puerto Rico plant in 2007.

The announcement comes as Puerto Rico seeks to diversify its economy and strengthen its industrial sector. The island is entering its eighth year of recession and battling $70 billion in public debt.

Honeywell Aerospace to open 2nd Puerto Rico plant

Wednesday, April 23, 2014

This is one Social Security document you don't want to toss

Now that the Social Security Administration has decided to begin mailing out paper benefit statements to workers again, we might start looking forward to getting snail mail for once. Or at least we should.

Beginning in September, workers older than 25 will begin receiving their benefits statements once every five years. Benefit statements provide a detailed snapshot of how much you can expect to earn in monthly Social Security benefits when you hit retirement age, plus your estimated disability and Medicare benefits.
We know. It all sounds a little backward. When 80% of Americans have access to the Internet at home, why waste government resources to send us information we could easily find online? After all, the Social Security Administration (SSA) went digital in 2012 to save money.  
The reality is that only a fraction (6%) of workers are currently signed up to get their statement online, according to the SSA. If you’re young, healthy and working today, chances are you aren’t too concerned about what life will be like 30, 40, or 50 years down the road.
Paper statements can give workers just the wake-up call they need to kickstart their retirement savings plan, says Patrick Doland, a fee-only certified financial planner with Reason Financial Advisors, Inc. in Northbrook, Ill.

“Without [that statement], there’s often no triggering event that causes people to think about Social Security income,” Doland says. “Life goes on and there’s nothing that makes people ask whether they’re on track and if they’ll be able to enjoy the kind of retirement they want.

So, if you find a letter from the SSA in your mailbox come September, don’t just toss it. Check out this sample benefit form from the SSA first, which looks at a 40-year-old woman named “Wanda Worker” who earns $47,000 a year.

Here’s what you should look for:

Compared to the tangled mess that 401(k) statements can become, deciphering your Social Security benefits statement is child’s play. The document is less than five pages long and all the good stuff is on pages 2 and 3.

View gallery
.
Source: SSA

On Page 2, look for the section labeled Your Estimated Monthly Benefits. This is where you’ll see a comparison of what your monthly benefits will be depending on when you start withdrawing: ages 62, 67 (full retirement age for people born after 1960), and 70.  

Given that more than half of workers start tapping their benefits at 62, this is a section you do not want to gloss over.  The later you wait to draw your benefits, the larger they’ll be. The table above makes it crystal clear that if “Wanda” waits to start withdrawing benefits until 67 — instead of starting at 62 — she’d see 40% higher monthly benefits.

Of course, you could pay a financial planner to tell you that, but seeing your own estimates in black and white really helps to drive the point home.

“Most people just automatically think, I’m entitled to [my benefits] so I’m going to take my money,” Doland says. “They don’t stop and think through all the other important questions that really impact whether that’s right for them or not.”

Of course, there are some situations in which retirees can’t afford to wait for their benefits. The majority of Americans wind up retiring earlier than they expect to and more than half of retirees, Social Security is their primary source of income in retirement.

But the sooner you know how much you can expect to earn from Social Security, the better you can estimate how much to put toward your own retirement fund.  While they can be a helpful boost, it can be difficult to live on Social Security benefits alone. 

“If you read [your statement] and see you’re only getting $2,000 a month, ask yourself if you can live on that knowing what it costs for you to live now?” Doland says. “For the average person, that’s when they’ll start saying ‘I’ve got to get serious about this. I’m not contributing enough to my 401(k).’”

On page 3, pay close attention to the section labeled Your Earnings Record.

View gallery
.
Source: SSA

Here’s where the SSA will list your earnings for every tax year you were in the workforce, however, their data isn’t always perfect. Since your benefits are based on your 35 highest-earning years, if their numbers are off, you could wind up getting less what you’re supposed to. To be sure everything is correct, dig up your tax records and compare your annual income to the amount listed on the statement. If there are any discrepancies, contact the SSA ( 1-800-772-1213 begin_of_the_skype_highlighting 1-800-772-1213 FREE  end_of_the_skype_highlighting ) to sort it out.

Again, you don’t have to wait five years to get your benefits statement. You can check it out whenever you want by signing up for an account with the SSA here.

Otherwise, keep an eye out for your statement to show up in the mail. And trust us — this is one piece of mail that doesn’t belong in the shredder.

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Read more:

These people earn 6 figures and still feel broke

Retired and broke: Social Security and the struggle to make it last




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This is one Social Security document you don't want to toss

Biotechnology

Puerto Rico.  The Bio Island.

Puerto Rico enjoys a long legacy in pharmaceutical and medical device manufacturing.  Biologics are also a growing segment of the island's life sciences sector.  Amgen, Eli Lilly, Abbott and Becton Dickinson Bioscience alone have invested more than $65.9 million in four plants since 2005. Puerto Rico also boasts the world's largest modular biotechnology plant for producing recombinant human insulin.

Growing Agricultural Biotechnology Sector
Puerto Rico has also emerged as an important center for agricultural biotechnology.  Pioneer Hi-Bred, BASF Agrochemical, Bayer-Cropscience, Syngenta Seeds and Rice Tec are among many seed companies that have found the island to be fertile ground for R&D with our tropical weather, consistent water supply, ease of commerce with the U.S., attractive incentives and top-quality agricultural science talent.

BIOTECHNOLOGY.jpg

A Highly Educated Workforce
Puerto Rico's workforce has vast knowledge in GMP, FDA and other global regulations, while the island's university system turns out a steady stream of new talent:
  • The Biotechnology Development and Training Center at the Mayagüez campus of the University of Puerto Rico is a public-private initiative with customized training programs for students and employees with degrees in science and engineering, as well as for pharmaceutical professionals who want to transition into the life sciences. 
  • The University of Puerto Rico-Mayagüez has offered a five-year bachelor's degree in industrial biotechnology for the last 12 years, with programs at three other universities.
  • The University of Puerto Rico-Medical Sciences and the Ponce School of Medicine/ Pontifical Catholic University of Puerto Rico offer Ph.D. programs in biomedical science.
Helpful Links:

Biotechnology

Three links on the troubled future of the Puerto Rico economy

Reuters' Luciana Lopez described Puerto Rico's entrenched underground economy. Unregulated and--critically--not paying taxes at a time when the Puerto Rican government is terribly short of money, the question of how to deal with this is key.
From the western mountain town of Lares to the capital San Juan, officials are wrestling with how to bring the underground economy out of the shadows and onto the tax rolls without creating such an onerous financial burden that thousands of small and medium businesses can't survive.

More than a quarter of the island's economy is informal, some studies say, from large companies evading taxes to individuals selling items for cash at roadside stands. But estimates vary widely because the activity can be so hard to track.

While not new, the problem has become urgent of late. The government desperately needs to find new revenue to bolster a budget full of holes and turn around an economy now eight years in recession. It is scrambling to avoid a painful debt restructuring some view as almost inevitable.

Last month's $3.5 billion bond sale bought the island some time, but precious little else, with fundamental worries about its shrinking economy still unsolved.

The divisions between the government and its people leave policymakers in a damned-if-you-do, damned-if-you-don't position.

"This is the conundrum for the island," said Emily Raimes, lead analyst on Puerto Rico for Moody's Investors Service. "Actions that they can take to help their finances may very well be actions that hurt the economy."

  • La Prensa, meanwhile, shared a report suggesting that the Puerto Rican government wants to launch the island as a platform for Spanish investment in the United States and broader Latin America.
  • Puerto Rico's government is pushing a strategic plan to transform the Caribbean island into an "investment bridge" from Spain to the United States and Latin America and is offering fiscal and legal incentives to Spanish investors, Puerto Rican Secretary of Economic Development and Commerce Alberto Baco said in an interview with Efe.

    The new administration of Gov. Alejandro Padilla intends to reorient the Puerto Rican economy toward foreign services, mainly in the banking sector, securities, engineering and computer technology, Baco said.

    The aim is to internationalize the island's economy, which is fundamentally based on the manufacturing sector, and create a platform for foreign firms wanting to export their services to North America and for local companies who wish to break into the European market.

    Baco, on a visit to Madrid to meet with Spanish businessmen, said that Puerto Rico, which is a U.S. commonwealth but maintains its fiscal independence, will invest up to $300 million in the tourist industry, "specializing in sports, culture and adventure" tourism.

    The opening in May of the new Air Europa route between Madrid and San Juan could also increase tourist traffic by some 200 percent, Baco said, adding that Iberia could return to the Puerto Rican market.
  • The Huffington Post's Adrian Brito notes that statehood in the United States, by removing many of Puerto Rico's economic advantages as a self-governing commonwealth, would be an economic catastrophe for the island.
  • According to a new report published by the U.S General Accountability Office (GAO), out of the estimated $5.2 billion in new federal spending Puerto Rico would receive, only a range of $2-4 billion would come back in new revenues for the federal government. However, statehood would mean that every day Puerto Ricans would be saddled with $2.3 billion in new federal taxes that they do not pay today.

    The GAO report addressed the adverse impact of statehood on the Island's finances, stating:

    ... [a]s a result of statehood, changes to Puerto Rico government spending and revenue could ultimately affect the government's efforts to maintain a balanced budged... statehood could [therefore] result in reduced Puerto Rico tax revenue. If Puerto Rico's government wished to maintain pre-statehood tax burdens for individual and corporations, it would need to lower its tax rates, which could reduce tax revenues.

    Given Puerto Rico's recent financial struggles and the government of the Commonwealth's tough economic reform efforts, cutting almost half of the Island's budget would be disastrous. GAO also notes that Puerto Rico's current triple tax-exempt bonds would no longer be exempt from federal taxes, which would make it much harder for the Island to reduce its fiscal woes.

    U.S. manufacturers in Puerto Rico, in particular pharmaceutical companies, would also face a higher tax-burden under statehood and the U.S GAO report confirms that many of them would leave. This would put in risk more than 80,000 jobs, plus tens of thousands more government jobs that would be at stake if the local government loses billions in tax revenues under statehood.
    Three links on the troubled future of the Puerto Rico economy

    Puerto Rico woos rich with hefty tax breaks

    The Paulson & Co. founder, estimated to be worth $11 billion, is headlining an invitation-only summit in San Juan, Puerto Rico, on Thursday to discuss two new tax laws that provide generous dividend and capital gains tax breaks for individuals willing to relocate their businesses to the tropical island, according to Puerto Rico officials.

    For their part, the commonwealth’s political leaders are hoping the tax-breaks will attract businesses that can help jump-start Puerto Rico’s ailing economy, which is suffering from high unemployment rates and a declining population.

    The tiny island is grappling with a debt burden of roughly $70 billion, and many municipal credit analysts see a broader economic revival in Puerto Rico as key to making good on that debt.

    Paulson has already invested $260 million this year to create two high-end luxury resorts in San Juan’s Condado district. That follows investments last year in the St. Regis Bahia Beach Resort and the Bahia Beach Resort & Gold Club.

    The government expects Paulson to invest a total of $1 billion in Puerto Rico by 2015. Paulson’s firm had no comment.

    “Get on a plane now, and business class is filled with representatives from Blackstone, Goldman, DE Shaw, and every private equity firm I know,” said Nicholas Prouty, president of Putnam Bridge on the new interest in Puerto Rico from Wall Street’s elite.

    Putnam Bridge Investments is expected to invest $200 million in Puerto Rico this year, according to the government.

    A LOW-COST BASE

    “What we are trying to achieve here is a second transformation with the Puerto Rico economy,” said Alberto Baco, the Puerto Rican secretary of economic development and commerce.

    More than 150 companies are already looking to move their offices to Puerto Rico to take advantage of the new tax laws, and the government is expecting more than 300 applicants this year. Officials are expecting the move to create 90,000 jobs by 2016 and to add up to $7 billion to the island’s GDP.

    “The cost of doing business is low, the cost of hiring local labor is lower,” said Peter Schiff, owner of Euro Pacific Asset Management .“And if I need to move employees form the mainland it’s easier, I don’t have to worry about visa issues.”

    Schiff recently relocated his firm from California to Puerto Rico and is establishing his main office in the capital, San Juan.

    “It’s been pretty nice here, the Puerto Rican people are very, very friendly and we have enjoyed that,” said Jim Nelson, a member of Schiff’s team. “The weather is excellent, it’s 80-85 degrees constantly.”

    So what kind of savings is Euro Pacific experiencing?

    While the investment broker wouldn’t give specifics, the savings are substantial and they will become more significant over time, he said. Schiff plans to eventually move to Puerto Rico himself and has already bought property there.

    WOOING THE RICH

    The two laws the government is actively promoting are Act 20 and Act 22., both of which were created in 2008. The laws aim to promote the export of services from the Caribbean island and to encourage the ‘import’ of wealthy individuals.

    Act 20 seeks to incentivize businesses to come to Puerto Rico by taxing companies at a flat 4% on earnings, as well as offering them 100% tax exemption on dividends or profit distributions from export services. To qualify, a company has to employ at least 3 people.

    Act 22 is the real gold mine, said Alex Daley of Casey Research, who commissioned a report called “Puerto Rico’s New Tax Advantages”, after moving to the island to take advantage of the new incentives.

    “This is mostly geared towards U.S. citizens,” said Prouty. “It lets them take advantage of a new tax system.”

    A citizen or green card-holder living outside the U.S is still subject to U.S. tax laws. But Puerto Rico has a unique status as a U.S. commonwealth. Residents are considered U.S. citizens, but are subject to different tax laws, which offers Americans from the mainland a window.

    The act also exempts businesses from taxes on dividends and capital gains, a huge incentive for hedge funds, asset managers and traders who earn a lot of their income that way , said Daley.

    “Taxes on capital gains are based wherever the investor is based,” said Daley. “If you are a trader or a venture capitalist and invest and recognize your capital gains – you don’t pay taxes if you get those tax exemptions.”

    RECESSION YEARS

    Puerto Rico, which has about 3.5 million residents today, went through its first transformation back in the 1950s, when the island developed a huge manufacturing base.

    That helped it develop needed infrastructure and boosted economic growth. Since then, however, its fortunes have faded. The island has been mired in recession for the past eight years.

    The government recently sold $3.5 billion of new municipal bonds in an effort to replenish its coffers and service its outstanding municipal debt burden. Bond investors are divided on whether the island will eventually have to go through some kind of restructuring.

    The country needs to take measures to increase tax revenues, and also create more incentives to bring people to the island and retain them, according to experts.

    “Puerto Rico is suffering from a major migration from the island,” said Dan Heckman, senior fixed income strategist at the wealth management division of U.S. Bank. “They have more deaths and decreasing births, so they have been going through a (period of) depopulating.”

    In 2013, Puerto Rico received 155 applications from companies seeking to move offices to the island. In 2014, the government is expecting about 360 applications.

    For many companies, the tax incentive is too good to pass up.

    “Strictly speaking that was a tax motivation, I was looking at Singapore or Ireland,” said Schiff, who has other businesses, alongside his brokerage. “The corporate tax rate is 4% which compares favorably to Singapore and Ireland.”

    ISLAND TIME

    What’s more, Puerto Rico is a lot closer to the mainland U.S., and for half the year is on East Coast time, he said.

    “It’s like moving to Florida, but there is no federal income tax,” said Schiff.

    Nelson, who moved to Puerto Rico six weeks ago with his wife and young child, acknowledged there are challenges.

    “Obviously there are some sacrifices involved, like moving away from your family and there are some things you have to get used to — so-called Island Time — where things move slower,” said Nelson.

    “It’s hard to find some groceries, different types of spices, and there’s not a lot of organic foods,” said Nelson. “And there are fewer restaurants.”

    There’s also the cost of transferring your business, which includes various exit taxes.

    “It’s not a simple rule,” said Nelson. “It’s takes quite a bit of time to get through the process from a legal and compliance standpoint.”

    However, his boss says he’d rather pay less tax so that he can reinvest the money he saved back into the business to help it grow.

    “If I moved to Singapore or Ireland, I would pay U.S. dividend tax,” said Schiff. “No other country treats its citizens as horribly as the U.S. does. If you are a citizen anywhere else and work outside that country, you are not expected to pay taxes to your country.”

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    Sital Patel covers Wall Street and the financial services industry from New York. You can follow her on Twitter at @Sital.Ben Eisen is a MarketWatch reporter based in New York.
    NEW YORK (MarketWatch) –— John Paulson is expected to expand his investment in Puerto Rico to $1 billion by the end of next year, as the hedge fund titan leads a growing brigade of wealthy U.S. business owners who are taking advantage of the languishing island’s efforts to transform itself into a tax haven.

    By Sital S. Patel and Ben Eisen,

    Puerto Rico woos rich with hefty tax breaks - MarketWatch