Puerto Rican crisis roils 2016 race

Puerto Rico's economic crisis could play a critical role in the race for the White House.

Years of economic decline has driven hundreds of thousands of island residents to the US mainland, and is upending the political calculus on the presidential trail.

Puerto Rican residents cannot vote for the president in the general election, but can cast votes in primary contests.

The hotly contested Republican primary now has every candidate scrambling for whatever delegates they can find, leaving Puerto Rico's oft-ignored primary on March 6 a unique opportunity for a pickup.

Even more significantly, a huge chunk of the Puerto Ricans that fled the island resettled in Florida, presenting a new voting bloc in that critical swing state.

“Over half are going to one state, and that’s Florida. This will have an impact on the primaries and subsequent November elections,” said Amilcar Antonio Barreto, an associate professor at Northeastern University and an expert on Puerto Rican politics. “They’re a big wild card.”

Puerto Ricans occupy a unique space in U.S. politics. While on the island, they are residents of a commonwealth and cannot ultimately vote for the president. But they are also American citizens, and free to move to the mainland whenever they want, where they can vote in the general election.

And hundreds of thousands of Puerto Ricans have made that choice, as a massive debt crisis is forcing the island to ask Congress to let it declare bankruptcy on some of its bonds and made providing basic public services a significant challenge.

The mass exodus from Puerto Rico has placed the island in the sights of competing campaigns, eager to win over not only island residents, but former residents now spread across the country.

According to experts, Puerto Ricans generally lean Democratic by a roughly 2 to 1 margin, and Hillary ClintonHillary Rodham ClintonFinal Clinton emails coming todayBlack GOP senator condemns Trump for failing to denounce KKK Trump gets first Senate endorsementMORE is expected to win the Democratic primary on the island in June.

But every delegate will count for GOP candidates, with talk of a contested convention growing. And it seems as if the island is up for grabs, with no apparent polling having been done for Republicans.

Prediction markets give Marco RubioMarco RubioRubio attacks Trump’s short fingers What would TrumpCare look like?Black GOP senator condemns Trump for failing to denounce KKKMORE an edge, but Donald TrumpDonald TrumpLouie Gohmert faces his biggest challengeRubio attacks Trump’s short fingers What would TrumpCare look like?MORE’s extensive real estate ventures have given him a significant presence on the tourism-heavy island.

“My guess is that the majority of them are going for Trump,” said Charles Venator-Santiago, an associate professor at the University of Connecticut. “He’s a known quantity in Puerto Rico.”

While Puerto Ricans, as U.S. citizens, are not impacted by immigration policies, Barreto wondered if Trump’s heavy hand on that topic could hurt him if they feel like the broader public is becoming hostile to Hispanics as a whole.

In past GOP primaries, Puerto Rican voters have supported the front-runners, handing Mitt Romney and John McCainJohn McCainRubio earns rare primary endorsement from key Va. newspaperPuerto Rican crisis roils 2016 raceDem candidates buck Obama on GitmoMORE easy wins during their respective White House runs.

Presidential candidates looking to curry favor on the island often do so by nodding toward making it the 51st state. In the past, a majority of Puerto Ricans have supported becoming a state, which would subject the island’s residents to federal income taxes, but also provide access to heightened government benefits. But Congress has generally ignored efforts along that front.

Despite inaction from Washington, presidential candidates including Ben Carson and Rubio have voiced support for Puerto Rican statehood. But the ongoing debt crisis on the island has added a new feature to the politics.

Puerto Rico’s efforts to convince Congress to let it go bankrupt on some of its debt have been met with fierce pushback from investment firms holding those bonds. And generally speaking, support for bankruptcy has fallen down party lines, with Republicans opposed and Democrats in favor.

That has held true on the campaign trail as well. Clinton has publicly backed bankruptcy for Puerto Rico. Many Republicans have steered clear of the topic, but Rubio announced his opposition to it in September, before campaigning on the island.

During Thursday’s debate, Rubio was pressed on his Puerto Rico stance. He argued that it made no sense to allow the island to declare bankruptcy, since the underlying economic and fiscal challenges would remain. And he squarely blamed the island’s current government for the state of affairs.

“Bankruptcy doesn’t work unless you change the way you’re operating,” he said in the CNN debate. “The leadership on the island has to show their willingness to get their house in order.”

That, in turn, earned a sharp rebuke from Puerto Rico’s governor, Alejandro Garcia Padilla.

“I can only hope the four million Puerto Ricans currently living on the mainland, including the one million that are Rubio’s constituents, and the 3.5 million on the Island will remember the Senator’s desertion of the Puerto Rican people when they cast their votes in the primaries and the presidential election,” he said in a statement Friday.



For its part, the Obama administration is pushing a balanced approach that would combine heightened federal oversight of the island’s finances with the ability for Puerto Rico to restructure some of its debt if it cannot strike a deal with creditors.

Such a two-pronged approach appears to be gaining some momentum in Congress, as lawmakers hope to craft a legislative package before the end of March.

Island officials warn that it’s possible, if not probable, the island will default on mandatory payments coming due in May and July.

By Peter Schroeder

Puerto Rican crisis roils 2016 race

Puerto Rico's Debt Crisis is Focus of 2 Congressional Hearings as Dems Propose a "Super-Bankruptcy"

Democracy Now! co-host Juan González reports Congress held two hearings on the Puerto Rican debt crisis Thursday after House Speaker Paul Ryan set a March 31 deadline to pass a bill that addresses the issue. Democrats and Republicans are divided on what action to take. Democrats have proposed a "super-bankruptcy" that would allow the U.S. territory to settle its debts with creditors under a restructuring deal. Republicans want a control board if it provides financial assistance, as has happened in places like Detroit. But González notes Puerto Rico has objected to such control since it is a self-governing territory.

AMY GOODMAN: Juan, before we go to our next segment, you wrote an interesting piece in the New York Daily News about hearings on Puerto Rico, an issue that did not come up in the Republican presidential primary debate, nor the Democrats.

JUAN GONZÁLEZ: Well, it actually hasn’t come up in any of the debates. But there were two hearings in the House of Representatives in separate committees yesterday, because Speaker Ryan has set a March 31st deadline for a bill to be passed in the House of Representatives to address the financial crisis in Puerto Rico. And so the two House committees immediately began to work this week.

But the problem is there’s a huge divide between the Democrats and the Republicans as to how to address the Puerto Rico crisis. Antonio Weiss, who’s the Obama administration’s point person in Treasury, testified at one House hearing, and he urged two major things that had to be done immediately on Puerto Rico. One is the Congress passing "super-bankruptcy" to allow the territory to consolidate all of its debts and have a universal settlement with all the creditors in a restructuring deal, something that virtually all the Republicans on the panel questioned as to whether that would create a huge crisis with the financial industry and also whether that would mean that other states would end up having to have the increased borrowing costs for their bonds as a result of Puerto Rico’s default.

The other big issue is what kind of financial controls will the Congress exercise over Puerto Rico in any kind of assistance that’s given to the island. And Weiss urged the—many Republicans want a direct financial control board, something like what happened in Detroit or what’s happened in Washington, D.C., where a group takes over—a financial control board takes over the finances of an entity that is virtually bankrupt. But Weiss reminded the Congress that Puerto Rico is a self-governing territory, and you cannot have the same kind of direct financial control over Puerto Rico that you would over a city. And that’s become another major issue. So I’m not sure that any settlement is going to be reached. But Weiss warned the Congress that Puerto Rico has another $400 million bill due May 1 and $2 billion in debt payment due July 1, and it cannot possibly pay those bills, as well. So the issue is how quickly will the Congress act based on Ryan’s promise, and we’re going to see what happens in the future.

AMY GOODMAN: And, of course, we’ll continue to follow it. Thanks, Juan, for great reporting.

Puerto Rico's Debt Crisis is Focus of 2 Congressional Hearings as Dems Propose a "Super-Bankruptcy"

White House steps up $400M aid for Puerto Rico

Hoping to spur economic development in financially ailing Puerto Rico, the White House said Thursday it will speed access to almost $400 million for roads and other public works projects on the island.

Transportation Secretary Anthony Foxx, during a visit to the U.S. territory Thursday, was to sign agreement leading to more technical assistance from Washington and more immediate access to money to keep road projects on schedule, said Jason Miller, deputy director of the National Economic Council, which advises the president on economic policy.

Other Cabinet secretaries are expected to follow in the months ahead as the administration tries to help Puerto Rico weather its crisis.

Interior Secretary Sally Jewell will visit in April to examine ways to strengthen tourism. Agriculture Secretary Tom Vilsack will come in May.

Win McNamee/Getty Images
Transportation Secretary Anthony Foxx visited the island on Thursday.

But the White House also said Congress needs to give Puerto Rico the ability to seek bankruptcy protection under a framework reserved for U.S. territories. That proposal has drawn objections in Congress, with some Republican leaders saying Puerto Rico has the tools to restructure a large portion of its debt voluntarily.

The administration has also called for increased Medicaid funding and making a tax credit for low-income workers available to people living in Puerto Rico.

Puerto Rico has $72 billion in public debt that the governor has said is unpayable.

Ricardo Arduengo/AP

A homeless man stands in front of a closed down fast food restaurant in the colonial district of Old San Juan, Puerto Rico, in August 2015. The White House has agreed to speed up access to almost $400 million for public works on the island.

White House steps up $400M aid for Puerto Rico

Exclusive: U.S. airfares to Puerto Rico slide; debt crisis, Zika weigh

U.S. airlines have slashed leisure fares to Puerto Rico in recent months to lure travelers to the debt-strapped island, hit by economic turmoil and lately the arrival of the mosquito-borne Zika virus.

The lowest fares to San Juan, Puerto Rico, have fallen 22 percent on average from a year ago, according to an early February analysis of six of the busiest U.S. domestic routes to the island's capital by Harrell Associates, shared exclusively with Reuters.

The drop outpaced an 18 percent fall nationwide in the high-restriction fares during that time, according to the travel consultancy's analysis.

"It's a combination of slack demand in both directions," said Robert Mann, an airline industry consultant.

"Leisure travelers going to Puerto Rico are concerned both about the state of the economy and the extent to which leisure resort facilities are going to be properly maintained," he said. "If you're a Puerto Rican resident, the buying power just isn't there."

With a stagnating economy and an exodus of its population to the mainland, the U.S. territory has defaulted on part of its $70 billion in debt and asked its creditors to renegotiate the borrowing terms to slash its debt burden.

Puerto Rico is also one of 28 countries and territories in the Americas battling the Zika virus. It reported 63 cases as of Feb. 18, and U.S. health officials expect many thousands of residents to contract the virus once the mosquito season peaks this summer.

"Mosquito-borne viruses are a severe and immediate threat to the health and safety of my constituents," the territory's representative to Congress, Pedro Pierluisi, said in a statement on Tuesday, urging the U.S. government to help reduce threatening mosquitoes on the island.

CONFERENCES CANCELED

Harrell Associates data showed the lowest fares to San Juan already dropped more than 14 percent in early February from a month before, following a Jan. 15 travel advisory for pregnant women from the U.S. Centers for Disease Control and Prevention. Fares slipped only 1 percent nationwide during this time.(http://tmsnrt.rs/1QwvgNN)

Scientists are investigating a potential link between Zika infections of pregnant women and more than 4,000 suspected cases in Brazil of microcephaly, a condition marked by abnormally small head size that can result in developmental problems.

Airlines have yet to report lower bookings due to the virus.

Frank Comito, chief executive of the Caribbean Hotel and Tourism Association, said a recent study that found bookings were down 3.4 percent to Zika-hit regions had made a causal "leap," noting factors such as hot January weather and global economic uncertainty.

However, three conferences at major Puerto Rican hotels were recently canceled and one postponed because of concerns over the virus, costing the island 1,969 hotel-room nights, said Joyce Martinez, vice president of business development and sales at nonprofit Meet Puerto Rico.

Puerto Rico hosts an estimated 20 to 30 conferences each month, she said.

Data suggests fares have fallen not from a surge in seat supply but because airlines want to stimulate demand.

According to Harrell Associates, the one-way fares excluding taxes and fees dropped 36 percent in early February from a year ago to $80 from New York Kennedy, a hub for JetBlue Airways Corp and American Airlines Group Inc .

There was a 1 percent reduction in seats on the route in this period, aviation data and analytics company OAG said.

JetBlue, the largest airline in San Juan, and American declined to comment on pricing or whether either would reduce service to the island.

At American's Philadelphia hub there was a 40 percent drop in the fares to $125, buoyed partially by a 13 percent rise in seats.

Atlanta flights had a 15 percent reduction in seat supply and the only fare rise, up 21 percent.

(Additional reporting by Toni Clarke in Washington and Megan Davies in New York; Editing by Matthew Lewis)

By Jeffrey Dastin and Nick Brown

Exclusive: U.S. airfares to Puerto Rico slide; debt crisis, Zika weigh

Exclusive: U.S. airfares to Puerto Rico slide; debt crisis, Zika weigh

U.S. airlines have slashed leisure fares to Puerto Rico in recent months to lure travelers to the debt-strapped island, hit by economic turmoil and lately the arrival of the mosquito-borne Zika virus.

The lowest fares to San Juan, Puerto Rico, have fallen 22 percent on average from a year ago, according to an early February analysis of six of the busiest U.S. domestic routes to the island's capital by Harrell Associates, shared exclusively with Reuters.

The drop outpaced an 18 percent fall nationwide in the high-restriction fares during that time, according to the travel consultancy's analysis.

"It's a combination of slack demand in both directions," said Robert Mann, an airline industry consultant.

"Leisure travelers going to Puerto Rico are concerned both about the state of the economy and the extent to which leisure resort facilities are going to be properly maintained," he said. "If you're a Puerto Rican resident, the buying power just isn't there."

With a stagnating economy and an exodus of its population to the mainland, the U.S. territory has defaulted on part of its $70 billion in debt and asked its creditors to renegotiate the borrowing terms to slash its debt burden.

Puerto Rico is also one of 28 countries and territories in the Americas battling the Zika virus. It reported 63 cases as of Feb. 18, and U.S. health officials expect many thousands of residents to contract the virus once the mosquito season peaks this summer.

"Mosquito-borne viruses are a severe and immediate threat to the health and safety of my constituents," the territory's representative to Congress, Pedro Pierluisi, said in a statement on Tuesday, urging the U.S. government to help reduce threatening mosquitoes on the island.





CONFERENCES CANCELED

Harrell Associates data showed the lowest fares to San Juan already dropped more than 14 percent in early February from a month before, following a Jan. 15 travel advisory for pregnant women from the U.S. Centers for Disease Control and Prevention. Fares slipped only 1 percent nationwide during this time.(tmsnrt.rs/1QwvgNN)

Scientists are investigating a potential link between Zika infections of pregnant women and more than 4,000 suspected cases in Brazil of microcephaly, a condition marked by abnormally small head size that can result in developmental problems.



Airlines have yet to report lower bookings due to the virus.

Frank Comito, chief executive of the Caribbean Hotel and Tourism Association, said a recent study that found bookings were down 3.4 percent to Zika-hit regions had made a causal "leap," noting factors such as hot January weather and global economic uncertainty.

However, three conferences at major Puerto Rican hotels were recently canceled and one postponed because of concerns over the virus, costing the island 1,969 hotel-room nights, said Joyce Martinez, vice president of business development and sales at nonprofit Meet Puerto Rico.

Puerto Rico hosts an estimated 20 to 30 conferences each month, she said.



Data suggests fares have fallen not from a surge in seat supply but because airlines want to stimulate demand.

According to Harrell Associates, the one-way fares excluding taxes and fees dropped 36 percent in early February from a year ago to $80 from New York Kennedy, a hub for JetBlue Airways Corp (JBLU.O) and American Airlines Group Inc (AAL.O).

There was a 1 percent reduction in seats on the route in this period, aviation data and analytics company OAG said.

JetBlue, the largest airline in San Juan, and American declined to comment on pricing or whether either would reduce service to the island.

At American's Philadelphia hub there was a 40 percent drop in the fares to $125, buoyed partially by a 13 percent rise in seats.

Atlanta flights had a 15 percent reduction in seat supply and the only fare rise, up 21 percent.



(Additional reporting by Toni Clarke in Washington and Megan Davies in New York; Editing by Matthew Lewis)





Exclusive: U.S. airfares to Puerto Rico slide; debt crisis, Zika weigh

Puerto Rico trap in the midst of crisis; US Treasury Secretary strongly advises debt-restructuring regime

U.S. Treasury Secretary Jacob Lew met the group of bondholders reiterating Puerto Rico's need to have access to a debt-restructuring regime to solve its severe and rapidly deteriorating fiscal and economic crisis.


Treasury representative said in a statement, "Lew urged all stakeholders to come to the table. He warned that a disorderly default - a likely outcome in the absence of Congressional action - could trigger protracted and costly litigation."

Lew also told the group of bondholders that Puerto Rico needs an "orderly restructuring" of its debt that would require approval by U.S. Congress.


He told them it was essential that the small U.S. territory crumbling under $70 billion in debt needs Congress to pass laws establishing a process on orderly restructuring of the Caribbean island's debt.


But some creditors have fought such a move and so far Congress, requested by Puerto Rico and the White House to give it the right to enter bankruptcy protection, has not obliged.


Puerto Rico has been locked in recession for a decade, and defaulted on some debt payments at the beginning of the year.


Despite sweeping spending cuts and some policy reforms, it has not been able to stop the deterioration of its budget deficit.


President Obama earlier stated in the Democrat's retreat in Baltimore, "My administration has put forward a comprehensive proposal to give Puerto Rico the necessary tools to address its crisis, create a path to recovery."


"And the most urgent tool that we need right now - a comprehensive restructuring authority - costs taxpayers nothing and will help more Americans regain control of their own economic security. That's the kind of thing Democrats believe in," Obama added.


Lew also said that the people of Puerto Rico are sacrificing, but unless that sacrifice is shared by creditors in an orderly restructuring, there is no path out of insolvency and back to growth. Without congressional action, Puerto Rico will face a long and difficult recovery that could have harmful consequences for the American citizens who call the island home.


Time is running short for Puerto Rico. The government has not paid tax refunds, it has raided state pension funds, and it owes money to suppliers and contractors.


Jim Millstein, former Treasury official and a restructuring expert advising Puerto Rico's governor, said they are at the point where suppliers are stretched as far as they can stretch them.


He added that it would mean no more supplies for hospitals or schools and further blows to the economy.


"When we don't give taxpayers their money, that means that's money they aren't spending," he said.


Money paid to bondholders is flowing out of the territory, hurting growth further. Millstein said, "We have to get something done with creditors; otherwise, there will be widespread defaults."

Puerto Rico trap in the midst of crisis; US Treasury Secretary strongly advises debt-restructuring regime

Puerto Rico's Treasury Dept going after delinquent taxpayers like never before

Like many small business owners in this struggling U.S. territory, Luis Escribano was having a hard time paying the power bills. So, for at least five years, he did what many others have done: tampered with the electricity meter at his small cafe, illegally cutting his bill by tens of thousands of dollars.

Then the Puerto Rico Electric Power Authority, which is struggling to pay its own bills, decided to make an example of him. He was charged with theft and threatened with jail time if he didn't pay $40,000 in back bills and fines. The company not only persuaded the court to make restitution a condition of probation for the first time, but also alerted local media that Escribano was due in court last month to publicly shame him.

"They have declared total war," said Michael Corona, a lawyer who represents Escribano.

While his case is extreme, it reflects a new approach by Puerto Rican public agencies that are desperate for money and no longer able to put up with theft and cheating that went unpunished in the past.

The Puerto Rico government is teetering on the brink of financial collapse, burdened by $72 billion in public debt. Public agencies account for nearly 40 percent of that debt, including the power company, which recently reached a deal to restructure a portion of its $9 billion debt. The highway and transportation authority carries more than $7 billion of that debt while the water and sewer company have more than $5 billion.

Amid the crisis, the Treasury Department is going after delinquent taxpayers like never before, even closing a business owned by the head of the Chamber of Commerce for non-payment of sales tax and temporarily shutting down Jose Enrique, a restaurant that had become a renowned culinary destination.

The island's water utility has prevailed on the Justice Department to file criminal charges against people who have not paid their bills or have stolen service, a step only taken in drastic cases in the past. And a government agency that issues permits recently trumpeted the fact that it imposed a $34,000 fine against a company operating an electronic billboard without its permission.

Such actions have surprised many on the island, where the government had often taken a laissez-faire approach to enforcement, among the qualities that made Puerto Rico more like a Latin American country and less like a U.S. state.

"Everything used to be negotiable," said Treasury Secretary Juan Zaragoza, who is leading an effort to collect overdue tax revenue.

That lax attitude thrived as Puerto Rico went through a period of relative prosperity thanks to a U.S. tax system that fostered the development of manufacturing on the island, mostly pharmaceuticals and medical equipment. But the incentives were phased out by 2006, and the economy began to slump. Unemployment rose higher than that of any U.S. state. Governor after governor borrowed money to help cover the growing deficit, tripling Puerto Rico's debt in just 15 years.

The new crackdown on unpaid bills is praised by many who say they follow the law.

"It's about time," said Hiram Colon, a 47-year-old event organizer. "They should have taken these measures a long time ago because we wouldn't be in the crisis we find ourselves now."

But other Puerto Ricans believe the government is unfairly targeting the working class while making few improvements in how it operates.

"Now they're giving us bad service coupled with the threat of jail," said Corona, who said that Escribano himself had declined to be interviewed. "I don't know where this is going to end."

Delinquent power bills have been piling up for years and are one of the reasons cited by the electrical utility for its financial woes. It recently announced that it will cut subsidized power at public housing units starting next month because of $31 million in outstanding bills.

Many impoverished Puerto Ricans say the crackdown is making life even more miserable for them. "It's not right that they are targeting Puerto Rico's working class," Wilma Rivera, a 46-year-old mother of three, said as she watched power company workers inspect her meter for evidence of tampering. "We're the ones paying for everyone else's mess."

Despite the grumbling, the government has pledged to pursue those who have long gotten away with breaking the law.

Zaragoza, the treasury secretary, says a lot of other people are fed up with widespread cheating. He says he's even had people praise him while he walks down the streets of the capital.

"That's proof that this island has touched bottom, when suddenly a tax collector is a hero," he said.

Puerto Rico's Treasury Dept going after delinquent taxpayers like never before

Puerto Rico Government Has 'Substantial Doubt' About Its Solvency

Puerto Rico's government said it had "substantial doubt" about its ability to operate long-term, and cited a threat to public services if its Government Development Bank misses debt payments, in a draft of long-delayed fiscal year 2014 financial data released Tuesday.

The 366-page draft, which has not yet been audited, follows criticism from some U.S. lawmakers and financial creditors that Puerto Rico has not been transparent with its finances.

The U.S. territory is mired in economic crisis, facing a 45 percent poverty rate and a dwindling tax base as locals flock to the mainland United States. It is hoping for help from Congress in resolving its $70 billion debt load.

"The commonwealth's management believes that there is substantial doubt as to the ability of the primary government" and other governmental entities "to continue as a going concern," the report said.

Under federal accounting standards, a government is evaluated on whether it is likely to be a "going concern" 12 months after the accounting is done. Governments are not going concerns if there are doubts about abilities to meet financial obligations.

Puerto Rico said it expects to miss at least some of its July 1 general obligation (GO) debt payment -- about $800 million, according to a debt schedule obtained by Reuters -- even with the benefit of so-called "clawbacks" wherein revenues earmarked for other debt are redirected to pay GO debt.

The report said Puerto Rico faced a $49.2 billion deficit as of June 30, 2014, $2.5 billion higher than in 2013.

The Government Development Bank (GDB), the island's fiscal agent, is at risk of missing debt payments and falling below legal reserve requirements in fiscal year 2016, which could threaten government services because GDB is the main depositary for public agencies, the report said.

Puerto Rico's fate remains one of the key questions in the U.S. municipal debt market. It has sought help both from creditors, by proposing voluntary cuts to repayments, and Congress, by lobbying for legislation letting it cut debt.

Both efforts have faced resistance, in part thanks to a perceived lack of transparency, as 2014 financial disclosures have been months behind schedule.

Tuesday's release may have been aimed at quelling some of those complaints, but the draft does not include audited financial information from the GDB, or from the island's biggest pension, which, with a funding shortfall of more than $30 billion, is a key part of its crisis.







The Government Development Bank is at risk of missing debt payments and falling below legal reserve requirements, which could threaten government services.

Puerto Rico Government Has 'Substantial Doubt' About Its Solvency

Puerto Rico Announces Plans to Default on Bond Payments

Lawmakers in Puerto Rico, a territory of the United States in the Caribbean Sea, announced in January their plans to partially default on $1 billion in monthly bond payments owed to investors in state-owned corporations, such as the territory’s Public Finance Corporation and the Puerto Rico Infrastructure Financing Authority.

The territory, which is currently led by Alejandro García-Padilla (Popular Democratic Party), is self-governed, but it is ultimately subject to legislation passed by the U.S. Congress.

William Freeland, a research analyst with the American Legislative Exchange Council, says the current inability of the territory to fully pay its bills is caused in part by economic policies set by mainland lawmakers.

“They are still subject to U.S. minimum federal wage [requirements],” Freeland said. “The minimum wage in most of the mainland is about 28 percent of the median wage, and for Puerto Rico it is 77 percent. It is far, far above what the minimum wage is here. For example, the minimum wage there is as if we set it in the United States at 40 dollars an hour.”

Freeland says amending federal laws to allow states to declare bankruptcy is an option some in Congress are exploring. Currently, only city governments are covered by Chapter 9, Title 11 of the U.S. Code.

“Puerto Rico is more like a state than a city,” Freeland said. “So there is an issue in Congress of how they are going to deal with this. What’s being discussed are changes to municipal bankruptcy law.”

Bankruptcy proceedings are not a death sentence for states, Freeland says.

“You are forced to get a bankruptcy deal, and you are forced to make a confession to get back on your feet,” Freeland said. “This is the outcome that’s being pushed for, and it’s something that Congress is working on and will have to handle properly.”

Bad Options, Worse Options

Jon Perdue, a strategic advisor with Fundación Libertad, a new free-market think tank based in San Juan, Puerto Rico that is dedicated to “[working] together to protect the economic and personal freedoms” of Puerto Ricans, says there are good reasons to oppose extending bankruptcy protections to territories, but it may be the best option for Puerto Rican taxpayers.

“The main one is the moral hazard component, which could affect a number of municipalities on the mainland that may be nearing insolvency,” Perdue said. “But in reality, it would be worse for Puerto Rico to declare itself insolvent than to earnestly work out an agreement with creditors, because [working with creditors] would be the fastest way for Puerto Rico to regain the ability to issue debt for needed infrastructure upgrades and maintenance projects.

“They must restore the commonwealth’s credibility with investors quickly,” Perdue said.

Puerto Ricans ‘Hit Hardest’

“Moreover, while some of the commonwealth’s politicians claim that the U.S. Congress is treating it like a colony by not granting it bankruptcy protection, a significant portion of the island’s debt is actually owned by Puerto Ricans themselves, who could be hit hardest by a default,” Perdue said.

Gabrielle Cintorino (gcintorino4@gmail.com) writes from Nashville, Tennessee.

Gabrielle Cintorino

Puerto Rico Announces Plans to Default on Bond Payments

Billionaire John Paulson: Why I put billions in Puerto Rico

Despite Puerto Rico's massive debt crisis, Paulson sees big profits ahead. He has plowed "quite a bit" -- an estimated $1.5 billion -- of his personal wealth into buying hotels, a resort and office buildings on the island.

Paulson compares Puerto Rico today to Miami in the 1980s.

"It's similar to that period in Miami's history," Paulson said Thursday at the Puerto Rico Investment Summit. "There was a lot of real estate on the beach, lots of abandoned buildings and vacant lots. That was definitely the best time to buy [in Miami]."

Now he says it's Puerto Rico's turn. In addition to buying investment properties, Paulson also built a vacation home and bought an apartment for his family on the island.

At the summit, Paulson clarified that most of these investments have been personal. They are not in the Paulson & Co. real estate funds.

As for the $70 billion in Puerto Rican government debt that is making headlines, Paulson says his funds don't own any of it and neither does he.

The island's government claims it doesn't have the money to pay bondholders. It recently proposed a dramatic "haircut" where creditors would lose money. Creditors argue that the island has enough revenue to pay up, but it spends too much on the wrong things.

Paulson and other wealthy investors like Michael Tennebaum, who relocated to the island two months ago from California, are optimistic that the problems will get sorted out soon.

"One reason I came here is I thought it hit bottom. In a democracy, you really need a crisis to bring about change," says Tennebaum, a former Bear Stearns executive. He is in the process of building a home on the island and starting a merchant bank.

Related: Puerto Rico's brain drain deepens

Paulson says people forget three things about Puerto Rico: It's the furthest point south in America, it's beautiful and it has a very well educated, bilingual workforce.

"Puerto Rico is unique. You get the climate of being very far south with all the protections of the U.S.," he says. His big bets are buying the 5-star Condado Vanderbilt hotel in San Juan and the super high-end St. Regis Bahia Beach resort.

On top of that, the island offers tremendous tax benefits to investors. In an effort to try to lure people like Tennebaum, the island passed laws -- known as Acts 20 and 22 -- to make many of their investment gains tax free.

The influx of the rich to Puerto Rico is in contrast to a massive migration out of the island. After nearly a decade in recession and an unemployment rate over 12%, many Puerto Ricans are booking one-way tickets to Florida, Texas and other parts of the mainland.

Paulson says he has not moved to the island "yet." While he is famous for foreseeing the 2008 financial and housing crises -- and profiting off of them -- his recent hedge fund performance has been disappointing. He has lost a lot of money on bets in Greece.

Puerto Rico has been dubbed "America's Greece," but Governor Alejandro Garcia Padilla argues it could be worse.

"Here in Puerto Rico, we have our issues to handle, but we don't have Trump winning in our polls," Garcia Padilla said Thursday.





Hedge fund billionaire John Paulson has been buying a lot of sand lately -- specifically, Puerto Rican sand.

by Heather Long   @byHeatherLong

Billionaire John Paulson: Why I put billions in Puerto Rico

Puerto Rico pushes tax incentives for wealthy amid crisis

Puerto Rico's government is trying to convince hundreds of wealthy investors to move to the U.S. territory, hoping they could help lift it out of a deepening economic crisis.

Officials hosted a meeting for investors on Thursday to promote local tax incentives aimed at luring the wealthy. Speakers include former New York City Mayor Rudy Giuliani and New York hedge fund billionaire John Paulson, who recently bought some of Puerto Rico's most upscale resorts as the island struggles to emerge from a nine-year economic slump.

Paulson said solving the island's fiscal situation is essential to encouraging more investment.

"It has created some halo around Puerto Rico," he said, adding that he has no immediate plans to move to the island. "I find the lifestyle very, very attractive. It's something I would consider in the future, but right now I'm in New York."

Paulson declined to say how much he has invested in Puerto Rico and acknowledged that he doesn't own any of the island's staggering $72 billion public debt.

Puerto Rico already has convinced other millionaires and billionaires to move to the island with measures approved in recent years that exempt people from taxes on any capital gains accrued after they move to the island.

But critics question whether the amount of jobs created and real estate bought has been enough to boost the economy. And some investors at the meeting made clear their interests don't always overlap with those of the territory's government — especially efforts to win congressional approval to let it restructure part of its $72 billion public debt.

"Bankruptcy and default would be a catastrophic mistake for Puerto Rico...It will chase consumer confidence to zero," said Nader Tavakoli, CEO and president of Ambac, which holds millions of dollars in Puerto Rico debt and recently filed a lawsuit against the island's government over how it shifted funds to meet certain bond payments amid a cash crunch.

Tavakoli, who was on stage as a speaker, said it was surreal to be talking about bankruptcy while at a meeting for investors. He also demanded to see Puerto Rico's audited financial statements, echoing demands made by Republican lawmakers as they prepare to introduce legislation to address the island's crisis by next month.

Puerto Rico's governor was quick to assure investors that the government is working hard to resolve its crisis and he stressed the need for a restructuring mechanism. Gov. Alejandro Garcia Padilla also noted that Puerto Rico legislators are debating a bill needed to help the heavily indebted public power company finalize a separate restructuring deal with creditors.

"Despite whatever you may have heard about doing business in Puerto Rico, our commitment to the costs of utilities will be the last of your concerns," Garcia said.

Puerto Rico's power bills are on average twice those of the U.S. mainland, and critics warn it is a deterrent to potential investors as the electric company struggles to reduce its dependence on petroleum.

Some investors who flew to Puerto Rico to learn more about the tax incentives said they were not bothered by the island's economic crisis.

"You're operating your business elsewhere," said David Jones, president of a Naples, Florida-based insurance services company that bears his name.

Jones was one of hundreds of investors attending the meeting at Puerto Rico's convention center. They were confronted by protesters outside who accused the government of burdening the working class with new taxes while giving preferential treatment to the wealthy.

"It's a valid point," said hedge fund manager Michael Tennenbaum, who recently moved to Puerto Rico from Los Angeles.

"One of the reasons I came here is because I thought you'd hit bottom," he told the audience. "When you run out of cash, I think that brings change."

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By DANICA COTO

Puerto Rico pushes tax incentives for wealthy amid crisis

Democratic Congressman: "Free Puerto Rico"

On the House floor Thursday, Rep. Luis Gutiérrez (D-Ill.) called on the US Congress to "free Puerto Rico so she can solve the problem of her crushing debt without being handcuffed by Congress, its distant and inattentive colonial master." The speech came as Congress continues to debate what should be done to assist Puerto Rico in coping with its debt crisis.

Gutiérrez, who is of Puerto Rican descent, said that Congress has offered "very little" tangible help for the island as it grapples with its crushing $72 billion debt. House Speaker Paul Ryan (R-Wisc.) said in December that Congress would propose a debt relief package by the end of March. Previous legislative proposals have stalled out, whether offered by Democrats, Republicans, or Pedro Pierluisi, the island's non-voting representative to congress.

The island's government and public institutions owe money on more than a dozen separate loans involving a number of different lenders, all with competing interests. Since Puerto Rico's cities and public institutions cannot seek bankruptcy protection in the same way as their counterparts on the mainland, debt restructuring has to be handled by each individual creditor separately, which has made the process slow and unwieldy.

The Obama administration and Congressional Democrats support the idea of amending US law to let Puerto Rico seek bankruptcy protection, but Congressional Republicans have been resistant, arguing that the island's government must get its financial affairs in order—and honor its debts—before congressional action should be taken. Republican proposals have included the idea of an independent financial oversight board, an idea Gutiérrez blasted on Thursday.

"And now, what is the solution that everyone in Washington is lining up behind? A federal control board," he said. "Imagine that. An island that cannot determine its own destiny, that has to play an economic game with a stacked deck and all the rules rigged against them, what is the solution in Washington? Take away what little autonomy they have left and add a new layer of Washington control over the colony."

"So she can solve the problem of her crushing debt without being handcuffed by Congress, its distant and inattentive colonial master."

By AJ Vicens

Democratic Congressman: "Free Puerto Rico"

Don’t Bail Out Puerto Rico

Puerto Rico is stunningly beautiful. It’s a virtual paradise: Caribbean white sand beaches in close proximity to the U.S. They speak both English and Spanish. If you’re an American citizen you don’t need a passport as Puerto Rico is a US Commonwealth. They’ve got snorkeling, awesome food, a rain forest, and a stunning historical fort from the imperial days sitting atop a bluff overlooking the sea.

With all that natural attraction you’d think Puerto Rico would be knocking it out of the park economically. Tourism alone should be the driving force to keep the economy rocking. Every American should want to go Puerto Rico. Then why do most Americans not even know where it is? Several reasons. The island is poorly run, poorly marketed, and generationally corrupt, like many Caribbean islands.

Puerto Rico is in trouble and wants a bailout from Washington. And why wouldn’t they? They’ve seen car companies get one, Wall Street got one, now it’s their turn. They want to declare bankruptcy on about $72 billion. Federal law prohibits them from accessing the Chapter 9 bankruptcy protection, but that may not stop lawmakers in Washington from making an exception.

During the Democratic debate in Jan. 17, presidential candidate Martin O’Malley used his time to mention the plight of Puerto Rico. “We haven’t discussed the shameful treatment that the people of Puerto Rico, our fellow Americans, are being treated with by these hedge funds that are working them over.”

So what’s the deal with Puerto Rico? How did they get in such dire straits? Is it really some hedge fund guys working them over? No. Sorry, Martin.

Basically, here it is in a nutshell. Puerto Rico has a 12 percent unemployment rate, and a less than 40 percent workforce participation rate. The largest employer on the island is the government and it is protected by a strong union. Crime is also through the roof. Combine that with a super high minimum wage and a more than 5 percent loss in population over the last five years, and you’ve got a recipe for disaster. The 5 percent who bailed on the Puerto Rican paradise mostly went to Florida and by and large are the successful people: the doctors, business owners, engineers and teachers.

Simply put, they’re a massively bloated, over-regulated, big government state. They’ve been paying for all this and more by selling municipal bonds. Their default would rock the $3.7 trillion bond market. This pulls in Wall Street and Congress. Remember Detroit? This is more than three times the size of Detroit’s bailout/bankruptcy and theirs didn’t rewrite federal law.

Sounds bad. Maybe we should just give them the bailout and a margarita. No! That won’t fix anything. It will make things worse, much worse in the long run.

First, the leaders of Puerto Rico must be told no. No, they will not get an exception to bankruptcy law to file Chapter 9. Then when it all hits the fan, they will call up their creditors and start working out a payment plan. Start to dig their way out of it. Puerto Rico is our Greece. It’s time to make the hard choices. Slash and burn government on all levels. Implement massive structural reforms that will allow them to meet their financial commitments now and in the future.

Politicians in D.C. need to stand firm and help our partner out of this, not bail them out. A bailout and/or a bankruptcy will only send a signal and set a bad precedence for every other state in the union with a bloated government and overwhelming debt (Illinois, California, New Jersey, Connecticut).

Steve Sherman (Photo: Special to the Register)

  Now is the time to show Puerto Rico the way, not lead them down the path to destruction. No bailout. No bankruptcy protection. Make the hard choices. Revamp the entire system leaving nothing sacred. Then Puerto Rico would see investment capital flood their island followed by a horde of Americans looking for a safe, English-speaking, white sand beach experience.

The big question remains. Will anyone in D.C. be the grown up in the room? Someone has to cut up the credit card or the party’s over and it won’t be coming back any time soon.

STEVE SHERMAN of North Liberty is a writer, radio commentator and a former Iowa House Republican candidate. Contact: steve@scsherman.com

Steve Sherman

Don’t Bail Out Puerto Rico

Puerto Rico Debt, Health Crises Addressed in Obama's New Budget Plan

According to the budget plan, Obama wants to provide Puerto Ricans with the Earned Income Tax Credit (EITC), a federal tax credit for low-to-moderate income workers.

As his budget plan acknowledged, Puerto Rico's economy declined by more than 10 percent since 2006 and encountered over 250,000 job losses. In addition, more than 45 percent of the island's residents, who are born as U.S. citizens, live in poverty. Puerto Rico also has an unemployment rate of 12.5 percent, which is twice the mainland U.S. average.

Obama also recognized the Medicaid system in Puerto Rico is fundamentally different compared to the guidelines for the 50 states. He said the current different Medicaid standards resulted in lower quality in care and fewer benefits compared to the mainland U.S. While the Affordable Care Act (ACA) provided the island with an additional $7.3 billion since July 1, 2011, the aforementioned fund is expected to run out by the end of 2019. In his budget plan, he proposes approximately $30 billion in Medicaid funding for Puerto Rico that would last for the next nine years.

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The Puerto Rico Healthcare Crisis Coalition (PRHCC), an organization that has been calling on Washington to address the island's declining healthcare system, commended Obama on his proposal.

"We applaud President Obama for putting Puerto Rico on a path to parity on Medicaid Funding. While this is a step in the right direction, the federal government needs to quickly address the Island's underfunded Medicare program," said PRHCC President Dennis Rivera. "Saving the Medicare program is of particular importance as Puerto Rico's aging population continues to grow."

"At this crucial crossroads when the Island's healthcare system is on the verge of collapse, Congress needs to act swiftly and approve the budget's Medicaid measure for Puerto Rico," Rivera added. "We call on the same spirit of unity that got us this far as we renew our commitment and redouble our efforts on Congress and Medicare to avert the healthcare crisis at home."

In addition to the EITC and Medicaid funding, the budget proposal calls on Puerto Rico to reform its fiscal governance for improved transparency, but all while respecting the commonwealth's status and local autonomy. Obama also wants Puerto Rico to receive the necessary tools to restructure its financial liabilities under the guidelines of a federal court. The budget plan would help craft a broad legal framework for the financial liabilities restructure; the framework would also be used exclusively for fellow U.S. territories.

As Latin Post reported, Puerto Rico's debt has climbed to over $70 billion. Puerto Rico Gov. Alejando Garcia Padilla previously acknowledged that the island's request for congressional help is not a bailout but simply wants the "tools" to help restructure.



To alleviate Puerto Rico's financial and health crises, President Barack Obama made a number of proposals for the commonwealth in his 2017 fiscal year budget.

A Puerto Rican supporters wave his national flag during the Caribbean Series baseball game between Venezuela and Puerto Rico at the Isidoro Garcia stadium on February 02, 2011, in Mayaguez, Puerto Rico. (Photo : OMAR TORRES/AFP/Getty Images)

By Michael Oleaga

Puerto Rico Debt, Health Crises Addressed in Obama's New Budget Plan

John Paulson will encourage investments in Puerto Rico

Hedge fund mogul John Paulson is traveling to Puerto Rico on Thursday to speak at an investment conference. He’d better pack a sweater — he could face a chilly reception.

Paulson, who has invested millions of dollars in buying up several luxury hotels on the cash-strapped island over the past several years, will play cheerleader for investing in the commonwealth by serving as the keynote speaker at the Puerto Rico Investment Summit at the Puerto Rico Convention Center.

“He will be there talking about the value of investing in Puerto Rico,” a source familiar with the conference said. “He’s trying to attract capital to Puerto Rico.”

While the temperature outside the convention hall is expected to rise into the 80s, Paulson might not get as warm a welcome from prospective investors — especially the hedge fund executives who are peeved at the moves proposed by Puerto Rico Gov. Alejandro García Padilla to restructure $70 billion in debt.

The governor’s proposal calls for stiff haircuts on payouts on various bonds.

On some sales-tax-backed bonds, he has proposed paying 54 cents on the dollar. Some of those bondholders on Wednesday countered his proposal by offering a plan that would pay them 100 cents.

In light of the battle over how much bondholders will be paid, trying to sell other investors on pumping more money into the island’s assets is an uphill fight, sources said.

“Why would someone invest in Puerto Rico when they are going to default on federally constituted debt?” one source said.

Paulson does not own any of Puerto Rico’s debt, sources said.

The billionaire is a big believer in investments in Puerto Rico.

In September 2013, Paulson & Co. bought a controlling interest in the exclusive St. Regis Bahia Beach Resort as well as the Bahia Beach Resort & Golf Club.

Paulson is building a home for himself on Bahia Beach, the master-planned community that he now owns — and that’s situated on 483 acres of pristine coconut palms .

Condado Vanderbilt Hotel

In March 2014, Paulson added to his Puerto Rican exposure by spending $260 million to buy two hotels: the Condado Vanderbilt and the La Concha Renaissance Hotel and Tower.

And then this past July, Paulson spent $20 million to buy the San Juan Beach Hotel. In August 2014, he bought the 326,000-square-foot American International Plaza building in the Hato Rey financial district.

His properties would benefit if more hedge funds invested in PR.

Since making his name and a personal $3.7 billion by betting against the housing market, Paulson has struggled in some of his other gambits.

The 60-year-old has made incorrect investments on energy, gold and Europe’s economy. His funds now have roughly $18 billion of assets under management, falling from $40 billion five years ago.

Paulson declined to comment.

By Josh Kosman

John Paulson will encourage investments in Puerto Rico

Treasury Official to Testify at Puerto Rico Hearing: Aide

A Treasury official will be the only witness at the next House Natural Resources Cmte hearing, scheduled for Feb. 25, a Democratic congressional aide says, without providing name of the official

Kasia Klimasinska

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Treasury Official to Testify at Puerto Rico Hearing: Aide

Christie Calls for 'Tough Love' for Puerto Rico in Fiscal Crisis

Republican presidential candidate Chris Christie said Barack Obama’s administration has overlooked Puerto Rico’s debt crisis and that he would be willing to assist in return for more oversight over the island.

Christie, New Jersey’s two-term governor, said he would support some form of assistance for the territory of 3.5 million people if he were president, but cautioned it wouldn’t come without “tough love.” He made his comments during a town-hall meeting in Lebanon, New Hampshire, six days before that state holds the nation’s first primary.

Obama in October pressed Congress to give Puerto Rico bankruptcy powers not now available to American territories in order to reduce its $70 billion debt load. He also proposed a federal oversight board to help balance its budgets and manage borrowing. The president has called for increasing health-care funding for Puerto Rico and extending tax credits to the poor.

“This has been one of the real significant neglects by the Obama administration,” Christie said when asked how he would deal with the island’s fiscal problems. “I would be willing to help the people of Puerto Rico, but in return I would have to have strict control over their budgets going forward.”

The remarks injected one of the largest issues in the $3 trillion municipal-bond market into the Republican race for the White House. It comes as Christie struggles to gain traction with voters ahead of the Feb. 9 contest in a state he’s made central to his political ambitions. During this week’s Iowa caucuses, the governor finished 10th out of 12 candidates, with 1.8 percent of the votes.

In 2014, New Jersey ranked third with the most Puerto Ricans in the U.S., behind Florida and New York, according to the Center for Puerto Rican Studies at Hunter College in Manhattan.

Adding oversight of the territory would continue a pattern for Christie. As governor, he led a state takeover of schools in the impoverished city of Camden and has backed a proposal to place Atlantic City under his administration’s control as it grapples with a sinking casino industry.

Puerto Rico and its agencies racked up obligations after years of deficit borrowing even as its economy has shrunk every year but one since 2006. Governor Alejandro Garcia Padilla is seeking to reduce its debt by 46 percent by asking investors to accept losses on their securities and wait longer to be repaid. Puerto Rico warned bondholders that it may stop paying principal and interest if it’s unable to reach an agreement with creditors by May 1, when a $422 million Government Development Bank payment is due.

Congress has held numerous hearings on Puerto Rico’s financial troubles. Republicans, who control both chambers, favor a federal control panel to oversee the island rather than giving Puerto Rico bankruptcy access alone.

“We don’t want Puerto Rico to go bankrupt and we don’t want those people to suffer,” Christie said. “This administration turned their back on it and now we are going to have to own it.”

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Michelle Kaske MichelleKaske

Christie Calls for 'Tough Love' for Puerto Rico in Fiscal Crisis