Triple-S Management Corporation to Negotiate Medicaid ASO Contract Extension Due to ASES' Cancellation of RFP Process

SAN JUAN, Puerto Rico, May 9, 2014 /PRNewswire/ -- Triple-S Management Corporation (NYSE:GTS), the largest managed care company in Puerto Rico, today announced that the Puerto Rico Health Insurance Administration (ASES) informed its health subsidiary, Triple-S Salud, that the RFP process to return the Medicaid business to an at-risk model has been cancelled. As a result of this decision, the agency also notified Triple-S of its intention to extend the Company's current Medicaid ASO contract, which expires on June 30, 2014, for a nine-month period. Under this contract, Triple-S is responsible for managing all of the eight Medicaid regions on the island, which had 1,398,243 residents enrolled as of March 31, 2014. Formal discussions regarding the extension are scheduled to begin next week and the Company expects the terms and conditions to be similar to those in the existing contract. A new RFP process will begin shortly.

"Extending our ASO contract through March 31, 2015 reflects the Puerto Rican government's continued recognition of our ability to provide high-quality health care services," said Ramon M. Ruiz-Comas, President and Chief Executive Officer. "When RFP bidding resumes, Triple-S plans to participate in the process, reflecting our commitment to serving this vitally important patient population."

About Triple-S Management Corporation

Triple-S Management Corporation is an independent licensee of the Blue Cross Blue Shield Association. It is the leading player in the managed care industry in Puerto Rico. Triple-S Management also has the exclusive right to use the Blue Cross Blue Shield name and mark throughout Puerto Rico and the U.S. Virgin Islands. With more than 50 years of experience in the industry, Triple-S Management offers a broad portfolio of managed care and related products in the Commercial, Medicaid and Medicare Advantage markets under the Blue Cross Blue Shield marks. In addition to its managed care business, Triple-S Management provides non-Blue Cross Blue Shield branded life and property and casualty insurance in Puerto Rico.

For more information about Triple-S Management, visit www.triplesmanagement.com or contact kwaller@allwayscommunicate.com.

Forward-Looking Statements

This document contains forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information about possible or assumed future sales, results of operations, developments, regulatory approvals or other circumstances. Sentences that include "believe", "expect", "plan", "intend", "estimate", "anticipate", "project", "may", "will", "shall", "should" and similar expressions, whether in the positive or negative, are intended to identify forward-looking statements.

All forward-looking statements in this news release reflect management's current views about future events and are based on assumptions and subject to risks and uncertainties. Consequently, actual results may differ materially from those expressed here as a result of various factors, including all the risks discussed and identified in public filings with the U.S. Securities and Exchange Commission (SEC).

In addition, the Company operates in a highly competitive, constantly changing environment, influenced by very large organizations that have resulted from business combinations, aggressive marketing and pricing practices of competitors, and regulatory oversight. The following factors, if markedly different from the Company's planning assumptions (either individually or in combination), could cause Triple-S Management's results to differ materially from those expressed in any forward-looking statements shared here:

-- Trends in health care costs and utilization rates 
 
   -- Ability to secure sufficient premium rate increases 
 
   -- Competitor pricing below market trends of increasing costs 
 
   -- Re-estimates of policy and contract liabilities 
 
   -- Changes in government laws and regulations of managed care, life 
      insurance or property and casualty insurance 
 
   -- Significant acquisitions or divestitures by major competitors 
 
   -- Introduction and use of new prescription drugs and technologies 
 
   -- A downgrade in the Company's financial strength ratings 
 
   -- A downgrade in the Government of Puerto Rico's debt 
 
   -- Litigation or legislation targeted at managed care, life insurance or 
      property and casualty insurance companies 
 
   -- Ability to contract with providers consistent with past practice 
 
   -- Ability to successfully implement the Company's disease management, 
      utilization management and Star ratings programs 
 
   -- Ability to maintain Federal Employees, Medicare and Medicaid contracts 
 
   -- Volatility in the securities markets and investment losses and defaults 
 
   -- General economic downturns, major disasters, and epidemics 

This list is not exhaustive. Management believes the forward-looking statements in this release are reasonable. However, there is no assurance that the actions, events or results anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on the Company's results of operations or financial condition. In view of these uncertainties, investors should not place undue reliance on any forward-looking statements, which are based on current expectations. In addition, forward-looking statements are based on information available the day they are made, and (other than as required by applicable law, including the securities laws of the United States) the Company does not intend to update or revise any of them in light of new information or future events.

Readers are advised to carefully review and consider the various disclosures in the Company's SEC reports.

SOURCE Triple-S Management Corporation

/CONTACT: AT THE COMPANY: Alan Cohen, Chief Marketing and Communications Officer, (787) 706-2570 or INVESTOR RELATIONS: Kathy Waller, AllWays Communicate, LLC, (312) 543-6708 begin_of_the_skype_highlighting (312) 543-6708 FREE  end_of_the_skype_highlighting

/Web site: http://www.triplesmanagement.com

Triple-S Management Corporation to Negotiate Medicaid ASO Contract Extension Due to ASES' Cancellation of RFP Process - WSJ.com

New medical tourism initiative in Puerto Rico

It has been many years
coming, but the government's medical tourism initiative is finally happening,
with a more realistic approach. Originally it promised thousands of new jobs,
and thousands of new tourists.

The latest target, although still based on
little more than guesswork, promises up to 3,000 jobs in the next four years,
during this four-year term, about 50% less than what some officials had
hoped.

Puerto Rico is a self-governing territory of the USA, with a
population of 3.7 million. Tourism is an important money-earner; the island
receives up to three million visitors each year and is a port-of-call for cruise
liners.

Being a United States territory, no passport is required for
travel for US citizens, and the cost of treatment is less than half of that on
the mainland. It has a few medical centres offering cosmetic surgery, cancer
treatment and a full range of medical treatment. But the public healthcare
system is overstretched and there is little investment in private healthcare.
American medical travellers have the same legal recourse as they do in the U.S.


The administration is hoping to do deals with US health insurance plans
and target markets where there are significant Latino populations. It is not
exactly a sophisticated strategy. And the politicians have not even agreed to
spend money to set up a medical tourism promotion board, so a strategy based on
a new body to promote the region could again fall at the first hurdle.


There is a significant US military contingent at bases in Puerto Rico,
but the US Military health system (TriCare) sends
its troops and dependents home to the mainland for medical care of any
significance - even maternity care because basic obstetrical care is
insufficient to meet TriCare standards.

Medical tourism news09 May 2014

Related linkTriCare

New medical tourism initiative in Puerto Rico

Is Puerto Rico the Perfect Tax Haven for US Citizens? Part 2

A couple of my Casey Research
colleagues have actually moved to Puerto Rico to obtain these benefits. So I
thought I would offer my two cents on a couple of points. 

1. Dividends and interest are
really only eligible for the tax benefits if they come from Puerto Rican
sources, like a CD at a Puerto Rican bank or a dividend from a Puerto Rican
corporation. Otherwise the source of interest and dividends is generally where
the payer is located (see chart below
from the IRS and page 7
here.) So if there is
a US based stock listed on the NYSE and it pays your a dividend while you are a
resident in PR, that dividend is not considered PR sourced income and
therefore is not eligible for the benefits. 

Capital gains are a whole
different animal however, and they are generally determined by where your residence is. So capital gains
is where the real benefit is for the PR tax incentives for individuals. If you
were to purchase a US stock with your US brokerage account, or a gold coin, and
realize a capital gain while a PR resident, that gain would qualify as PR sourced income
and thus would be eligible for the benefits.




2. That $70 billion debt
figure that is commonly quoted is not the federal debt of Puerto Rico, it is
the combined federal, local, and municipal
and other obligations. If you were to take that and total that up for all the
states in the United States and add them to the US federal debt, you’d be far
worse off than Puerto Rico is. Puerto Rico has debt problems, but they’re not
dire.

3. As for the crime rate it is
true that it is high in certain areas like all large cities, but it would be a
mistake to extrapolate that for the entire island. Memphis, Tennessee has about
the same crime rate as San Juan, Puerto Rico. Do you hear anybody warning you
against moving to Memphis? And would Memphis’ crime rate stop anybody from
moving to greater Tennessee?

4. The US federal government
certainly could end the Puerto Rican tax incentives. But we believe that is
highly unlikely for the foreseeable future for a number of reasons we detail here. 

Nick
Giambruno

Is Puerto Rico the Perfect Tax Haven for US Citizens? Part 2

Puerto Rico Bank Near Default on Muni Bonds: Agencies

Puerto Rico-based Doral Financial Corp. is likely to default on more than $150 million in municipal notes and bonds after regulators ruled that receivables from the commonwealth government can't be included in Tier 1 capital, ratings agencies said.

These receivables were $289 million out of the bank's $679 million of Tier 1 capital. The ruling will force the bank to either increase capital within 120 days or submit a contingency plan to the Federal Deposit Insurance Corp. to sell, merge or liquidate, Joseph Pucella, vice president at Moody's Investors Service wrote Friday.

On Friday morning Moody's downgraded a bond and a note issued by the Puerto Rico Conservation Trust Fund to C from Caa3. C is Moody's lowest possible rating. Doral Financial is the securities' obligor.

The $100 million note was sold with tax exempt interest in 2002. $30 million is still outstanding. The $100 million bond was sold with tax exempt interest in 2001 and all of it is outstanding.

In addition, Moody's downgraded senior secured bonds from Doral Financial's subsidiary Doral Properties to C from Caa3. These were sold in 1999 and more than $39 million in par is still outstanding.

Moody's action follows similar actions by Fitch Ratings and Standard & Poor's. Fitch dropped Doral Financial's issuer default rating to C from CCC on Monday. C is Fitch's second-lowest rating.

S&P dropped Doral Financial to CC on Wednesday. CC is S&P's third-lowest rating.

Doral Financial Corp. is the parent company of Doral Bank.

Doral Financial has had problems for years and its stock on Friday was down 98% from its five-year peak in April 2010.

On Aug. 8, 2012, Doral Bank signed a consent order with the FDIC. On May 2 the bank announced that the federal government had declared that tax receivables from Puerto Rico's government cannot be treated as Tier I capital to fulfill the consent agreement.

"In response, the company stated in its May 1 8-K that as part of its revised capital plan, 'it must seek immediate financial support from equity and debt holders and/or external sources," Pucella wrote for Moody's. Moody's said that this indicates a high likelihood of default and severe losses for Doral Financial's creditors. An 8-K is a statement from companies to investors about important events, required by the United States Securities and Exchange Commission.

Doral Financial didn't respond to a request for a comment.

Since Doral isn't one of the biggest Puerto Rico banks, its collapse wouldn't have a big impact, said Vicente Feliciano, president of Advantage Business Consulting, adding, "It's not to be taken lightly."

The collapse of three Puerto Rican banks in April 2010 was more significant, Feliciano said. The FDIC made sure all deposits were honored and not just the first $250,000, he said, and it would probably do the same for Doral's depositors.

by Robert Slavin

Puerto Rico Bank Near Default on Muni Bonds: Agencies

Puerto Rico Plan Aims To Reboot Island s Economy

The Puerto Rico government's recently released four-year economic plan is about more than dollars, cents, and GDP.

It's an effort to tackle fundamental problems that are seen as contributing the commonwealth's long economic malaise.

In addition to specifying policies for particular economic sectors, the plan urges reforms to the commonwealth's education system, government structure, electrical system, policies on debt, and efforts to retain young workers.

Some of the Agenda for Economic Recovery, 2014-2018, restated initiatives in the commonwealth's October 2013 economic plan, April 2014 Growth Taskforce action plan, and April 2014 budget. But some initiatives in the plan, released April 30, are new.

The goal is to complement October's economic development strategy with parallel structural reforms needed to achieve economic growth, said Ingrid Vila, chief of staff to Puerto Rico Gov. Alejandro García Padilla.

The 116-page agenda laid out six areas for change.

First, the government will seek to diversify the economy, aggressively encourage local production, and promote sustainable economic development and infrastructure.

Second, the government will seek to aid agriculture, tourism, and new business development. Third, the government will diversify the island's energy sources to reduce electricity prices.

Fourth, the government will transform the educational system to reduce costs and better prepare students for the world economy. Fifth, the government will streamline itself to become more efficient and operate on a balanced budget. And sixth, the government will reform the tax system to extend compliance, make it more just and promote economic development.

Analysts familiar with the plan were generally positive. Advantage Business Consultants president Vicente Feliciano said the plan's emphasis on export sectors is good. These sectors have room for growth, he said. The plan's skepticism about new debt is also a plus, he said.

The plan's projection of real economic growth to reach 2% in 2018 seems modest, Feliciano said. By comparison, to March 2014 from August 2013, the commonwealth's economic activity index grew at a 3.1% annual rate.

Joaquín Villamil, chairman of economic consultant Estudios Técnicos, was generally positive. The proposed changes to the educational system are a good thing, he said.

Standard & Poor's senior director David Hitchcock said it is important that Puerto Rico has an economic plan and that its content is of less importance. "It's almost impossible to judge economic plans except by their results," he said.

Hitchcock said he and fellow analyst Horacio Aldrete-Sanchez were still looking at the recently proposed budget. There will be implementation risks for both the budget and the plan, and S&P will not be able to judge how they are working out until many months have passed, Hitchcock said. However, the budget's reduced structural deficit was encouraging, he said.

The government's plan laid out an array of measures to promote growth in knowledge services, life sciences, agricultural biotechnology, export services, aircraft repair and maintenance, tourism, and industries like defense manufacturing that must be located within the United States. Also included are measures to attract global companies to Puerto Rico.

For example, Puerto Rico's government is helping to finance the creation of a "City of Science" project in San Juan over the next 20 years. The plan also includes tax and financial benefits for small and medium sized enterprises. These enterprises are said to be essential to the economy.

The island's economy is hindered by high electrical rates, the plan said. Oil prices are at high levels and oil is the primary means to generate electricity.

The plan sets a goal of getting 80% of its electricity from natural gas and renewable resources by 2017. To do this the Puerto Rico Electric Power Authority is planning to build a natural gas port and convert several power plants to natural gas from oil.

According to the plan, the government will eliminate 25 agencies and fold their duties into existing departments.

The commonwealth government is planning to shift school transportation, road maintenance, and some security services to municipalities. While the commonwealth will pay for these services, it believes the local governments can do them for less money.

The government plans to create an Integrated Transportation Authority to take over public transit responsibilities from the Highway and Transportation Authority. Since San Juan's Tren Urbano rail system is subsidized, this would provide some financial relief to the HTA.

The maritime transport and metropolitan transit authorities will be merged into the ITA and it is believed this will reduce expenses, Vila said.

The plan also envisions major changes to the island's educational system. Public school enrollment has declined by 40% since 1980 as the school-age population declined. During the last 30 years, the amount of money spent per student has tripled, the report stated. Puerto Rico ranks below all 50 U.S. states in the percent of school department budget devoted to teaching and education, at 50%.

Many schools are well under capacity and are expected without changes to become further underutilized. In response, the government is planning to close about 100 schools, which should lead to better education and lower security and maintenance costs, according to the plan.

The plan also called for the expansion of pre-kindergarten to all elementary schools by 2018 and an increase in bilingual and vocational schools.

The plan is on the right track by urging on cutting of the size of government and transferring responsibilities to local governments, Villamil said.

The government wants to reduce Puerto Rico's migration of residents to the continental United States. Young workers should get a 0% income tax their first year out of school and a stepped increase to full income taxes in the following years, the plan said. The government is eliminating another tax credit that mainly affected young taxpayers, so introducing this new tax benefit would have little revenue impact on the general fund, Vila said.

The plan also called for the University of Puerto Rico to have a program for some students who have received financial aid to be required to do two years of service to Puerto Rico.

Finally, the plan called for changes to government debt policies. The governor has announced some of these in the past: that the public corporations must operate independently from the general fund and the Government Development Bank of Puerto Rico, and that borrowing should not be done to pay operating expenses or to pay back earlier debts. The plan called for debt to be used for the financing of infrastructure. It said Puerto Rico's municipalities should be encouraged to end the practice of deficit financing.

It stated that Puerto Rico will sell a $500 million municipal sales tax backed bond in fiscal year 2015 to allow the GDB to refinance municipal debts.

Puerto Rico's four year capital improvement plan, which started Jan. 1, 2014, is for $12 billion in public and private works, the agenda stated. Of this, the commonwealth will provide $5.43 billion, Vila said. Public-private partnerships will provide an additional $2 billion. The government will repay some of this over the long term, Vila said. The private sector will provide the remaining $4.57 billion.

"The government will seek to limit the increase in the level of public debt to the growth of the economy," the plan stated.

The government's debt was 68% of gross domestic product and 100% of gross national product, according to the plan.

"We believe the size of our public debt is too large vis à vis the level of economic activity," Vila said. "We, therefore, need to engage in a strategy of reversing the level of growth in our debt service to below that of our real economic growth .... We believe a starting point in reversing the trend is balancing the budget."

The government plans to do further actions in the future to reduce its dependence on borrowing, Vila said.

"Most actions in the agenda will be enforced through legislation and regulations," Vila said. "We already have submitted bills and are working on others to be considered by this legislature." The governor will be able to institute some of the other proposals without legislative action, Vila said.

by Robert Slavin

Puerto Rico Plan Aims To Reboot Island s Economy

Aspen Surgical to expand operations in Puerto Rico

SAN JUAN, Puerto Rico (AP) — A disposable surgical supplies company is investing more than $3 million to expand its operations in Puerto Rico.

Aspen Surgical Puerto Rico said Wednesday that it will improve its operational efficiency and add 30 new jobs to its plant in the eastern town of Las Piedras.

The Michigan-based Hill-Rom Company said there are currently 200 workers at that plant, which produces some 110 million razor blades a year.

The announcement comes as Puerto Rico seeks to diversify its economy and strengthen its manufacturing sector amid a recession.

Aspen Surgical to expand operations in Puerto Rico

Is Puerto Rico the Perfect Tax Haven for US Citizens? Part 1

One of the advantages of being around as many years as I have is a long memory.

And, during my entire 30-year career, Congress has been trying to figure out the best way to help the struggling economies of the US territories: Guam, Puerto Rico, the US Virgin Islands, and the Northern Mariana Islands.

Puerto Rico, which in the last year has exploded into prominence as a “tax haven” for wealthy Americans and businesses, is a great 

example. The island became a US possession in 1898 after the Spanish-American
War. Ever since, Congress has been trying to figure out how best to deal with
its persistent poverty.

For more than a century, Congress has tried direct aid, industrial incentives, and tax breaks to revive Puerto Rico’s economy. As the political winds shift in Washington, DC, these incentives have come and – inevitably – gone. The result: Unemployment is nearly 14%, and the average per capita income is about half that of Mississippi. Crime is rampant, with a murder rate six times that of the mainland. Puerto Rico has a public debt exceeding $70 billion, and its municipal bonds have been downgraded to junk status. Deposits in local banks have fallen 30% since 2005. It’s no wonder that nearly 5 million Puerto Ricans now live on the mainland, versus the 3.6 million still residing on the island
itself.

The first tax incentives for Puerto Rico came into effect in 1921, and in 1976, Congress gave US companies the ability to operate in Puerto Rico tax-free. Hundreds of companies – most prominently those in the pharmaceutical sector – moved to Puerto Rico. But by the mid-1990s, these incentives were costing the US Treasury billions of dollars in tax payments. So in 1996, Congress repealed this incentive. Easy come, easy go.

Today, the main federal tax incentive for Puerto Rico provides that bona-fide residents of the territory need not pay income tax on “income derived from sources within Puerto Rico.” By itself, this exemption isn’t particularly noteworthy, because Puerto Rico taxes are much higher than those of any US state, with a top rate of 33%.

However, the exemption opens the door for local tax incentives. And Puerto Rico responded in 2012. Anyone who becomes a bona-fide resident of Puerto Rico is now eligible for the following benefits, courtesy of a new law, Act 22:

• 
  
  100% tax exemption from Puerto Rico income taxes on all dividends and interest
  payments
• 
  
  100% tax exemption from Puerto Rico income taxes on all short- and long-term capital
  gains accrued since becoming resident in the territory.

The law is ideal for wealthy US citizens or green card holders who are now paying federal incom taxes as high as 39.6% (plus the 3.8% Obamacare tax) on passive income and want to reduce their federal tax liability. If you reside in Puerto Rico and live off your portfolio income, you pay zero tax in the US or Puerto Rico.

Puerto Rico guarantees these provisions will remain in place until the end of  2035.

Tax Breaks for Businesses, Too

Additional tax breaks exist for companies as well, although it’s not possible to operate a
business completely tax-free.

To qualify for these business tax incentives, you need to form a Puerto Rican company. You must be an employee of that company and pay yourself a salary of $250,000 or one-third of your profits, whichever is smaller. On that income, you must pay local tax at a top rate of 33%, Medicare tax of 2.9%, and Social Security tax of 12.4% on the first $117,000 of your salary.

So, unless your business generates at least $250,000 in annual profits, there’s no real benefit to this strategy. Income above this threshold, however, is subject to only a 4% corporate income tax. You can take these profits in the form of a tax-free dividend. The total tax on income above this threshold, therefore, is only 4%.

Tax Nirvana… or Not?

No doubt, these are some mouth-watering incentives. When these incentives came into being, a media frenzy followed, with headlines like “Puerto Rico Rolling Out the Welcome Mat for Millionaires.”

My biggest concern about these incentives was – and continues to be – that they’re in the “too good to be true” category. The incentives exist only because the US Tax Code exempts Puerto Rico source income from federal taxes. Congress could change or amend this status anytime.

This fact hasn’t stopped some promoters from claiming that, since the incentives are part of Puerto Rican law, Congress can’t do anything about them. Indeed, in a recent interview I gave, the host – who should know better – made this exact point. When I tried to refute it, he interrupted me and ended the conversation.

There are already rumblings in Congress that Act 22 threatens to erode the US tax base. There would likely be little political opposition on the mainland to shutting down or restricting these tax benefits.

Should you relocate to Puerto Rico? Sure. If you’d benefit from these tax breaks, I don’t see much downside. Keep in mind that to qualify for them, you must be physically present in Puerto Rico for at least six months each year. And while English is the language of business on the island, most of the locals speak Spanish.

But remember, when too many people start exploiting a loophole to save on federal taxes, the loophole usually closes. It’s happened before in Puerto Rico – and it could happen again.

Mark Nestman
writes the Nestmann Notes.

By  Mark Nestmann

Is Puerto Rico the Perfect Tax Haven for US Citizens?

UBS faces $5 million class action claim on Puerto Rico bond funds

A class action claim filed this week in federal court sheds new light on the possible conflicts of interest surrounding UBS' sale of Puerto Rico municipal bond funds. The complaint, filed on Monday in U.S. District Court for the Southern District of New York on behalf of seven investors in Puerto Rico, is asking for damages "in excess of $5 million" on the grounds that UBS AG's wealth management group violated its fiduciary duty in selling funds with proprietary products and high commissions. UBS marketed the tax-free investments as secure “fixed income” securities that would preserve investors' principal, when in fact the funds were highly volatile and contained a large portion of bonds that UBS had underwritten, according to the complaint.

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“For defendants, however, the funds were cash cows, which defendants milked for hundreds of millions of dollars in fees and commissions,” the complaint said. UBS said the complaint is “wholly without merit,” according to a statement provided by spokesman Gregg Rosenberg. “We intend to defend ourselves vigorously against [the allegations],” the firm said. The complaint is not the first class action claim made with regard to the bond funds. As of April, Finra had received more than 200 arbitration claims on similar grounds.But this class action is one of the first to make claims about breach of fiduciary duty and present numbers around the fees UBS collected. “The fee issue in the class actions, and for that matter in arbitrations, will be an extremely important issue,” said Andrew Stoltmann, an attorney who is representing claimants in Finra arbitrations regarding the funds. “The onion is getting peeled in terms of what UBS did and how much they were paid.”The plaintiffs say that under Puerto Rico's securities laws, UBS was acting under a fiduciary standard of care, which would have made the conflicts of interest illegal.UBS was the lead or co-lead underwriter in 19 municipal financings from 2008 to mid-2013 and collected more than $200 million in underwriting fees, the lawsuit said. The firm also collected fees from its asset management unit for managing the closed-end bond funds and “generated tens of millions of dollars in advisory and transactional fees by causing the funds to purchase the Puerto Rico bonds they had underwritten,” according to the claim. UBS made around $50 million in fees per year for managing the UBS closed-end funds, the complaint alleges. Clients then paid a 4.75% commission when investing in the bond funds, which was much higher than if UBS had sold individual securities or bonds directly to consumers, according to the complaint. The complaint also states that UBS advisers in Puerto Rico encouraged clients to borrow against their brokerage accounts and then re-invest the money into the funds. The firm made approximately $500 million in loans to Puerto Rico customers, plaintiffs said. Investors had been pouring money in as Puerto Rico bond funds had demonstrated strong performance prior to 2013. The Tax Free Puerto Rico Bond Fund II Inc. generated a market return of 9.95% in 2012, according to an annual report from UBS. “For more than 20 years, investors in UBS' Puerto Rico and closed end funds received excellent returns that frequently exceeded the returns available through investments in other bonds or bond funds,” Mr. Rosenberg said. “In addition, because they are exempt from Puerto Rico and US estate and gift taxes and may have provided tax-exempt or tax-advantaged income, Puerto Rico municipal bonds and closed end funds provided additional benefits to investors.”But a number of the funds tanked in 2013 as interest rates began to increase, the City of Detroit filed for bankruptcy and critics began to question Puerto Rico's ability to deliver on its budgetary reform measures. The Tax Free Puerto Rico Bond Fund II lost 49.75% for 2013 based on the market value of the shares of the fund. The losses were amplified by the fact that many of the funds were over concentrated, highly leveraged and therefore unsuitable for retirees, the complaint said. UBS said, however, that the funds' holdings had to consist of at least 67% Puerto Rico assets in order to achieve the tax benefits, and that the concentration was disclosed in the prospectuses. UBS' head of wealth management and investment solutions, Robert Mulholland, had characterized the situation as a “perfect storm” during a September 2013 trip to San Juan, the complaint said. The complaint also names Banco Popular de Puerto Rico, and a subsidiary, Popular Securities, which had around 50 financial advisers in Puerto Rico and jointly managed some of the Puerto Rico municipal bond funds, according to the complaint. A spokesperson for Banco Popular was unable to be reached by press time.

Plaintiffs say the firm breached its fiduciary duty in selling proprietary funds that were not in the best interests of clients

By Mason Braswell

UBS faces $5 million class action claim on Puerto Rico bond funds

Puerto Rico unveils economic recovery plan details

SAN JUAN, Puerto Rico (AP) — Puerto Rico's government on Tuesday unveiled details of an economic recovery plan to pull the U.S. territory out of a nearly eight-year recession as it fights to trim $73 billion in public debt.

The plan calls for improving schools, strengthening tourism and agriculture sectors and reducing power costs, among other things.

Ingrid Vila, gubernatorial chief of staff, said Puerto Rico aims to have 2 percent economic growth by 2018, a goal that consultants have said requires some $12 billion in public and private investments.

"Puerto Rico is going through one of the hardest times in our history," Vila said. "Our debt growth rate is higher than our economic growth rate."

She said the government has already started working on some of the goals, noting that it has revived the sugarcane industry and that local farmers harvested rice for the first time in 30 years. Vila also said developers built some 2,200 new hotel rooms last year, although critics say they are waiting to see whether the occupancy rate will increase.

The government also is pushing to lower power bills on an island that depends on oil to generate roughly 70 percent of its electricity.

Education Secretary Rafael Roman said his department plans to enroll children into preschool at an earlier age and will open 32 new preschools this year. He said he also aims to increase the island's university graduation rate by offering free computers and continuing a program that allows students to take a college admission exam for free.

U.S. investors and bondholders, along with major credit rating agencies, have been closely watching Puerto Rico's economy amid pledges from the government to improve the island's fiscal situation.

Vila said the government plans to take concrete actions and adhere to the plan. "It's more than just a public declaration," she said.

Puerto Rico economist Martha Quinones said it is unclear whether all the goals can be realistically met. She noted the Caribbean's tourism market is already saturated and said Puerto Rico faces overwhelming competition from imported food items.

Quinones also questioned whether the island will reach 2 percent growth by 2018.

"It might not be achievable in four years because all those investments will take their time to generate growth," she said.

She also said Puerto Rico has implemented too many tax measures. "Companies need assurance that the ground rules are not going to change," she said.

By DANICA COTO

Puerto Rico unveils economic recovery plan details

PR aims for 2% economic growth by 2018

The government is shooting for Puerto Rico to post 2 percent economic growth by 2018, according to La Fortaleza chief of Staff Ingrid Vila, adding that consultants have said will require some $12 billion in investment.

The plan, which is also directed at paring down debt totaling $73 billion, follows already announced priorities such as improving schools, boosting tourism, growing the agriculture industry, and cutting Puerto Rico’s sky-high power rates, among other things.

Puerto Rico’s economy is still shrinking but at the narrowest rate in more than a year, according to the Government Development Bank’s latest Economic Activity Index.

The EAI for March fell by 0.8 percent compared to the same month in 2013, posting a 16^th straight monthly drop on a year-over-year basis. Last month’s decline, which followed a 2.5 percent drop in February, was the shallowest since February 2013.

The EAI - which measures employment, electric power generation, cement sales and gasoline consumption - has now risen for three straight months on a month-over-month basis.

However, the EAI is down 3.4 percent through the third quarter of fiscal 2014 when compared to the same 9-month period in fiscal 2013 (July-March). The index had returned to growth in December 2011 for the first time since Puerto Rico’s recession began in 2006. It showed small but consistent year-over-year gains for nearly a year before beginning to retreat again in November 2012. The index has dropped every month since.

Puerto Rico is also grappling with population loss, marked by the so-called “brain drain” flight of young professionals, that has picked up during a marathon economic recession. Meanwhile, the birth rate has fallen and the population has gotten older.

CARIBBEAN BUSINESS has been sounding the alarm about Puerto Rico’s declining population for years. And the downward trend shows no sign of slowing as the island’s economic downturn stretches into a ninth year.

Economists and demographers warn the population loss and related demographic trends will pose increasingly greater challenges to the island. Human resources executives note that those problems extend to island businesses and Wall Street credit ratings firms now regularly cite population loss as a key challenge for the island economy and efforts to shore up the government’s shaky finances.

The plunging population and shifting demographics represent a range of challenges for the island, including the prospect of less federal funding, a shrinking tax base and increased budget pressures, lower demand for goods and services, reduced investment and a dramatically aging population with fewer financial resources.

The issue is also increasingly raising red flags on Wall Street regarding the island’s economic and fiscal future. All three credit rating agencies – Standard & Poor’s, Moody’s and Fitch – have cited the population decline in recent reports on their downgrades of Puerto Rico’s credit to junk level.

The administration of Gov. Alejandro García Padilla on Tuesday released details of an economic recovery plan aimed at pulling debt-plagued Puerto Rico out of a recession dating back to 2006.

PR aims for 2% economic growth by 2018

Puerto Rico's government releases details of economic recovery plan amid 8-year recession

SAN JUAN, Puerto Rico - Puerto Rico's government has unveiled details of an economic recovery plan to pull itself out of a nearly eight-year recession as it whittles down $73 billion in public debt.

The plan calls for improving schools, strengthening tourism and agriculture sectors and reducing power costs, among other things.

Gubernatorial Chief of Staff Ingrid Vila said Tuesday that Puerto Rico aims to have 2 per cent economic growth by 2018. She said it's a goal consultants have said will require some $12 billion in investment.

Puerto Rico economist Martha Quinones said in a phone interview that it is unclear whether all the goals can be realistically met. She questions whether the island will reach 2 per cent growth in four years, noting that new investment takes time to generate growth.

Puerto Rico's government releases details of economic recovery plan amid 8-year recession

Puerto Rico s Billionaires Strategy

Like it or not, getting wealthy individuals to move to the Island in order to avoid U.S. taxes appears now to be a cornerstone of Puerto Rico's growth drive and is characteristic of the country's eternal search for a quick and painless way to grow.

Orlando Sotomayor

Puerto Rico s Billionaires Strategy

Report Shows Resurgence of Hiring but Has Downbeat Notes

The American economy picked up steam in April, as employers added 288,000 jobs while the unemployment rate fell to 6.3 percent, the lowest level since September 2008.

After a sharp slowdown in job growth in December and January, and a modest improvement since then, economists had been forecasting a healthy gain for April as consumer and business activity rose in tandem with temperatures in many parts of the country.

But the good news was tempered by a drop of 806,000 in the number of Americans in the labor force, pushing the labor participation rate down sharply. And despite the fall in joblessness, average hourly earnings were flat.

“The payroll numbers suggest that the economy is recovering from a weather-induced showdown, said Ethan Harris, co-head of global economics at Bank of America Merrill Lynch. But “even with the drop in the unemployment rate,” he said, “we still have not reached to point where workers have negotiating power.

That contradiction — more employers finally beginning to hire workers at a more aggressive clip, but little or no improvement in weekly paychecks for the 146 million Americans who already have jobs — presents a challenge both for politicians and for policy makers at the Federal Reserve.

The Fed has been gradually stepping back from its stimulus efforts this year, a stand validated somewhat by the fall in the unemployment rate, but the lack of wage growth undermines claims by both the Fed and some elected officials that a resurgent economy is at hand.

Nor is Washington alone in trying to figure out this complicated picture. On Wall Street, where signs of a turnaround in hiring might be expected to set off a rally, reaction was muted in midday trading Friday. After initially jumping after the Labor Department report, major indexes were almost unchanged for the day.

To be sure, month-to-month swings in hiring are a snapshot of the economy, rather than a portrait, and frequently blur.

For example, government statisticians on Friday revised upward the number of jobs added in February and March by a total of 36,000, suggesting the economy was stronger than first assumed. And the April data could be significantly revised upward — or downward — next month.

Still, the 288,000 figure for April was the best monthly increase since January 2012. And if those kinds of labor market gains continue for the balance of 2014, it would be a much-needed element of good news for President Obama and Democrats on Capitol Hill, who have been apprehensive ahead of midterm elections in November.

At a Rose Garden news conference Friday morning, Mr. Obama hailed the good economic news, crediting the “grit and determination of the American people” for moving the country forward economically.

But he also warned that the good news could be fleeting without a “relentless” pursuit of policies that will create more jobs and opportunities. He urged Congress to increase the minimum wage — a move that Senate Republicans blocked this week with a filibuster — and to invest in infrastructure.

“There’s plenty more that Congress should be doing,” Mr. Obama said.

Many private-sector economists said they were pleasantly surprised by the size of the payroll gain last month. “It’s as good as I could have expected,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics. “It was either a post-winter catch-up, or the start of a stronger trend. There’s no way to know yet, but I’m happy either way.”

More telling than any one month’s change is the average monthly gain in payrolls over the last year, which now stands at 197,000. So April’s data show a significant improvement over the longer-term average.

The consensus among economists polled by Bloomberg before the Labor Department’s announcement Friday morning called for an increase of 218,000 in nonfarm payrolls, with the unemployment rate falling by a tenth of a percentage point, to 6.6 percent.

The monthly Labor Department report is based on two separate surveys, one of households, the other of establishments, including government agencies, and private-sector businesses like factories, offices and retail stores.

The establishment survey provides the monthly estimate for payroll changes, and is favored by economists and professional investors, while the unemployment rate is derived from the more volatile survey of households. Although the two measures tend to correspond over time, month-to-month variations can be wide.

For example, the April survey of about 60,000 households indicated that 73,000 Americans lost work last month, versus the gain of 288,000 in the establishment survey.

While the contrast between a seeming surge in hiring by employers and a sharp drop in the size of the work force set off a fierce debate Friday about just what to read into the Labor Department data, Mr. Shepherdson insisted the payrolls number was the most credible.

“The household survey is insanely volatile,” he said, noting that in past months, the labor participation rate had been growing, with sizable gains in the work force. “It leads people down the garden path regularly.”

As for wages remaining flat despite a healthier labor market, “this is very definitely a puzzle,” Mr. Shepherdson said. “You would expect to see some evidence of a shift as the unemployment rate goes down.”

At 6.3 percent, the unemployment rate is down sharply from the peak of 10 percent in October 2009, in the aftermath of the recession. But it is still above the historical average for this stage of an economic recovery, and masks pockets of significant joblessness among blacks, teenagers and workers with a high school degree or less.

Strong sectors of growth last month included construction, which gained 32,000 jobs and retail, which added 35,000 jobs. Professional and business services, an area of the economy that is closely watched as a barometer for broader white-collar activity, added 75,000 positions.

The health care sector, which showed strength in an otherwise disappointing report on first-quarter economic conditions from the Commerce Department on Wednesday, added nearly 28,000 jobs in April. Since the start of 2014, the sector has added roughly 83,000 jobs, and many economists expect hospitals and medical offices to keep hiring amid increased demand from new patients with the rollout of the Affordable Care Act.

Of the 288,000 increase in payrolls, 273,000 came in the private sector, with government adding 15,000 positions.

On Wednesday, Federal Reserve officials said that they were seeing an increase in economic activity, and would continue to gradually reduce monthly bond purchases aimed at stimulating the economy.

The better-than-expected jobs report Friday comes in the wake of other encouraging economic yardsticks. For example, a survey of hiring among private employers in April, released by ADP on Wednesday, showed the best monthly increase since November. In addition, the latest report on the Institute for Supply Management’s index of factory activity, announced Thursday, also showed an increase in output.

By NELSON D. SCHWARTZ

Report Shows Resurgence of Hiring but Has Downbeat Notes 

Governor: $9.64B budget; balance means $1.5B belt-tightening

Making good on a pledge to present Puerto Rico’s first balanced budget in decades, Gov. Alejandro García Padilla proposed a $9.64 billion spending plan for fiscal 2015 that includes $8.865 billion to run the government and another $775 million to cover debt service for the year.

In an address to a joint session of the Legislature, the governor outlined a spending package that represents more than $1.5 billion in belt-tightening measures including $705 million in direct spending cuts and another $814 million in freezes in automatic pay hikes.

“The practice of spending more than we have is over,” García Padilla said. “We are going to make clear to the world that this island pays what it owes.”

García Padilla’s proposal translates into a 2.2 percent reduction in central government spending from the commonwealth’s nearly $9.9 billion budget for the current fiscal year (ends June 30). The proposed consolidated budget, including federal funds, is $28.13 billion for fiscal 2015, a 3 percent decrease from $29 billion this year. (A full copy of the budget is available at www. fortaleza.gobierno.pr.)

The governor framed his budget as part of a four-year economic recovery plan as the government grapples with $73 billion in debt, junk-rated general obligation bonds and an ongoing economic recession dating back to 2006.

“The recovery plan is similar to plans presented by Ireland when its credit was downgraded and which is now today investment grade. It’s about economic development and offering jobs to citizens,” Treasury Secretary Melba Acosta said prior to governor’s speech. “The budget is part of this larger picture. This budget emphasizes spending, But more than cutting costs, this budget rationalizes public expenditures to make sure that each and every dollar is spent as well as it can.”

For the first time in 20 years, the budget also includes money for previous refinancing of outstanding debt — some $575 million for fiscal 2015 — something that was not included before in annual budgets, Acosta said.

The $1.5 billion reduction in projected spending will be obtained through a far-reaching government overhaul that will include the closure of about 100 public schools, elimination of 23 public agencies, restructuring of public corporations, a 7.5 percent reduction in central government spending, and freezing of scheduled annual automatic pay hikes for the judicial and legislative branches, as well as the University of Puerto Rico, Office of Management & Budget Director Carlos Rivas said.

The commonwealth will not cut government jobs or reduce public employees’ work hours or salary. Employees who work at agencies slated for shutdown will be absorbed by related government entities.

Agencies slated for the chopping block include: the Youth Affairs Office, which would be integrated into the Economic Development & Commerce Department; the Woman’s Affairs Advocates Office, which will be integrated into the Family Department; Veterans Advocate Office, which will be integrated into Veteran’s Affairs Administration; the National Parks Co., which will be integrated into the Sports & Recreation Department; the Inspector General’s Office, which will be integrated into the OMB; and the Maritime Transportation Authority and Metropolitan Bus Authority, both of which will be integrated into the Department of Transportation & Public Works.

“We’ve been working on this for the past 13 months. We’ve given a lot of thought to this,” Acosta said.

The elimination of agencies and reduction of schools, which are still under evaluation, will not result in reduced services to local residents or overcrowding and extended hours for public school students, officials said.

Many of the schools slated for closure have too few students and/or are in poor condition while a nearby school in better condition is available to students of schools slated for closure. Under law, there has to a public school within four miles of where a student lives and this will continue to be the case.

“These schools are schools that do not have a reason to be,” Rivas said, adding today there are 430,000 public school students versus 750,000 public school students in the 1980s. “Based on this demographic pattern, the number of public school students will drop to 320,000 students in five years.”

The closures will affect about 3,000 teachers, but these, like their peers at government agencies slated for closure, will be transferred to the Education Department’s central offices to do other work, Rivas said. The commonwealth also is reviewing efficiencies in school bus system, something which costs $200 million a year

Since the Legislature must review and approve these cost cutting measures, the commonwealth has no plans to do further refinancing of government debt for now, Acosta said.

“Reports that we have hired companies to restructure our outstanding debt are untrue as we don’t know what is going to happen with this government overhaul,” Acosta said. “We can’t talk about refinancing until we are sure everything is in place, and right now everything is on the table.”

Plan rests on $652 million hike in revenues

The fiscal 2015 spending plan anticipates $652 million in increases in the commonwealth’s recurring annual income, including Puerto Rico’s inclusion in the multi-state electronic lottery known as PowerBall.

“In net terms, considering loses from other electronic lotteries, Power Ball should net $13 million increase in funds,” Acosta said. “Instead of a chance to win $8 million, people will have a chance to win $400 million, but of course the odds are much smaller.”

Treasury’s review of incoming cargo at island piers to ensure the levying of the sales & use tax (IVU by its Spanish acronym) should glean an added $170 million. Other legislation that has been approved and is in the pipeline plus increased rum sales by Destilería Serrallés are projected to generate $112 million a year in added income for the commonwealth.

The commonwealth also expects to raise $370 million a year through a slew of proposed legislation it will present with the budget.

Proposed measures include reducing the 24 percent alternate tax rates to individuals who earn $300,000 or more versus the current starting level of $500,000.

The government also plans to reduce the exemption on passive income in local certificates of deposit from $4,000 a year in accumulated interest to $2,000 a year.

The commonwealth also will propose transferring the $39 million in fines collected by the Integrated Transportation Authority to the cash-strapped and debt-laden Highways & Transportation Authority and freezing the formula for the Green Energy Fund at its current level of $20 million.

Due to island’s reduced population and tax base, the measures to collect more taxes should amount to a nominal increase of $40 million in Treasury’s projected overall collections for fiscal 2015, Acosta said.

Governor: $9.64B budget; balance means $1.5B belt-tightening

Governor seeks fiscal emergency law to allow spending cuts across board

The emergency measure was presented along with the governor’s $9.64 billion spending plan for fiscal 2015 (starts July 1), which calls for 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. The budget includes $775 million to pay off debt — $525 million more than in last year’s budget. At least 100 underutilized public schools could be closed.

The $9.64 billion budget aims to strengthen and revive the economy as the U.S. territory remains in a recession dating back to 2006 and grappled with $73 billion in public debt. That includes $3.5 billion in junk bonds issued in March for refinancing to provide the cash-strapped government some breathing room to boost revenues and jumpstart the long-lagging economy.

The budget does not call for layoffs of government workers.

The fiscal emergency measure would compel all central government agencies and public corporations to cut back Christmas bonuses to workers to $600, which would match the minimum required under law for private companies to pay their employees.

The fiscal emergency law would also eliminate the liquidation of unused sick days for public workers, except police officers, and suspend incremental benefits for government employees.

Office of Management & Budget Director Carlos Rivas said it is up to each agency chief to seek to renegotiate collective bargaining agreements, If unsuccessful, they have to find the savings somewhere else, he said.

The OMB chief acknowledged that the proposed law impacts acquired rights and contracts and could face legal challenges.

“The government is trying to save money to pay its debts,” Rivas said. “The point is to save jobs.”

Gov. Alejandro García Padilla has filed legislation to declare a fiscal emergency that would allow the administration to impose cost-cutting measures across the central government, public corporations, municipalities and autonomous entities.

Governor seeks fiscal emergency law to allow spending cuts across board