Many interests are upset at Trump’s new Cuba policy. Puerto Rico isn’t one of them

Puerto Rico government officials, struggling with a mounting bankruptcy crisis across the island, see some optimism for their problems in President Donald Trump’s new Cuba policy.

Trump announced in Miami last week that he would roll back some of former President Barack Obama’s previous regulations, including a new policy directive that Americans traveling to Cuba for educational person-to-person education trips do so with groups joined by a company representative.

Puerto Rico officials say this shifted U.S. relationship with Cuba could in turn increase tourism in their nearby island and help save its suffering economy, which declared bankruptcy in May and is more than $70 billion in debt. And combined with U.S. statehood, the territory could make notable strides toward financial recovery and restoring the territory’s credibility.

“Our credibility in the markets, our credibility in Washington, and our credibility to the world,” Carlos Mercader, executive director of the Puerto Rico Federal Affairs Administration, told McClatchy on Tuesday at an investment summit near Washington. “And that has a lot to do with how we portray ourselves as a tourist destination.”

As of March 31, tourism made up 7 percent of Puerto Rico’s GDP, compared with a global average of 9.8 percent and a Caribbean average of 13.9 percent, according to the Puerto Rico Hotel and Tourism Association. But less tourism in Cuba could mean more for the territory, giving the industry a much-needed boost, Mercader said.

“Competition is good. Whenever you have competition, you have the opportunity to stand out,” Mercader said. “Cuba doesn’t have the infrastructure that Puerto Rico has. Cuba doesn’t give you the certainty that you are on U.S. soil. You don’t even have to use a passport (in Puerto Rico). … People can go there anytime, without any concern (or) any worry. So in that sense, I like competition.”

But Trump’s new Cuba policy isn’t the only reason why Puerto Rico officials say they’re trying to be optimistic about the territory’s financial future. They’re also looking for more investment in the island. And this week, they traveled to the annual SelectUSA Investment Summit in Oxon Hill, Maryland, outside Washington to network with other companies and promote foreign direct investment in some of the territory’s economic initiatives.

Credibility within the tourism industry could stem from a recent measure signed by Puerto Rico Gov. Ricardo Rosselló to create a Destination Marketing Organization, a group charged with encouraging development of a destination through tourism and other travel. The DMO, previously run by the government, will shift to the private sector, as “the government has been incapable of providing stability and consistency to the sales and marketing efforts of the destination,” according to a U.S. Senate Finance Committee report from October 2016.

“This creates a long-term plan that will not be affected by the political changes that Puerto Rico might face, with much more consistency and much more strategic and data-driven,” Mercader said.

U.S. statehood could also give the island stability in the business sector by attracting foreign investors, said Julio Benítez, deputy director of the Puerto Rico Industrial Development Company, a government-owned business aimed at attracting investment and economic development.

“Puerto Rico is in a spot right now where we need, more than any other time, the economic development to overcome the shortage crisis that we’re suffering,” Benítez said. “Everybody wants to do business on U.S. soil. It would be perfect to be the next state in the United States.”

Specifically, the island is exploring investment opportunities in manufacturing and infrastructure. The Puerto Rico Public-Private Partnerships Authority — a government entity that implements public policy on partnerships between government and non-government groups — has initiatives in areas such as highways and international airports, and it is working on developing several others, said Ernesto Rivera, deputy director of the authority, also known as P3.

“Our main attention at this moment is to get the market’s attention and get the credibility back in Puerto Rico based on our strong legislation, our strong legal framework and the transparency of the process,” Rivera said.

And this status isn’t doing the economy any favors, said Puerto Rico Public Affairs Secretary Ramón Rosario.

“At the moment, Puerto Rico receives a discriminatory treatment in federal programs that incentivize the economy,” he said. “Statehood provides a powerful investment framework that has proven effective in 50 states.”

While Rivera is optimistic about the territory’s investment opportunities, these initiatives could be more feasible as a state, as this status would tell investors that the U.S. government, a major player in the global economy, “is interested in making that state succeed,” Mercader said.

“(Investors) are going to say, that’s a place where we can go, and there’s no doubt that our money’s going to be safe there,” he said. “At the end of the day, this is a win-win situation. For the United States and for us.”

Jessica Campisi: @jessiecampisi

BY JESSICA CAMPISI
Many interests are upset at Trump’s new Cuba policy. Puerto Rico isn’t one of them

Airbnb to Collect Room Tax in Puerto Rico for Government

 Puerto Rico signed a deal with Airbnb on Thursday under which the company will collect the room tax from hosts on the island and turn the revenue over to the U.S. territory's government, which is mired in a financial crisis.

Gov. Ricardo Rossello said Airbnb will oversee the tax collection starting in August to ensure greater compliance from hosts as well as ease the government's administrative burden. He said hosts across the island have remitted only about 20 percent of the room tax due.

"I would like to thank Airbnb for contributing to the economic development of Puerto Rico," he said.

Officials said the deal will ensure the collection of more than $2 million in taxes for the government, which is struggling with revenue shortages as the island tries to emerge from a 10-year-old recession. The government is trying to restructure a portion of its $73 billion public debt load.

The San Francisco-based Airbnb has over 4,300 hosts and 7,100 listings in Puerto Rico.

More than 250,000 Airbnb guests were reported in Puerto Rico in the past year, an increase of 83 percent from the previous year. That activity generated more than $28 million, with the typical host earning $5,700 a year.

Thursday's announcement is the second such deal that Airbnb has secured in the Caribbean region. It signed the first one with the government of the U.S. Virgin Islands last month.

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Puerto Rico has signed a deal with Airbnb under which the company will collect the room tax from hosts on the island and turn the revenue over to the U.S. territory's government, which is mired in a financial crisis.

Airbnb to Collect Room Tax in Puerto Rico for Government

Airbnb to collect room tax in Puerto Rico for government

Puerto Rico signed a deal with Airbnb on Thursday under which the company will collect the room tax from hosts on the island and turn the revenue over to the U.S. territory's government, which is mired in a financial crisis.

Gov. Ricardo Rossello said Airbnb will oversee the tax collection starting in August to ensure greater compliance from hosts as well as ease the government's administrative burden. He said hosts across the island have remitted only about 20 percent of the room tax due.

"I would like to thank Airbnb for contributing to the economic development of Puerto Rico," he said.

Officials said the deal will ensure the collection of more than $2 million in taxes for the government, which is struggling with revenue shortages as the island tries to emerge from a 10-year-old recession. The government is trying to restructure a portion of its $73 billion public debt load.

The San Francisco-based Airbnb has over 4,300 hosts and 7,100 listings in Puerto Rico.

More than 250,000 Airbnb guests were reported in Puerto Rico in the past year, an increase of 83 percent from the previous year. That activity generated more than $28 million, with the typical host earning $5,700 a year.

Thursday's announcement is the second such deal that Airbnb has secured in the Caribbean region. It signed the first one with the government of the U.S. Virgin Islands last month.

Airbnb to collect room tax in Puerto Rico for government

A sinking feeling in Puerto Rico

“Puerto Rico, my heart’s devotion. Let it sink back in the ocean.” — “West Side Story”

The Commonwealth of Puerto Rico is drowning. The island, so popular with tourists, is $123 billion in debt. That’s more debt than the $18 billion bankruptcy filed by the city of Detroit in 2013. In May, San Juan declared a form of bankruptcy after creditors filed lawsuits demanding their money. A federal district judge appointed by Chief Justice John Roberts will handle the case.

How did this happen? Luis Fortuno, former governor of the Commonwealth of Puerto Rico, who served as president of the New Progressive Party of Puerto Rico (PNP), which advocates for the island to become a U.S. state, believes he knows.

Mr. Fortuno was elected in 2009. In a telephone interview from his Washington law office, he tells me that during his one term, he cut government expenses by $2 billion and the island’s bond rating went up. “We refinanced the debt on better terms” and by the time he left office in 2013, “we had brought down the budget every year and lowered corporate taxes. People believed they could take risks again.”

The island’s residents hope to buoy their fortunes by becoming a state
A sinking feeling in Puerto Rico

Puerto Rico's sorry state

“Puerto Rico, my heart’s devotion. Let it sink back in the ocean.” — West Side Story

The Commonwealth of Puerto Rico is drowning. The island, so popular with tourists, is $123 billion in debt. That’s more debt than the $18 billionbankruptcy filed by the city of Detroit in 2013. In May, San Juan declared a form of bankruptcy after creditors filed lawsuits demanding their money. A federal district judge appointed by Chief Justice John Roberts will handle the case.

How did this happen? Luis Fortuno, former governor of the Commonwealth of Puerto Rico, who served as president of the New Progressive Party of Puerto Rico (PNP), which advocates for the island to become a U.S. state, believes he knows.

Fortuno was elected in 2009. In a telephone interview from his Washington law office, he tells me that during his one term he cut government expenses by $2 billion and the island’s bond rating went up. “We refinanced the debt on better terms” and by the time he left office in 2013, “we had brought down the budget every year and lowered corporate taxes. People believed they could take risks again.”

In the 2012 election, Fortuno lost to Democrat Alejandro Garcia Padilla by a narrow (0.6 percent) margin. Fortuno blames the Service Employees International Union (SEIU) for contributing to his opponent’s campaign. “They invested heavily against me,” he says. Padilla renewed the spending policies of the past and, though he left office earlier this year, the damage was done.

According to the American Bankruptcy Institute Journal, most of Fortuno’s cuts in public expenditures were never implemented. The island’s Office of Management and Budget reported that one year following legislation that called for spending reductions, 31 government agencies had, instead, increased spending.

As the Journal noted, under Fortuno “Puerto Rico implemented tax reform and permit reform, legislated a world-leading public-private partnership (P3) act, reduced government expenses and paid its suppliers…”

In light of such success, why would voters return control of the island to a party that was responsible for its fiscal downturn? Sometimes ideology beats success and common sense. Fortuno says it didn’t help that “61 percent of eligible voters failed to vote.”

A referendum on the status of Puerto Rico was held in Puerto Rico on June 11. Three options were open to voters: remain with the commonwealth, independence or statehood. Statehood won.

Would a Republican Congress and a Republican president ever back statehood for a territory that seems overwhelmingly Democratic and possibly add two senators and one voting House member to that party’s total in Washington?

Fortuno doesn’t believe it is a given that Democrats would win those seats. He draws a distinction between the mostly liberal Puerto Ricans who have left the island for places like New York City and those who remain. He says current residents “are social and economic conservatives,” suggesting Republicans could pick up seats.

Perhaps, but the U.S. taxpayer would also have to pick up Puerto Rico’s huge debt and with our debt at $20 trillion, it is doubtful Congress, at least under a Republican majority, would be willing to add more red ink.

Perhaps those economic and social conservatives Fortuno says remain on the island might come to their senses and elect someone who represents his views, which were beginning to bear fruit, before a bare majority panicked and returned to the failed policies of the past.

Cal Thomas is America's most widely syndicated op-ed columnist. His latest book is "What Works: Common Sense Solutions for a Stronger America". Readers may email Cal Thomas at tcaeditors@tribune.com.

By Cal Thomas
Puerto Rico's sorry state

DNC chairman backs Puerto Rico statehood

Democratic National Committee Chairman Tom Perez is backing Puerto Rico statehood.

Perez, who has two siblings who were born in Puerto Rico, told Politico in a statement that he thinks Puerto Ricans should have the same rights as Americans. He said he personally believes that statehood is the best way to guarantee equal rights and give Puerto Ricans full representation in government.

Perez is the first Latino elected chairman of the DNC.

Puerto Rico voted overwhelmingly in favor of statehood in a nonbinding resolution last week, with 97 percent supporting the measure. Voter turnout was only 23 percent, however.

The governor of Puerto Rico will now choose two senators and five representatives to travel to Washington, D.C., and demand they be seated.

President Trump signaled during his presidential bid that he would consider statehood for Puerto Rico.

BY JACQUELINE THOMSEN 
DNC chairman backs Puerto Rico statehood

New York Pols Supportive Of Puerto Rican Statehood

New York elected officials on Sunday tweeted their support for Puerto Rican statehood as the island voted overwhelming this weekend in a non-binding referendum in favor of the issue.

The vote — 97 percent in favor of becoming the 51st state — comes as Puerto Rico’s finances continue to face a difficult path.

“97% vote in favor of Puerto Rico’s statehood today,” Assemblyman Michael Blake, a Bronx Democrat and a vice chair of the DNC wrote on Twitter. “Congress listen to the people. Respect to the people standing up for their beliefs.”

Republicans agreed with the sentiment, too.

“My relatives in #PuertoRico are among the 97% who voted for #statehood today,” Assemblywoman Nicole Malliotakis, a candidate for mayor of New York City, posted. “An overwhelming percentage that should not be ignored.”

Gov. Andrew Cuomo had pledged support for Puerto Rico as the island’s government faced financial collapse last year, including helping with debt structuring and lobbying Congress. An effort toward declaring bankruptcy is complicated by Puerto Rico’s status as a U.S. protectorate.

New York Pols Supportive Of Puerto Rican Statehood

Despite Vote in Favor, Puerto Rico Faces a Daunting Road Toward Statehood

Puerto Rican politicians were pleading their cases to Congress on Monday, just one day after 97 percent of voters cast ballots in favor of statehood in a nonbinding referendum on the island’s future.

But just as the vote’s meaning was muddled by a historically low turnout, Puerto Ricans were delivering conflicting messages before a very skeptical Congress.

Puerto Rico’s nonvoting member of the House, Jenniffer González, is drafting a bill that will ask Congress to admit Puerto Rico as the 51st state. A hearing will be scheduled before the House Committee on Natural Resources.

“This is a historic moment for the island,” Ms. González said.

But because the turnout was so low — only 23 percent of eligible voters cast ballots — the vote, rather than being a dramatic turning point, underscored the divided political atmosphere in Puerto Rico and the long road ahead for any resolution of the island’s status. By law, the next steps toward statehood remain in Congress, where advocates for statehood face the daunting task of persuading a legislature dominated by Republicans to take on a state which would have the nation’s highest poverty and unemployment rates and an unpaid $74 billion debt.

The Republicans are also considered highly unlikely to do something that could result in five more Democrats in the House and two in the Senate.

Members of Ms. González’s governing New Progressive Party went to Washington to emphasize the large margin of victory. The people have spoken, and so statehood for Puerto Rico, they insisted, is about a decade away.

Others knocked on doors right behind them, pleading the opposite.

“There are 535 offices. We started today, and it’s going to take time,” said Juan E. Hernández Mayoral, a former senator in Puerto Rico who opposes statehood. “It’s hard work, but we have to do it.”

By noon, he had visited more than a dozen congressional offices, showing up without an appointment to tell staffers that the ballot was manipulated, the vote boycotted and the results invalid.

“Sometimes when you go to a congressional office, you’re walking in and a member of the opposition is coming out,” said Kenneth D. McClintock, a former Puerto Rico secretary of state who as a registered lobbyist spends several days a month advocating statehood. “I would have the last laugh and get to say: ‘Everything they told you was totally incorrect.’”

In a statement, Gov. Ricardo A. Rosselló said he would soon head to the capital with the plebiscite results to demand action. He rattled off states, such as Arizona and Wisconsin, whose requests for statehood were made in votes with woefully low turnouts.



“It will be up to this new generation of Puerto Ricans to demand and claim in Washington the end of the current improper colonial relationship, and begin a transition process to fully incorporate Puerto Rico as the next state of the Union,” he said.

Sunday’s plebiscite was the fifth taken since the United States acquired Puerto Rico in 1898. This time, only about 500,000 of Puerto Rico’s 2.2 million registered voters voiced their preference for statehood, independence or remaining a United States commonwealth, far fewer than in previous elections.

But the electoral process was managed by the statehood party, and many critics argued that the ballot was deliberately written to favor statehood. Opposition parties urged their members to boycott the vote.

Even the handful of Puerto Rican members of Congress had mixed opinions.

“Not even Putin gets 97 percent of the vote,” said Luis V. Gutiérrez, an Illinois Democrat. “We’re going to take that seriously?”

Representative José E. Serrano, Democrat of New York, on the other hand, called the boycott “cynical and unnecessary.”

“Now Puerto Rico needs to come before Congress to ask for a change in status,” he said in a statement. “In democracies, the will of the voters is respected, and Congress has a duty to listen and act upon these results so that Puerto Rico can be decolonized once and for all.”

Mr. McClintock said the 23 percent turnout figure was misleading because so many Puerto Ricans have moved to the mainland in recent years. Puerto Rico is losing about 90,000 people a year to states such as Florida and Texas. Many members of Congress are elected with much lower participation than that, and even President Trump got to the White House on the voice of about a quarter of the United States electorate, he said.

But records show the government purged more than half a million voters from the rolls in the months before the vote. Had the elections commission used the rolls from the November general election, the official turnout percentage would have been even lower.

The numbers matter, because it will probably take an overwhelming vote to force Congress to take the issue seriously. So both sides were breaking out calculators and past vote results to make arguments in their favor.

“It’s all spin,” José Fuentes, a statehood advocate, said by phone as he boarded a flight to Washington. “We can spin as well.”

During the presidential campaign, Mr. Trump had said the people of Puerto Rico deserved the right of self-determination. “The will of the Puerto Rican people in any status referendum should be considered as Congress follows through on any desired change in status for Puerto Rico, including statehood,” he said.

On Monday, the Trump administration was more circumspect.

“This referendum is nonbinding and only Congress can change Puerto Rico’s status,” the White House said in a statement.

A version of this article appears in print on June 13, 2017, on Page A18 of the New York edition with the headline: Despite a Vote in Favor, Statehood for Puerto Rico Remains a Distant Goal. Order Reprints| Today's Paper|Subscrib


People attending a march in favor of Puerto Rican independence in Hato Rey, San Juan, on Sunday, the day of the referendum. CreditErika P. Rodriguez for The New York Times
By FRANCES ROBLES
Despite Vote in Favor, Puerto Rico Faces a Daunting Road Toward Statehood

Puerto Rico's Voters Have Backed U.S. Statehood in a Controversial Referendum

 Puerto Rico's governor is vowing to turn the U.S. territory into the 51st state after statehood won in a non-binding referendum hit by a boycott and low turnout that raised questions about the vote's legitimacy.

Gov. Ricardo Rossello told a couple hundred supporters waving U.S. flags late Sunday that he will soon create a commission to appoint two senators and five representatives to demand statehood from the U.S. Congress, which has to approve any changes to the island's political status.

"The United States of America will have to obey the will of our people!" Rossello yelled to a crowd clutching U.S. flags and dancing to a tropical jingle that promoted statehood.

But experts say it is highly unlikely a Republican-controlled Congress would acknowledge Sunday's results, let alone accept them because Puerto Rico tends to favor Democrats.

The referendum has sparked dozens of memes that turned viral, including some showing the tropical island covered in snow.
More than half a million people voted for statehood during Sunday's referendum, followed by nearly 7,800 votes for free association/independence and more than 6,800 votes for the current territorial status. Voter turnout was just 23 percent.
It was the lowest level of participation in any election in Puerto Rico since 1967, noted Carlos Vargas Ramos, an associate with the Center for Puerto Rican Studies at Hunter College in New York. He told The Associated Press that even among voters who supported statehood, turnout was lower this year compared with the previous referendum in 2012.

"Supporters of statehood did not seem enthusiastic about this plebiscite as they were five years ago," he said.
Rossello brushed aside those concerns, noting that the referendum was a democratic process in which the majority prevailed as he questioned why more people did not come out to defend alternatives to statehood. He also said that participation rates varied from 7 percent to 35 percent for states including Wisconsin and Hawaii when they were ratified as states.

Three of Puerto Rico's political parties including the main opposition party had called on their supporters to boycott the referendum, which they labeled a failure.
Former Gov. Alejandro Garcia Padilla, who did not seek re-election last year and whose party supports the status quo, rejected Sunday's results.

"Whoever claims that statehood triumphed is being intellectually dishonest," he said. "The boycott defeated statehood."
The referendum coincided with the 100th anniversary of the United States granting U.S. citizenship to Puerto Ricans, though they are barred from voting in presidential elections and have only one congressional representative with limited voting powers.

Many believe the island's territorial status has contributed to its economic crisis, largely caused by decades of heavy borrowing and the elimination of federal tax incentives.

Puerto Rico is exempt from the U.S. federal income tax, but it still pays Social Security and Medicare and local taxes and receives less federal funding than U.S. states.

"We have been a colony for 500 years, and we have had U.S. citizenship for 100 years, but it's been a second class one," Rossello said.

Nearly half a million Puerto Ricans have fled to the U.S. mainland to escape the island's 10-year economic recession and 12 percent unemployment rate.

Those who remain behind have faced new taxes and higher utility bills on an island where food is 22 percent more expensive than the U.S. mainland and public services are 64 percent more expensive.
Jose Rosa, a 62-year-old retired corrections officer, said the island's situation is the reason he voted for the first time in such a referendum, the fifth on Puerto Rico's status.

"We need a change in the way we're living," he said. "You can see the crisis."

No clear majority emerged in the first three referendums on status, with voters almost evenly divided between statehood and the status quo. During the last referendum in 2012, 54 percent said they wanted a status change. Sixty-one percent who answered a second question said they favored statehood, but nearly half a million voters left that question blank, leading many to claim the results weren't legitimate.

The results of the newest referendum could lead to similar claims, Vargas said."Whether those results are legitimate or not depends on the audience that may be receiving (them)," he said. "If the advocates for statehood for Puerto Rico want to address the results to the U.S. Congress...then the results may appear weak, particularly when five years ago 834,000 voters supported statehood for the island. If the audience is the electorate in Puerto Rico, well, they spoke louder by their overwhelming abstention."
Danica Coto 
Puerto Rico's Voters Have Backed U.S. Statehood in a Controversial Referendum

Divided Puerto Ricans head to polls to vote on U.S. statehood

Puerto Ricans head to the polls on Sunday to decide whether they want their struggling U.S. territory to become the 51st U.S. state, although a vote in favor would likely face an uphill battle in Congress and with President Donald Trump.

The vote comes at a time of economic hardship for the island, hamstrung by $70 billion in debt, a 45-percent poverty rate, woefully underperforming schools, and near-insolvent pension and health systems.

Puerto Rico's hazy political status, dating back to its 1898 acquisition by the United States from Spain, has contributed to the economic crisis that pushed it last month into the biggest municipal bankruptcy in U.S. history.

"Statehood hasn't come in the past 120 years. Why would Donald Trump want to make this bankrupt island a state now? It will be another 120 years before that happens," said Miriam Gonzalez, a 66-year-old retiree in San Juan.

Heading into the plebiscite, Puerto Ricans mingling on the quaint and narrow streets of old San Juan were divided over the three options they will face on Sunday's ballot: becoming a U.S. state; remaining a territory; or becoming an independent nation, with or without some continuing political association with the United States.

Under the current system, Puerto Rico's 3.5 million American citizens do not pay federal taxes, vote for U.S. presidents or receive proportionate federal funding on programs like Medicaid, though the U.S. government oversees policy and financial areas such as infrastructure, defense and trade.

Puerto Rico's recently elected governor Ricardo Rossello campaigned last year on holding a referendum.

Rossello's New Progressive Party (PNP) party, which controls Puerto Rico's government, is premised on a pro-statehood stance, while the opposition Popular Democratic Party (PPD) supports versions of the current territory status and a third party, the Puerto Rican Independence Party (PIP), supports independence.

A spokesman for the governor told Reuters he will push Congress to respect a result in favor of statehood, but Puerto Rico is seen as a low priority in Washington.

The status referendum is Puerto Rico's fifth since 1967. Statehood won in the last referendum in 2012, though PPD leaders instructed constituents to leave blank hundreds of thousands of ballots, calling the result into question.

"Statehood isn't going to happen and the status quo is a trap," said 23-year-old engineering and economics student Daniel Montalvo. "At this point, I think gradual independence is the best option." (Reporting by Tracy Rucinski)

By Tracy Rucinski 
Divided Puerto Ricans head to polls to vote on U.S. statehood

The Bankers Behind Puerto Rico’s Debt Crisis

Centuries ago pirates prowled the Caribbean brandishing scabbards and rifles; today, they wield fat checkbooks on Capitol Hill.

Puerto Rico’s economic crisis has now washed the burden of its colonial legacy onto Washington’s doorstep. Congress has been trying to contain the island’s ballooning debt under the hardline austerity program of the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). But since the program is governed by a control board run by the same financiers responsible for driving the debt crisis in the first place, the island continues to sink into poverty while its creditors feast on the spoils.

To underscore how Puerto Rico’s revolving door of big finance and politics is underwriting the debt crisis, a report by the AFL-CIO and the community-labor coalition Committee for Better Banks(CBB) traces the career of the head of PROMESA, Carlos M. García, from his role as a head banker of Santander to his current political post overseeing the privatization and pillage of Puerto Rico’s anemic public assets.

Starting around 2008, under the conservative Luis Fortuño administration, García was appointed to head Puerto Rico’s Government Development Bank (GDB) and its Public Private Partnerships Authority, two agencies designed to draw investment capital into the crumbling public sector. Bootstrapping his corporate cronyism with his governmental connections, he led the abrupt liquidation of an infrastructure fund known as the Corpus Account, a public financing vehicle for infrastructure projects aimed at upgrading the island’s dilapidated water and sewage systems to meet Federal Clean Water and Drinking Water Act. CBB argues that, despite the glaring conflict of interest, García had free rein to issue unsustainable bonds from 2009 to 2011, “his former employer, Santander, earned millions as a lead or participating underwriter in these transactions.”

As Puerto Rico’s economy cratered, the crumbling and underfunded sanitation system were left running on a stack of IOUs, and exacerbated the public health emergency sparked by the Zika virus last year, which left countless vulnerable newborns exposed to unsafe water and sewage systems.

Following the commonwealth’s massive default on rescue loans last year, Congress continues to ignore Puerto Rican civil-society groups’ calls for debt relief, while allowing PROMESA to lord over the colonial equivalent of an underwater mortgage. Under a high-risk-bonds scheme that García managed, according to the HedgeClippers analysis, “the amounts due when the bonds mature can be 10 or more times the amount originally borrowed,” and overall, an estimated three-quarters of the debt simply cannot be repaid. Whatever is paid back, moreover, largely won’t ever be reinvested in local communities, but instead just be reabsorbed by Wall Street financiers.

The privatization scheme coincided with a crisis over the fallout from the selloff of the telephone company to Verizon and other investors. The subsequent destabilization of contracts and pension benefits triggered protests from 50 labor unions, representing public and private sector workers who have suffered massive job losses under the austerity regime.

The Corpus Account was eventually whittled down from over $1 billion to just $300 million, and even that sum remained frozen in a GDB account and unusable for any remediation projects. Another chunk went to prop up public workers’ pensions, which were hobbled by another bond scheme that Santander and other banks had facilitated in 2008.

Report coauthor Molly McGrath says the attack on the infrastructure fund reflects not only rampant self-dealing throughout the banking industry but also an underlying ideological agenda of privatization.

While the government racked up toxic debt by churning out unsustainable capital appreciation bonds, “they had to have known when they were issuing them that they would never be able to pay them.” As an accessible major source of capital, the sewage project funds were a ripe target for García’s public-private partnership authority, which used the financial crisis as a pretext for “ask[ing] the private sector to take the role of basically financing the public infrastructure.”

Along with campaigning to end Puerto Rico’s debtor’s prison, CBB has also denounced Santander’s corporate malfeasance in its mainland financial services and workplaces. The company has in recent months been hit with scandals over usurious auto loans, and faced protests from bank workers over exploitative conditions that fuel unethical business practices. (García, too, remains embedded in Big Finance, with ties to a retail-credit firm known for issuing predatory payday loans.)

Puerto Rico’s financial chaos is compounded by its territorial status, which imposes all the oppression of a colony and none of the fiscal independence, excluding it from official bankruptcy protections, though PROMESA offers conditional relief in exchange for brutal fiscal cutbacks.

Puerto Rico illustrates the most extreme form of neoliberal restructuring that has been imposed on many US cities following the recession. Detroit was similarly devastated by what University of California–Berkeley’s Haas Institute calls “financial governance,” a modern-day plutocracy that drives “the systemic political neglect of entire groups of people and places.” Puerto Rico, however, is even more constrained, since municipalities can at least seek formal bankruptcy relief.

Although Puerto Rico activists are demanding comprehensive federal debt relief, the Republican takeover of Congress has only hardened Washington’s stance against more generous reforms.

Drawing analogies with the brutal austerity programs imposed on Greece and other debt-strapped European nations, the CBB report concludes only “direct economic stimulus,” not a mounting powder keg of public debt, nor a one-time federal bailout, would provide a sustainable economic structure for the island. Given that the island is recovering not just from recession but from centuries of colonial dispossession, McGrath argues, “They need money flowing into the economy. They’re not going to get out of the crisis just with austerity alone.”

If the island does break out of debt, it will depend on whether its labor and pro-independence groups advocates can advance ideas for an alternative economic agenda, including plans for restoring public-sector jobs and fostering renewable-energy development. Meanwhile, the movement for territorial autonomy continues to stir, and Puerto Rican citizens will have a chance to express their discontent, and perhaps renew their cry for real independence in the upcoming June 11 status referendum.

Nonetheless, even if they get away with colonial pillage today, in the long run privateers like García will have even more to answer for to the next generation of Puerto Ricans, whose futures are already foreclosed by today’s debt disaster. The crisis in Puerto Rico, an abandoned colonial outpost, represents a dangerous economic horizon that communities across the United States are now approaching. As Trump and the Republican Congress press more austerity and corporate deregulation in Washington, they’re resurrecting the ghosts of the island’s imperialist legacy in a 21st-century neoliberal agenda.

A demonstrator stands near police officers during a protest against the government’s austerity measures in San Juan, Puerto Rico, May 1, 2017. (Reuters / Alvin Baez)

By Michelle Chen

The commonwealth’s financial woes didn’t happen by accident—they were the result of decades of public immiseration and private gain.

The Bankers Behind Puerto Rico’s Debt Crisis

Puerto Rico's Illness Is Threatening To Become A National Epidemic

10-years of economic stagnation has taken its toll on Puerto Rico. Unemployment is skyrocketing, infrastructure is degrading, and the exodus away from the island is accelerating. Structural reforms that will stabilize the financial crisis in the short-term, and revitalize the economy in the long-term, are necessary. Such reforms will benefit the rest of the country as well.

Perhaps most obviously, these reforms will benefit the rest of the country because many Americans have directly invested in the bonds that Puerto Rico is currently unable to repay, or their pensions have invested in these bonds on their behalf. According to an analysis by USA Today based on Morningstar data, 40 percent of “municipal bond funds still have exposure to Puerto Rico debt”.

Therefore, any defaults or write downs on Puerto Rico’s $74 billion in outstanding debt will be a zero-sum game. Puerto Rico will gain debt relief, but savers and retirees in the rest of the country will be poorer.

It is imperative to keep this perspective during Puerto Rico’s debt renegotiations to ensure that Puerto Rico’s need for immediate debt relief is appropriately balanced with the need to minimize the losses on the territory’s current debt holders.

While debt renegotiations are necessary in the short-term, only economic growth can permanently fix Puerto Rico’s fiscal crisis. Economic growth does not simply occur because politicians wish it to be so. Instead, politicians must implement the right policies that empowers individuals, small businesses, and large companies (e.g. the private sector) to invest and grow the economy.

Puerto Rico’s economic malaise is attributable, in part, to poor economic policies implemented by both Puerto Rico and the federal government. These policies increase the costs of doing business, and create obstacles to working, saving, and investing in the territory.

There has also been, particularly in the past twelve months, a failure of leadership. In the PROMESA Act passed by Congress last year, an Oversight Board was charged with addressing the Puerto Rico’s fiscal crisis, along with a major role for the Governor of Puerto Rico. Both the Board and the Governor have failed to deliver a responsible fiscal plan, and the threat of a drawn-out bankruptcy court process and unequal treatment of creditors threatens to further undermine Puerto Rico’s long-term recovery.

Unsurprisingly, the private sector is unable to create strong and sustainable economic growth under these circumstances.

Wayne Winegarden
Puerto Rico's Illness Is Threatening To Become A National Epidemic

Puerto Rico highway creditors take 'clawback' fight to court

A lawyer for Puerto Rico's financial oversight panel on Monday said the bankrupt island's highway authority could run out of cash if it continues to pay all its debt, and signaled big repayment cuts for the authority's creditors.

Attorney Martin Bienenstock made the comments at a court hearing related to Puerto Rico's bankruptcy, at which a creditor of the Highway and Transportation Authority, or HTA, sought to block the island's use of "clawbacks" - diverting toll revenue out of HTA's coffers.

HTA bondholders have a lien on that revenue, and want to keep getting paid.

But "once they take the money, we have no money to operate the highway authority," Bienenstock said in a Manhattan courtroom on Monday.

Judge Laura Taylor Swain scheduled a trial on the dispute for Aug. 8, in the Puerto Rican capital San Juan.

Eric Brunstad, an attorney for HTA creditor Peaje Investments, said HTA would be able to function while paying debt. "The parade of horribles is not so," Brunstad said.

The diversions, or "clawbacks," were imposed by the U.S. territory's government last year to keep Puerto Rico afloat as it battled $70 billion in debt, a 45 percent poverty rate and near-insolvent healthcare and pension systems. They applied to several public agencies, including HTA.

Now in bankruptcy, Puerto Rico - and the federal board appointed by U.S. Congress to manage its finances - will have to defend the clawbacks against creditors who have called them illegal.

The validity of the clawbacks will help determine the recoveries of bondholders of the affected agencies, and the liability of companies that insure those bonds, like Assured Guaranty (AGO.N).

Generally, agency debt is expected to fetch smaller recoveries than general obligation bond.

Bienenstock implied big cuts for HTA creditors, saying Peaje's claim on the agency's revenues is limited to what it had after the bankruptcy filing, not before.

"That's a very small number, unfortunately," he said. "Whatever right Peaje had (before bankruptcy) ... that right is a lot less valuable" now.

Monday's hearing was the first time since Puerto Rico's bankruptcy that the clawback issue was put before a judge, after Peaje sued the government last week.

Brunstad said current toll revenue reserves will run out in July, leaving creditors at risk of "irreparable harm" if clawbacks continue.

Judge Swain at times seemed skeptical, questioning whether the harm was irreparable if HTA creditors could conceivably be repaid later.

(Editing by Matthew Lewis)
By Nick Brown
Puerto Rico highway creditors take 'clawback' fight to court

Puerto Rico university to reopen after two-month strike

Puerto Rico's largest public university is reopening after a two-month student strike that led to the resignation of its president.

Students on Monday voted to end a strike that began in late March to protest $450 million in proposed budget cuts sought by a federal control board overseeing finances of the island's government.

A court previously ordered officials to reopen the university on May 11 and has issued nearly $30,000 in penalties since that date. The Middle States Commission on Higher Education also placed eight of 11 University of Puerto Rico campuses on probation in part because of the strike.

The island's governor is seeking $200 million in cuts at the university.

The university's previous president and several other top-level officials resigned in February to protest the budget cuts.

Puerto Rico university to reopen after two-month strike

4 Reasons Why Puerto Rico’s ‘Bankruptcy’ Process Matters to U.S. Residents

How Puerto Rico grapples with its staggering debt is in the hands of a federal judge who will oversee a form of bankruptcy proceeding for the U.S. territory. Puerto Rico owes more than $74 billion dollars to both island and U.S. based creditors and over $40 billion in pension liabilities.

But Puerto Rico's financial straits are far from limited to those living on the island. The process will have far-reaching impacts across the continental U.S.; here are four reasons why.

Retirees across the United States are at risk of being drastically affected

Since Puerto Rico’s bonds have been tax exempt since 1917, U.S. investors and mutual funds have flocked to them through the years, and are now at risk of losing billions of dollars.

Here's an example of how mainland U.S. residents are affected: More than 40 percent of the Rochester Maryland Municipal Bond Fund and the Rochester Virginia Municipal Fund are invested in Puerto Rican bonds. Funds from Oppenheimer Funds and Franklin Templeton are heavily invested in Puerto Rico. If these funds collapse, public sector retirees and employees from states that invested in them will suffer. It's expected that there will be plenty of litigation among the bondholders, as each jockey for position to collect payment.

A default would have far reaching impacts across the U.S. bond markets

Some of the investment companies that have a significant stake in Puerto Rico could perhaps collapse if they are not repaid, and potentially trigger a situation like last decade’s subprime mortgage crisis. Consequently, the companies with the highest levels of exposure to risk are expected to litigate vigorously.

One of these companies is Ambac Assurance, which insures up to $11 billion in Puerto Rican bonds and owns approximately $268 million in island bonds. Ambac filed a motion on May 17 opposing Judge Swain’s decision to consolidate for administrative purposes the Title III requests filed by the Oversight Board, arguing that any consolidation will reduce their chances for recovery. On June 1st, District Judge Laura Taylor Swain granted a motion filed by Puerto Rico’s Oversight Board and issued an order stating that these cases would be consolidated for procedural purposes only.

The Capitol building is seen in San Juan, Puerto Rico May 4, 2017. ALVIN BAEZ / Reuters

A large number of Puerto Rican residents have been moving to the U.S.

Puerto Rico has been under an economic recession for over 10 years, which has prompted more than 10 percent of its residents to move to the U.S. It's expected the island’s recession will continue, given that the Board’s fiscal plan expects to shrink the island's economy, at least for the next 2 years. This will most likely result in more Puerto Ricans continuing to migrate to the continental U.S.

There are now over 1 million Puerto Ricans living in the state of Florida alone, and it is almost certain that Florida and other states will see many more residents from the island arriving to their jurisdictions in search of work and a fresh start.

Court process sets precedent for other U.S. jurisdictions in financial turmoil.

The U.S. Virgin Islands, another U.S. territory with just over 100,000 residents, is under a $2 billion debt. Consequently, they will be watching how Puerto Rico’s court process unfolds to determine if it is in their interests to seek Congressional protection. Furthermore, states with high debt or pension obligations might look to Puerto Rico’s Title III process to see if they can eventually have a similar remedy made available to them.

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 In Lin-Manuel Miranda's Beloved Puerto Rico, Family Speaks of Unfolding Crisis 3:35

How Title III Under Puerto Rico's Fiscal Control Board Works

May 17 was a historic day for both Puerto Rico and the United States, as the U.S. District Court there held its first hearing on the island's bankruptcy, thus officially starting the first case under the Puerto Rico Oversight, Management and Economic Stability Act, more commonly known as PROMESA, enacted by Congress in 2016.

This law created a process combining elements of traditional Chapter 9 and 11 bankruptcies that will permit U.S. owned territories to adjust their debts. Previously, U.S. law did not give territories the remedy used by state municipalities such as Detroit to restructure their debts.

Puerto Rico, an island obtained by the United States after the 1898 Spanish American War, is the first territory to use this process, expected to have far reaching implications not only for the island and its inhabitants, but also across the U.S. financial markets and pension systems.

This process is regulated in Title III of PROMESA, and it's presided by New York district judge Laura Taylor Swain. She was appointed to the case by Supreme Court Chief Justice John Roberts, who, under PROMESA, is the person authorized to select the Judge.

The Title III process differs from a traditional bankruptcy case in several aspects. PROMESA establishes that a 7-person Oversight Board, whose members were recommended by Congress and officially selected by President Obama in 2016, will act as the island’s representative.

However, this does not mean that the Board is required to act in the island’s best interests, as PROMESA does not impose any fiduciary duties to it. It mainly requires the Board to develop a plan that helps Puerto Rico achieve fiscal responsibility and eventually regain access to capital markets.

Furthermore, PROMESA gave the Board’s members immunity for all actions they carry under the Act, and they can override Puerto Rico’s laws and elected officials.

Under Title III, the Board will work with Puerto Rico’s creditors to renegotiate the island’s debts. Once this is done, they will present a Debt Adjustment Plan to the court for approval. This Plan will be approved if it complies with the requirements set in Section 314 of PROMESA.

One requirement of note is the one in Section 314(b)(6), which establishes that the plan will be approved if it “is feasible and in the best interests of creditors, which shall require the court to consider whether available remedies under the non-bankruptcy laws and constitution of the territory would result in a greater recovery for the creditors than is provided by such plan.”

This section is likely to give Judge Taylor Swain more power over Puerto Rico than she would have in a traditional Chapter 9 bankruptcy process, under which a similar plan would be approved if it “is in the best interests of creditors and is feasible”. It is unknown why this additional requirement was added to Title III.

In order to protect the best interests of the creditors, the Court is authorized to allow the Oversight Board to interfere with Puerto Rico’s political or governmental powers and alter its properties, revenues or the use of its income producing properties.

This Section gives powers to the Board that are unique in U.S. law, as, they appear to give it the ability to, for example, potentially dispose of Puerto Rico’s assets and properties and have a say in the way the island government provides basic services to its 3.5 million residents, even though it was not elected to do so by the Puerto Rican people. Judge Swain seemed to be aware of this power during the hearing, when she remarked that this case must lead to a “better future” for Puerto Rico.

Bigger than Detroit and Argentina?

Judge Swain scheduled hearings through December. In addition, the Judge issued an order yesterday requiring Puerto Rico to file a Creditor Matrix by June 30, 2017, and to file a list of all its creditors by August 30, 2017.

However, this process is expected to last several years and become the largest municipal bankruptcy in U.S. history, easily surpassing Detroit’s $20 billion dollar default, and perhaps come close to matching Argentina’s historic 2001 default of over $150 billion dollars.

Who will pay for this bankruptcy process estimated to cost tens of millions of dollars? It will come out of Puerto Rico's pockets, in a process that will fundamentally transform the future of the island, its obligations towards its residents and its relationship to the United States.

In sum, Puerto Rico finds itself in uncharted legal waters. As this case unfolds, it will be important to see how Judge Swain and the Board protect the island’s residents and ensure that Puerto Rico can develop a sustainable economic plan to transform and grow its economy without jeopardizing its residents.

Furthermore, it will be essential that Judge Swain orders a full audit of the debt as part of this process, so there can be a clear understanding of which individuals, elected officials and businesses were responsible for this financial catastrophe so they can be held accountable.

Finally, in order to protect the best interests of both Puerto Rico’s and US residents, it's vital that this process and the audit of the debt moves authorities to enact legal reforms that end any unscrupulous, unethical or illegal financial practices that led to this tragic situation.

by JAIME FARRANT
4 Reasons Why Puerto Rico’s ‘Bankruptcy’ Process Matters to U.S. Residents