Puerto Rico Plays Chicken With Its Creditors
Failure to negotiate in good faith could cost the island the help it seeks from Washington.
- Puerto Rico statehooders see opportunity as woes deepen
- Turning Puerto Rico’s Lament Into Hope
- Probe demanded into Puerto Rico murders of 3 gays in 1 month
- DOJ Cracks Down On Puerto Rico Over Financial Mismanagement
- Rich Investors Flock To Puerto Rico As Debt Crisis Pushes Poor To The Mainland
- Hedge funder John Paulson goes on Puerto Rico spending spree
- It's Not About the Debt, It's About the Politics | David Paul
Failure to negotiate in good faith could cost the island the help it seeks from Washington.
It's Not About the Debt, It's About the Politics | David Paul
When the Puerto Rico debt crisis burst into the news, Puerto Rico Governor Alejandro García Padilla pronounced that the Commonwealth's debt crisis "is not about politics." Of course, to paraphrase H.L. Menken, when a politician says something is not about politics, chances are it's all about politics. That is not to say that Puerto Rico's massive debts are payable or that the math is not suffocating, but long before the debts were massive, and long before the math became intractable, there were the politics. To put in place a plan to address Puerto Rico's debt crisis without taking account of the long simmering witch's brew of island and federal politics and policies that led us to this point would be folly.
While federal and island officials alike are loath to use the "c" word, Puerto Rico has been a colony of the United States for just over 100 years. Like colonies across the globe that traded hands among European powers as the spoils of one war or another, Puerto Rico was ceded to the United States -- along with Guam and the Philippines -- by Spain in 1898 after its defeat in the Spanish-American War.
Americans are generally not comfortable with the notion that we are a colonial power. Global hegemon or imperial nation perhaps, but not colonial overlord. Maybe it is because we were once a colony ourselves. Perhaps our struggles to overcome our legacy as a slave power left us uncomfortable with the idea that through much of the 20th century we ruled over Caribbean sugarcane plantations where the descendants of slaves continued to toil.
The Founders set forth the terms of America's dominion over its colonies under Article Four of the Constitution -- aptly known as the Territories Clause -- and directed that full plenary power and responsibility over America's territories was to be vested in Congress. For the better part of the century that Puerto Rico has remained an American colony, a series of legal cases have explored and defined the relationship of U.S. territories to the United States, but over that time little has fundamentally changed. As set forth in the Territories Clause, and as confirmed repeatedly by the Supreme Court, Puerto Rico remains an unincorporated territory of the United States for which Congress remains fully and unambiguously responsible.
It is notable, then, that throughout the public discussion and debate over the past several months about the insolvency of Puerto Rico, there has been little or no discussion of the ultimate responsibility of Congress for events that have transpired. Congress has never been shy about exercising its oversight powers in areas that offer political opportunity -- Benghazi and the IRS are recent examples -- and is often swift to demand full accountability and point the finger of blame at others for any manner of controversy or scandal that might come up, but with respect to the territories, where the responsibility of Congress is clear, we have heard a deafening silence.
There is no Committee on the Territories in either the House and the Senate through which it might have exercised its responsibility over the years, and none of the Tea Party members who carry a copy of the Constitution in their breast pocket have been seen thumbing through it in front of an assembled gaggle of reporters demanding that Congress that it be held accountable for its own failure of duty as the Puerto Rico crisis has escalated.
The economic and fiscal crisis now confronting Puerto Rico has been building for years, and is a direct outgrowth of political and policy decisions made at the local and national level. It was two decades ago that Congress -- with the support of then-Governor Pedro Rossello of the pro-statehood party -- legislated the end of the Section 936 tax benefit program that for decades had been the basis for a thriving manufacturing sector on the island and a domestic capital market that provided low cost funding for infrastructure and other purposes. And it was in the same timeframe that Puerto Rican activists demanded the curtailment of missile testing on the island of Vieques, which ultimately resulted in the closing of the Roosevelt Roads naval base on Puerto Rico.
The end of the 936 program and the closing of Roosevelt Roads both came to a head around 2006, which is generally viewed as the beginning of the long slide in employment on Puerto Rico, the outmigration of Puerto Ricans to the mainland, and the growth in debt that Governor García Padilla now deems to be unpayable. The end of the 936 program and the closing of Roosevelt Roads were political decisions for which Congress and Puerto Rican officials each bear culpability and that together laid the groundwork for the current crisis.
Puerto Rico politics have long been defined by differences over the preferred political relationship with the United States. Governor García Padilla's Popular Democratic Party stands for continued Commonwealth status while the New Progressive Party of former Governor Rossello stands for statehood. The third force in local politics, representing those who favor independence, has historically had a far smaller share of the vote -- though Puerto Rican "nationalism" remains a powerful political and cultural force.
Much to the chagrin of the United States, the United Nations Special Committee on Decolonization -- created to support self-determination for colonized peoples -- instigated several plebiscites on the political status of Puerto Rico, beginning in 1993 when the Puerto Rico electorate voted 45 percent, 45 percent and 10 percent for statehood, current status and independence, respectively. Over the years, the preference for statehood has grown, with the most recent plebiscite showing a 60-plus percent preference for statehood over the current territorial status, and just last month the Puerto Rico non-voting delegate to Congress, Pedro Pierluisi -- a member of the statehood party -- published an op-ed in the New York Times arguing that statehood is the only solution for what ails the Commonwealth.
But neither the United Nations nor Puerto Rico politicians can make Puerto Rico a state. That can only come about through an act of Congress, and Congressional approval of a new state that would more likely than not send two new Democrats to the U.S. Senate and a half dozen or so new Democrats to the House of Representatives -- projected to come primarily at the expense of red state delegations -- is unlikely to win approval in a Republican-dominated Congress. Nonetheless, the political status of the former Spanish colony that would be the 17th largest state if admitted to the Union remains the dominant political subtext even as Puerto Rico careens into insolvency.
Today, Congress and the White House are largely speaking with one voice as they argue against a "bailout" for Puerto Rico. Instead -- as evidenced by the support of both Hilary Clinton and Jeb Bush -- the magic bullet that many support is to allow Puerto Rico to seek protection under the federal Bankruptcy Code, which is not currently available for U.S. territories. Bankruptcy seems like a neat solution, though advocates conveniently ignore the fact that allowing Puerto Rico access to bankruptcy protection would also be a form of bailout, but one that would place the cost of the bailout on the backs of the millions of Americans that currently own Puerto Rico bonds -- directly or through mutual funds -- that would take a significant haircut in any debt restructuring mandated by a bankruptcy court.
The presence of hedge funds -- a category of opportunistic investors that is quite different from mutual funds -- as owners of a share of Puerto Rico debts is going to complicate any proposed resolution. Puerto Rico bonds have been purchased by mutual funds for years, if not decades, and they are now among the most widely held securities in Americans' savings accounts. Hedge funds only became significant buyers of Puerto Rico debt over the past two years, most notably in 2014 when Puerto Rico issued $3.5 billion of bonds to pay operating costs and push the advent of the current insolvency crisis a year down the road.
At that time, Puerto Rico's traditional mutual fund investor community declined to participate in the new financing. That was the moment when the decade-long decline in Puerto Rico fiscal affairs had become fully evident and a tipping point had been reached. At that time, when access to capital looked to be precluded -- forcing the Puerto Rico administration to come to grips with its fiscal problems -- the hedge fund community saw an opportunity and purchased nearly all of the multi-billion dollar financing.
The $3.5 billion bond issue purchased by the hedge fund community seemed like a blessing at the time for the Puerto Rico administration of Governor García Padilla. It not only allowed the inevitable collapse to be pushed down the road, but more specifically it allowed the crisis to be deferred to a presidential election year, when a politically friendly solution would be more likely due to the large Puerto Rican representation in key electoral college states. Governor García Padilla showed his cards with respect to the deeply political calculus involved when he bluntly threatened both political parties if they fail to support Puerto Rico's preferred solution of achieving access to the bankruptcy courts: "Puerto Ricans decide the elections in Florida. That's very important. By deciding the election in Florida, we can decide [who is the next] president of the United States."
Hilary Clinton and Jeb Bush have read the electoral map, and are now each on record supporting Governor García Padilla's demand that Puerto Rico be allowed access to bankruptcy protection. And they are not alone. National publications from the New York Times to the Weekly Standard have made similar arguments, and the Obama administration seems to be heading in that direction.
Bankruptcy sounds like such a reasonable solution. After all, municipal governments across the country are allowed to use bankruptcy as a tool for renegotiating debts that have become unaffordable. Puerto Rico leaders believe that they have sufficient leverage over the national political parties to secure the legislative changes necessary to allow them to use bankruptcy as a means to renegotiate their outstanding obligations, while leaving their powers of self-governance -- as enshrined in the 1952 Commonwealth Constitution approved by Congress -- largely unaffected going forward. For their part, Democrats and Republicans in Congress seem to be embracing bankruptcy as a path of least resistance, one that allows them to wash their hands of the problem while others pay the bill.
But despite the appeal of bankruptcy as an easy solution for Puerto Rico, it is unlikely to play out that way over time. The mutual fund community -- the trustees for the millions of Americans that own Puerto Rico bonds -- has indicated that it will fight efforts in Congress to change the bankruptcy code on an after-the-fact-basis. But it is the hedge fund managers -- individuals with their own money on the line -- who constitute the greatest threat to the easy solution envisioned by politicians in Puerto Rico and Washington. Those investors -- whose money Governor García Padilla eagerly accepted when it seemed politically advantageous to do so -- who will take the fight all the way to the Supreme Court to demand adherence to the law as well as Congressional accountability.
It may be appealing given the anti-Wall Street mood in the country to place some share of the burden on the backs of hedge fund managers -- after all, they are highly compensated opportunists who bought Puerto Rico bonds after the insolvency was evident -- but there will be considerable political blowback against that line of argument once it becomes apparent that the tens of billions of dollars that a Puerto Rico bankruptcy bailout is going to cost would primarily be seized from the retirement savings of tens of millions of ordinary Americans.
Ultimately, the problem with bankruptcy as a solution is that it will not solve the problem. The insolvency of Puerto Rico is not simply a fiscal crisis but is a constitutional one. Since the approval of its constitution in 1952, Puerto Rico has enjoyed significant powers of self-government, but as the Supreme Court has ruled, none of those powers has removed Congress from its position of ultimate responsibility, and like a parent that has ignored its responsibility for a wayward child, Congress may have looked the other way, but at the end of the day it remains responsible for the welfare of the all of the U.S. territories.
If the failure of duty is placed on Congress -- as the Constitution suggests that it must be -- then at the end of the day the price of the Puerto Rico debt crisis is one that we all will be forced to pay, and Puerto Rico and the Congress will have to recraft their relationship going forward so that the current problems are not repeated in the future.
Read the whole story
· · · · · · ·
When the Puerto Rico debt crisis burst into the news, Puerto Rico Governor Alejandro García Padilla pronounced that the Commonwealth's debt crisis "is not about politics." Of course, to paraphrase H.L. Menken, when a politician says something is not about politics, chances are it's all about politics. That is not to say that Puerto Rico's massive debts are payable or that the math is not suffocating, but long before the debts were massive, and long before the math became intractable, there were the politics. To put in place a plan to address Puerto Rico's debt crisis without taking account of the long simmering witch's brew of island and federal politics and policies that led us to this point would be folly.
While federal and island officials alike are loath to use the "c" word, Puerto Rico has been a colony of the United States for just over 100 years. Like colonies across the globe that traded hands among European powers as the spoils of one war or another, Puerto Rico was ceded to the United States -- along with Guam and the Philippines -- by Spain in 1898 after its defeat in the Spanish-American War.
Americans are generally not comfortable with the notion that we are a colonial power. Global hegemon or imperial nation perhaps, but not colonial overlord. Maybe it is because we were once a colony ourselves. Perhaps our struggles to overcome our legacy as a slave power left us uncomfortable with the idea that through much of the 20th century we ruled over Caribbean sugarcane plantations where the descendants of slaves continued to toil.
The Founders set forth the terms of America's dominion over its colonies under Article Four of the Constitution -- aptly known as the Territories Clause -- and directed that full plenary power and responsibility over America's territories was to be vested in Congress. For the better part of the century that Puerto Rico has remained an American colony, a series of legal cases have explored and defined the relationship of U.S. territories to the United States, but over that time little has fundamentally changed. As set forth in the Territories Clause, and as confirmed repeatedly by the Supreme Court, Puerto Rico remains an unincorporated territory of the United States for which Congress remains fully and unambiguously responsible.
It is notable, then, that throughout the public discussion and debate over the past several months about the insolvency of Puerto Rico, there has been little or no discussion of the ultimate responsibility of Congress for events that have transpired. Congress has never been shy about exercising its oversight powers in areas that offer political opportunity -- Benghazi and the IRS are recent examples -- and is often swift to demand full accountability and point the finger of blame at others for any manner of controversy or scandal that might come up, but with respect to the territories, where the responsibility of Congress is clear, we have heard a deafening silence.
There is no Committee on the Territories in either the House and the Senate through which it might have exercised its responsibility over the years, and none of the Tea Party members who carry a copy of the Constitution in their breast pocket have been seen thumbing through it in front of an assembled gaggle of reporters demanding that Congress that it be held accountable for its own failure of duty as the Puerto Rico crisis has escalated.
The economic and fiscal crisis now confronting Puerto Rico has been building for years, and is a direct outgrowth of political and policy decisions made at the local and national level. It was two decades ago that Congress -- with the support of then-Governor Pedro Rossello of the pro-statehood party -- legislated the end of the Section 936 tax benefit program that for decades had been the basis for a thriving manufacturing sector on the island and a domestic capital market that provided low cost funding for infrastructure and other purposes. And it was in the same timeframe that Puerto Rican activists demanded the curtailment of missile testing on the island of Vieques, which ultimately resulted in the closing of the Roosevelt Roads naval base on Puerto Rico.
The end of the 936 program and the closing of Roosevelt Roads both came to a head around 2006, which is generally viewed as the beginning of the long slide in employment on Puerto Rico, the outmigration of Puerto Ricans to the mainland, and the growth in debt that Governor García Padilla now deems to be unpayable. The end of the 936 program and the closing of Roosevelt Roads were political decisions for which Congress and Puerto Rican officials each bear culpability and that together laid the groundwork for the current crisis.
Puerto Rico politics have long been defined by differences over the preferred political relationship with the United States. Governor García Padilla's Popular Democratic Party stands for continued Commonwealth status while the New Progressive Party of former Governor Rossello stands for statehood. The third force in local politics, representing those who favor independence, has historically had a far smaller share of the vote -- though Puerto Rican "nationalism" remains a powerful political and cultural force.
Much to the chagrin of the United States, the United Nations Special Committee on Decolonization -- created to support self-determination for colonized peoples -- instigated several plebiscites on the political status of Puerto Rico, beginning in 1993 when the Puerto Rico electorate voted 45 percent, 45 percent and 10 percent for statehood, current status and independence, respectively. Over the years, the preference for statehood has grown, with the most recent plebiscite showing a 60-plus percent preference for statehood over the current territorial status, and just last month the Puerto Rico non-voting delegate to Congress, Pedro Pierluisi -- a member of the statehood party -- published an op-ed in the New York Times arguing that statehood is the only solution for what ails the Commonwealth.
But neither the United Nations nor Puerto Rico politicians can make Puerto Rico a state. That can only come about through an act of Congress, and Congressional approval of a new state that would more likely than not send two new Democrats to the U.S. Senate and a half dozen or so new Democrats to the House of Representatives -- projected to come primarily at the expense of red state delegations -- is unlikely to win approval in a Republican-dominated Congress. Nonetheless, the political status of the former Spanish colony that would be the 17th largest state if admitted to the Union remains the dominant political subtext even as Puerto Rico careens into insolvency.
Today, Congress and the White House are largely speaking with one voice as they argue against a "bailout" for Puerto Rico. Instead -- as evidenced by the support of both Hilary Clinton and Jeb Bush -- the magic bullet that many support is to allow Puerto Rico to seek protection under the federal Bankruptcy Code, which is not currently available for U.S. territories. Bankruptcy seems like a neat solution, though advocates conveniently ignore the fact that allowing Puerto Rico access to bankruptcy protection would also be a form of bailout, but one that would place the cost of the bailout on the backs of the millions of Americans that currently own Puerto Rico bonds -- directly or through mutual funds -- that would take a significant haircut in any debt restructuring mandated by a bankruptcy court.
The presence of hedge funds -- a category of opportunistic investors that is quite different from mutual funds -- as owners of a share of Puerto Rico debts is going to complicate any proposed resolution. Puerto Rico bonds have been purchased by mutual funds for years, if not decades, and they are now among the most widely held securities in Americans' savings accounts. Hedge funds only became significant buyers of Puerto Rico debt over the past two years, most notably in 2014 when Puerto Rico issued $3.5 billion of bonds to pay operating costs and push the advent of the current insolvency crisis a year down the road.
At that time, Puerto Rico's traditional mutual fund investor community declined to participate in the new financing. That was the moment when the decade-long decline in Puerto Rico fiscal affairs had become fully evident and a tipping point had been reached. At that time, when access to capital looked to be precluded -- forcing the Puerto Rico administration to come to grips with its fiscal problems -- the hedge fund community saw an opportunity and purchased nearly all of the multi-billion dollar financing.
The $3.5 billion bond issue purchased by the hedge fund community seemed like a blessing at the time for the Puerto Rico administration of Governor García Padilla. It not only allowed the inevitable collapse to be pushed down the road, but more specifically it allowed the crisis to be deferred to a presidential election year, when a politically friendly solution would be more likely due to the large Puerto Rican representation in key electoral college states. Governor García Padilla showed his cards with respect to the deeply political calculus involved when he bluntly threatened both political parties if they fail to support Puerto Rico's preferred solution of achieving access to the bankruptcy courts: "Puerto Ricans decide the elections in Florida. That's very important. By deciding the election in Florida, we can decide [who is the next] president of the United States."
Hilary Clinton and Jeb Bush have read the electoral map, and are now each on record supporting Governor García Padilla's demand that Puerto Rico be allowed access to bankruptcy protection. And they are not alone. National publications from the New York Times to the Weekly Standard have made similar arguments, and the Obama administration seems to be heading in that direction.
Bankruptcy sounds like such a reasonable solution. After all, municipal governments across the country are allowed to use bankruptcy as a tool for renegotiating debts that have become unaffordable. Puerto Rico leaders believe that they have sufficient leverage over the national political parties to secure the legislative changes necessary to allow them to use bankruptcy as a means to renegotiate their outstanding obligations, while leaving their powers of self-governance -- as enshrined in the 1952 Commonwealth Constitution approved by Congress -- largely unaffected going forward. For their part, Democrats and Republicans in Congress seem to be embracing bankruptcy as a path of least resistance, one that allows them to wash their hands of the problem while others pay the bill.
But despite the appeal of bankruptcy as an easy solution for Puerto Rico, it is unlikely to play out that way over time. The mutual fund community -- the trustees for the millions of Americans that own Puerto Rico bonds -- has indicated that it will fight efforts in Congress to change the bankruptcy code on an after-the-fact-basis. But it is the hedge fund managers -- individuals with their own money on the line -- who constitute the greatest threat to the easy solution envisioned by politicians in Puerto Rico and Washington. Those investors -- whose money Governor García Padilla eagerly accepted when it seemed politically advantageous to do so -- who will take the fight all the way to the Supreme Court to demand adherence to the law as well as Congressional accountability.
It may be appealing given the anti-Wall Street mood in the country to place some share of the burden on the backs of hedge fund managers -- after all, they are highly compensated opportunists who bought Puerto Rico bonds after the insolvency was evident -- but there will be considerable political blowback against that line of argument once it becomes apparent that the tens of billions of dollars that a Puerto Rico bankruptcy bailout is going to cost would primarily be seized from the retirement savings of tens of millions of ordinary Americans.
Ultimately, the problem with bankruptcy as a solution is that it will not solve the problem. The insolvency of Puerto Rico is not simply a fiscal crisis but is a constitutional one. Since the approval of its constitution in 1952, Puerto Rico has enjoyed significant powers of self-government, but as the Supreme Court has ruled, none of those powers has removed Congress from its position of ultimate responsibility, and like a parent that has ignored its responsibility for a wayward child, Congress may have looked the other way, but at the end of the day it remains responsible for the welfare of the all of the U.S. territories.
If the failure of duty is placed on Congress -- as the Constitution suggests that it must be -- then at the end of the day the price of the Puerto Rico debt crisis is one that we all will be forced to pay, and Puerto Rico and the Congress will have to recraft their relationship going forward so that the current problems are not repeated in the future.
Read the whole story
· · · · · · ·
Hedge funder John Paulson goes on Puerto Rico spending spree
August 20, 2015 | 10:05pm
Hedge fund billionaire John Paulson is expected to lose hundreds of millions of dollars in the Puerto Rican debt crisis, but it hasn’t stopped the big spender from living the high life with real estate mogul Fahad Ghaffar in San Juan.
A source says Paulson and Ghaffar, who’s also managing director of Paulson & Co., have gone on a “buying spree,” scooping up properties including luxury hotels St. Regis, La Concha Resort and the Vanderbilt.
“They see Puerto Rico as an incredible buying opportunity with high returns,” says the source.
The duo even convinced Vittorio Assaf and Fabio Granato, owners of Italian eatery Serafina, to move there and shell out millions to open their 25th location at La Concha. The restaurateurs “are getting Puerto Rican residency. It will be their base while they travel around the world managing other locations,” says our spy.
On Tuesday, they all celebrated the swanky new restaurant with Mayor Carmen Yulín Cruz Soto and models including Joan Smalls’ sister Erika. Carmelo Anthony attended with Lou Amundson.
August 20, 2015 | 10:05pm
Hedge fund billionaire John Paulson is expected to lose hundreds of millions of dollars in the Puerto Rican debt crisis, but it hasn’t stopped the big spender from living the high life with real estate mogul Fahad Ghaffar in San Juan.
A source says Paulson and Ghaffar, who’s also managing director of Paulson & Co., have gone on a “buying spree,” scooping up properties including luxury hotels St. Regis, La Concha Resort and the Vanderbilt.
“They see Puerto Rico as an incredible buying opportunity with high returns,” says the source.
The duo even convinced Vittorio Assaf and Fabio Granato, owners of Italian eatery Serafina, to move there and shell out millions to open their 25th location at La Concha. The restaurateurs “are getting Puerto Rican residency. It will be their base while they travel around the world managing other locations,” says our spy.
On Tuesday, they all celebrated the swanky new restaurant with Mayor Carmen Yulín Cruz Soto and models including Joan Smalls’ sister Erika. Carmelo Anthony attended with Lou Amundson.
Rich Investors Flock To Puerto Rico As Debt Crisis Pushes Poor To The Mainland
Devastating economic times and myriad tax incentives are driving the wealthy to Puerto Rico, but they’re also forcing Puerto Ricans off the island.
A private security guard sits in front of a closed down business in the colonial district of Old San Juan, Puerto Rico, Sunday, Aug. 2, 2015.
WASHINGTON — Hundreds of thousands of residents of Puerto Rico are being forced from their homeland in search of better economic conditions on mainland America. The Caribbean island recently defaulted on a $58 million debt for the first time in its history, and the super rich are descending upon the island to buy up homes and businesses that have been abandoned amid hard economic times.
“What you’re seeing then, if this is allowed to continue unchecked, is the gentrification of an entire island,” said Nelson A. Denis, a former New York State assemblyman and author of “War Against All Puerto Ricans: Revolution and Terror in America’s Colony,” while speaking to MintPress News.
Denis was speaking specifically about tax exemptions enacted on the island in 2012 to encourage wealthy individuals, mainly from the mainland United States, to move to the island and start new businesses there.
It’s just one of the solutions the country drummed up to rehabilitate its ailing economy.
As the wealthy come to the island, tens of thousands of Puerto Ricans are pouring out. From 2000 to 2013, the Caribbean island’s population declined by 200,000 people — a trend that the Census Bureau expects to continue until at least until 2050, according to the Pew Research Center.
The Washington-based nonpartisan think tank reported last year: “Puerto Ricans have left the financially troubled island for the U.S. mainland this decade in their largest numbers since the Great Migration after World War II, citing job-related reasons above all others.”
Devastating economic times and myriad tax incentives are driving the wealthy to Puerto Rico, but they’re also forcing Puerto Ricans off the island.
A private security guard sits in front of a closed down business in the colonial district of Old San Juan, Puerto Rico, Sunday, Aug. 2, 2015.
WASHINGTON — Hundreds of thousands of residents of Puerto Rico are being forced from their homeland in search of better economic conditions on mainland America. The Caribbean island recently defaulted on a $58 million debt for the first time in its history, and the super rich are descending upon the island to buy up homes and businesses that have been abandoned amid hard economic times.
“What you’re seeing then, if this is allowed to continue unchecked, is the gentrification of an entire island,” said Nelson A. Denis, a former New York State assemblyman and author of “War Against All Puerto Ricans: Revolution and Terror in America’s Colony,” while speaking to MintPress News.
Denis was speaking specifically about tax exemptions enacted on the island in 2012 to encourage wealthy individuals, mainly from the mainland United States, to move to the island and start new businesses there.
It’s just one of the solutions the country drummed up to rehabilitate its ailing economy.
As the wealthy come to the island, tens of thousands of Puerto Ricans are pouring out. From 2000 to 2013, the Caribbean island’s population declined by 200,000 people — a trend that the Census Bureau expects to continue until at least until 2050, according to the Pew Research Center.
The Washington-based nonpartisan think tank reported last year: “Puerto Ricans have left the financially troubled island for the U.S. mainland this decade in their largest numbers since the Great Migration after World War II, citing job-related reasons above all others.”
Gentrifying a country
Aiming to attract big investors via tax incentives isn’t unique to Puerto Rico. Indeed, many cities and municipalities across the U.S. have adopted the same strategy in a bid to grapple with their own financial woes.
In 2012, the unincorporated U.S. territory enacted the Export Services Act (Act 20) and the Individual Investors Act (Act 22), which provide tax exemptions to encourage wealthy individuals to move to the island. The incentives include a 0-percent tax on earnings and profits, a 3- to 4-percent flat income tax, and a 0-percent property tax. There’s also a 0-percent tax on dividends and interest, and a 0- to 10-percent tax on long-term capital gains, which can be as high as 20 percent in the U.S.
Walter Martin prepares a coffee in his coffee shop in the colonial district of Old San Juan, Puerto Rico, Sunday, Aug. 2, 2015. With tens of thousand migrating out of the island and the with the economy tanking, Puerto Ricans are bracing for a new services tax set to take effect Oct. 1. Some economists warn that measures like new taxes could further depress the economy, a concern shared by small business owners.
The incentives are working. The rich have arrived. But the problem is that everybody else is leaving.
“The highest beneficiary of that right now is a fella named John Paulson, a hedge fund owner,” Nelson Denis, the former assemblyman, told MintPress.
Paulson is the infamous owner of the hedge fund Paulson & Co. He captured the public’s fascination during the 2007 and 2008 financial crisis, when he made $15 billion in profits by betting against American homeowners, who suffered heavy losses when the subprime mortgage market crashed. Occupy Wall Street protesters gathered in front of his home to show their disdain in 2011, and left him a novelty $5 billion tax refund check.
“This dude, John Paulson, is now under the aegis of Act 22 in Puerto Rico, using that law, and he’s developing a $500 million hotel and condominium resort on Dorado Beach,” said Denis.
According to Forbes, Paulson will have invested $1.5 billion in ultra-luxury real estates in Puerto Rico by the end of this year. These properties include the St. Regis Bahia Beach Resort and the Condado Vanderbilt Hotel.
“So John Paulson, who profited from betting against homeowners and buying up distressed properties in 2007, is, eight years later, doing the same thing in Puerto Rico with almost the identical scenario!” quipped Denis.
“He gets tax preferences that other people don’t. He benefits from people that have to leave the island, leaving their homes and businesses and whatever else behind, and buys up distressed properties for pennies on the dollar.”
Aiming to attract big investors via tax incentives isn’t unique to Puerto Rico. Indeed, many cities and municipalities across the U.S. have adopted the same strategy in a bid to grapple with their own financial woes.
In 2012, the unincorporated U.S. territory enacted the Export Services Act (Act 20) and the Individual Investors Act (Act 22), which provide tax exemptions to encourage wealthy individuals to move to the island. The incentives include a 0-percent tax on earnings and profits, a 3- to 4-percent flat income tax, and a 0-percent property tax. There’s also a 0-percent tax on dividends and interest, and a 0- to 10-percent tax on long-term capital gains, which can be as high as 20 percent in the U.S.
Walter Martin prepares a coffee in his coffee shop in the colonial district of Old San Juan, Puerto Rico, Sunday, Aug. 2, 2015. With tens of thousand migrating out of the island and the with the economy tanking, Puerto Ricans are bracing for a new services tax set to take effect Oct. 1. Some economists warn that measures like new taxes could further depress the economy, a concern shared by small business owners.
The incentives are working. The rich have arrived. But the problem is that everybody else is leaving.
“The highest beneficiary of that right now is a fella named John Paulson, a hedge fund owner,” Nelson Denis, the former assemblyman, told MintPress.
Paulson is the infamous owner of the hedge fund Paulson & Co. He captured the public’s fascination during the 2007 and 2008 financial crisis, when he made $15 billion in profits by betting against American homeowners, who suffered heavy losses when the subprime mortgage market crashed. Occupy Wall Street protesters gathered in front of his home to show their disdain in 2011, and left him a novelty $5 billion tax refund check.
“This dude, John Paulson, is now under the aegis of Act 22 in Puerto Rico, using that law, and he’s developing a $500 million hotel and condominium resort on Dorado Beach,” said Denis.
According to Forbes, Paulson will have invested $1.5 billion in ultra-luxury real estates in Puerto Rico by the end of this year. These properties include the St. Regis Bahia Beach Resort and the Condado Vanderbilt Hotel.
“So John Paulson, who profited from betting against homeowners and buying up distressed properties in 2007, is, eight years later, doing the same thing in Puerto Rico with almost the identical scenario!” quipped Denis.
“He gets tax preferences that other people don’t. He benefits from people that have to leave the island, leaving their homes and businesses and whatever else behind, and buys up distressed properties for pennies on the dollar.”
‘This is not politics, this is math’
Earlier this month, Puerto Rico defaulted on a $58 million payment it was supposed to make to the Public Financing Corporation, a subsidiary of the Puerto Rico Government Development Bank. It paid only $628,000 of that debt. It was the first time this has happened in the island’s history.
The island’s governor, Alejandro García Padilla, told The New York Times in June, “The debt is not payable. There is no other option. I would love to have an easier option. This is not politics, this is math.”
“My administration is doing everything not to default… But we have to make the economy grow,” he added. “If not, we will be in a death spiral.”
Roughly $11.3 billion of Puerto Rico’s $73 billion in total debt is owned by bond mutual funds, while $15 billion of it is owned by hedge funds, according to CNNMoney. The rest, approximately $26.5 billion, is owned mainly by Puerto Ricans and mainland Americans, reported the financial news outlet.
This spells trouble not only for Puerto Rico but the world financial market, as well as ordinary people on both the island and the mainland. The destructive nature of toxic debt was made apparent in 2007, when the American subprime loan market crashed the global economy.
According to CNNMoney, more than 20 percent of bond mutual funds own Puerto Rican bonds. “[T]he exact numbers are 377 funds out of 1,884 United States bond mutual funds,” the financial news agency reported in July, citing figures from Morningstar.
Ordinary Puerto Ricans are in danger as well because they own most of this debt.
“I am worried. Any Puerto Rican is worried,” said Rey J. de Leon, a Puerto Rican lawyer, to CNNMoney.
“We have a lot of people who are seniors and they depend on the returns from those bonds to live on a month-to-month basis,” he explained.
Earlier this month, Puerto Rico defaulted on a $58 million payment it was supposed to make to the Public Financing Corporation, a subsidiary of the Puerto Rico Government Development Bank. It paid only $628,000 of that debt. It was the first time this has happened in the island’s history.
The island’s governor, Alejandro García Padilla, told The New York Times in June, “The debt is not payable. There is no other option. I would love to have an easier option. This is not politics, this is math.”
“My administration is doing everything not to default… But we have to make the economy grow,” he added. “If not, we will be in a death spiral.”
Roughly $11.3 billion of Puerto Rico’s $73 billion in total debt is owned by bond mutual funds, while $15 billion of it is owned by hedge funds, according to CNNMoney. The rest, approximately $26.5 billion, is owned mainly by Puerto Ricans and mainland Americans, reported the financial news outlet.
This spells trouble not only for Puerto Rico but the world financial market, as well as ordinary people on both the island and the mainland. The destructive nature of toxic debt was made apparent in 2007, when the American subprime loan market crashed the global economy.
According to CNNMoney, more than 20 percent of bond mutual funds own Puerto Rican bonds. “[T]he exact numbers are 377 funds out of 1,884 United States bond mutual funds,” the financial news agency reported in July, citing figures from Morningstar.
Ordinary Puerto Ricans are in danger as well because they own most of this debt.
“I am worried. Any Puerto Rican is worried,” said Rey J. de Leon, a Puerto Rican lawyer, to CNNMoney.
“We have a lot of people who are seniors and they depend on the returns from those bonds to live on a month-to-month basis,” he explained.
The path to gentrification: Self-Inflicted and historical
The island’s financial woes stem from structural aspects related to the legacy of colonization by the United States, as well as a self-inflicted dimension related to government administrations and the types of policies they’ve enacted, according to Ian J. Seda-Irizarry, assistant professor of Economics at John Jay College of Criminal Justice in New York and political advisor to the Working People’s Party of Puerto Rico.
“The government of Puerto Rico wants to continue with this model that has been obsolete since the 1970s,” Seda-Irizarry told MintPress, referring to the fact that both current and past administrations have resorted to treating the economy with neoliberal reforms, which only make the situation worse.
Writing this month in Jacobin, a magazine that describes itself as the “leading voice of the American left,” Seda-Irizarry and Heriberto Martínez-Otero described the dire straits of the Puerto Rican economy.
“Per capita income in Puerto Rico is almost half that of Mississippi, the US’s poorest state. The jobless rate is 12.6%; in West Virginia, the state with the highest unemployment rate in the US, that number is 7.4%. Puerto Rico’s labor participation rate is around 43%, 20 points lower than in the US as a whole. Median household income is almost $7,000 less than in Detroit (and less than half of the US average). And a staggering 45% of the population lives in poverty (compared to about 15% in the US).”
The island government has attempted to address the crisis by trying to make it a more attractive investment destination and implementing austerity measures. This is the economic model that Seda-Irizarry says is obsolete.
Indeed, numerous studies have shown that the time to implement austerity is during an economic boom, not a crisis. Yet austerity is the direction Seda-Irizarry says the Puerto Rican government is about to take. “So in that sense,” he said, “if we don’t get rid of this political class we’re not going to move forward.”
In the past, it was pharmaceutical companies, like Pfizer, along with chemical and electronics corporations, such as Hewlett Packard, that flocked to Puerto Rico’s tax haven, but they did not invest in the country. When other countries around the world became even cheaper than Puerto Rico, those companies moved on, leaving little behind.
The island’s financial woes stem from structural aspects related to the legacy of colonization by the United States, as well as a self-inflicted dimension related to government administrations and the types of policies they’ve enacted, according to Ian J. Seda-Irizarry, assistant professor of Economics at John Jay College of Criminal Justice in New York and political advisor to the Working People’s Party of Puerto Rico.
“The government of Puerto Rico wants to continue with this model that has been obsolete since the 1970s,” Seda-Irizarry told MintPress, referring to the fact that both current and past administrations have resorted to treating the economy with neoliberal reforms, which only make the situation worse.
Writing this month in Jacobin, a magazine that describes itself as the “leading voice of the American left,” Seda-Irizarry and Heriberto Martínez-Otero described the dire straits of the Puerto Rican economy.
“Per capita income in Puerto Rico is almost half that of Mississippi, the US’s poorest state. The jobless rate is 12.6%; in West Virginia, the state with the highest unemployment rate in the US, that number is 7.4%. Puerto Rico’s labor participation rate is around 43%, 20 points lower than in the US as a whole. Median household income is almost $7,000 less than in Detroit (and less than half of the US average). And a staggering 45% of the population lives in poverty (compared to about 15% in the US).”
The island government has attempted to address the crisis by trying to make it a more attractive investment destination and implementing austerity measures. This is the economic model that Seda-Irizarry says is obsolete.
Indeed, numerous studies have shown that the time to implement austerity is during an economic boom, not a crisis. Yet austerity is the direction Seda-Irizarry says the Puerto Rican government is about to take. “So in that sense,” he said, “if we don’t get rid of this political class we’re not going to move forward.”
In the past, it was pharmaceutical companies, like Pfizer, along with chemical and electronics corporations, such as Hewlett Packard, that flocked to Puerto Rico’s tax haven, but they did not invest in the country. When other countries around the world became even cheaper than Puerto Rico, those companies moved on, leaving little behind.
The colonization of Puerto Rico
The island was annexed by the U.S. in 1898 following the Spanish-American War.
Hurricane San Ciriaco hit the island the following year. It was the longest-lived hurricane in Atlantic Ocean history, lasting almost 30 days. It killed over 3,000 people in Puerto Rico alone, and led to $20 million in damages. In short, it was devastating.
According to Stuart B. Schwartz, Chair of the Council on Latin American & Iberian Studies at Yale University, the U.S. provided as much aid as it fit in with its political machinations for the island, which included its state as a colonial project.
Nelson Denis agrees with this sentiment, telling MintPress that the U.S. didn’t send Puerto Rico the relief the island wanted in order to manipulate the crisis so it could push through policies of its own choosing without resistance on the island.
“It kind of worked perfectly into the Naomi Klein ‘Shock Doctrine.’ You [the U.S.] benefit from this tragedy, from economic distress,” he said.
One year later, the U.S. took greater control over the island’s economic policy. It outlawed and devalued the peso. One peso was now worth only 60 American cents.
“It was a strict, straight-up devaluation of 40 percent of their wealth,” said Denis.
Imagine, he said, what would happen if 40 percent of everybody’s wealth and property in the mainland U.S. was eliminated while at the same time 40 percent of their debt went up. This is what happened in Puerto Rico, he explained.
The following year, 1901, the first U.S. civilian governor of Puerto Rico, Charles Herbert Allen, enacted the Hollander Act, which created an unprecedented set of steeply graduated property taxes on every farm in Puerto Rico.
Then, a predatory lender, the American Colonial Bank, stepped in to give out loans to poor Puerto Rican farmers in danger of losing their farms and livelihoods. The bank didn’t have any usury law restrictions so it could charge whatever it wanted, explained Denis.
“They preferred people to go into default because then they could own the farms, and that’s what happened,” he said.
“Within 20 to 30 years, 80 percent of the most arable land in Puerto Rico was owned by North American banking syndicates, and they turned Puerto Rico into a one crop, cash-cow economy, that of sugarcane.”
By 1930, only four sugarcane centrales, the main company conglomerates, owned over half of the sugarcane lands in Puerto Rico. Those companies were Central Guanica, South Puerto Rico, Fajardo Sugar and East Puerto Rico Sugar. Puerto Ricans were now getting jobs on the same sugarcane fields that they had previously owned. Workers attempted to implement a minimum wage, but the U.S. Supreme Court deemed it unconstitutional.
At that point, rank-and-file union workers started to seek help from a man named Pedro Albizu Campos, the main figure in Denis’ book, “War Against All Puerto Ricans: Revolution and Terror in America’s Colony.” Campos was a graduate of Harvard Law School and president of the Puerto Rican Nationalist Party. He and his party started to win concessions from the U.S. government, and wages rose from 75 cents a day to $1.50 a day, according to Denis.
“That spelled the difference for a lot of families between starving and living in Puerto Rico, so that was a great thing,” he said.
However, the U.S. began to perceive Campos as a national security threat because he was empowering workers on the island, which didn’t sit well with sugarcane plantation owners, especially in 1935, when the U.S. was in the midst of the Great Depression. Then-President Franklin Delano Roosevelt sent a new governor and chief of police to the island, who militarized the police and started killing nationalists.
Campos himself was targeted by the FBI, attacked, and jailed for 24 years, where he was beaten and tortured. He was released after suffering a stroke in 1964. This movement against nationalists, like Campos, effectively destroyed aspirations for independence. It’s also likely why there isn’t a large movement behind more radical policies for change on the island today.
However, it is the current self-inflicted policies of austerity and an environmental crisis that Ian J. Seda-Irizarry hopes will lead to a “social explosion” that will prompt a people-driven movement for change on the island.
“The purpose of organizations like mine and others is to precisely connect that inefficiency and looting of the resources of all of these administrations and their offices to how the economy has been organized,” he said.
Seda-Irizarry, who is hoping for a more radically left party to be elected into office, concluded: “The ground [in Puerto Rico] is fertile for things, as in many many places all over the world.”
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· · · · · · · · · · · ·
The island was annexed by the U.S. in 1898 following the Spanish-American War.
Hurricane San Ciriaco hit the island the following year. It was the longest-lived hurricane in Atlantic Ocean history, lasting almost 30 days. It killed over 3,000 people in Puerto Rico alone, and led to $20 million in damages. In short, it was devastating.
According to Stuart B. Schwartz, Chair of the Council on Latin American & Iberian Studies at Yale University, the U.S. provided as much aid as it fit in with its political machinations for the island, which included its state as a colonial project.
Nelson Denis agrees with this sentiment, telling MintPress that the U.S. didn’t send Puerto Rico the relief the island wanted in order to manipulate the crisis so it could push through policies of its own choosing without resistance on the island.
“It kind of worked perfectly into the Naomi Klein ‘Shock Doctrine.’ You [the U.S.] benefit from this tragedy, from economic distress,” he said.
One year later, the U.S. took greater control over the island’s economic policy. It outlawed and devalued the peso. One peso was now worth only 60 American cents.
“It was a strict, straight-up devaluation of 40 percent of their wealth,” said Denis.
Imagine, he said, what would happen if 40 percent of everybody’s wealth and property in the mainland U.S. was eliminated while at the same time 40 percent of their debt went up. This is what happened in Puerto Rico, he explained.
The following year, 1901, the first U.S. civilian governor of Puerto Rico, Charles Herbert Allen, enacted the Hollander Act, which created an unprecedented set of steeply graduated property taxes on every farm in Puerto Rico.
Then, a predatory lender, the American Colonial Bank, stepped in to give out loans to poor Puerto Rican farmers in danger of losing their farms and livelihoods. The bank didn’t have any usury law restrictions so it could charge whatever it wanted, explained Denis.
“They preferred people to go into default because then they could own the farms, and that’s what happened,” he said.
“Within 20 to 30 years, 80 percent of the most arable land in Puerto Rico was owned by North American banking syndicates, and they turned Puerto Rico into a one crop, cash-cow economy, that of sugarcane.”
By 1930, only four sugarcane centrales, the main company conglomerates, owned over half of the sugarcane lands in Puerto Rico. Those companies were Central Guanica, South Puerto Rico, Fajardo Sugar and East Puerto Rico Sugar. Puerto Ricans were now getting jobs on the same sugarcane fields that they had previously owned. Workers attempted to implement a minimum wage, but the U.S. Supreme Court deemed it unconstitutional.
At that point, rank-and-file union workers started to seek help from a man named Pedro Albizu Campos, the main figure in Denis’ book, “War Against All Puerto Ricans: Revolution and Terror in America’s Colony.” Campos was a graduate of Harvard Law School and president of the Puerto Rican Nationalist Party. He and his party started to win concessions from the U.S. government, and wages rose from 75 cents a day to $1.50 a day, according to Denis.
“That spelled the difference for a lot of families between starving and living in Puerto Rico, so that was a great thing,” he said.
However, the U.S. began to perceive Campos as a national security threat because he was empowering workers on the island, which didn’t sit well with sugarcane plantation owners, especially in 1935, when the U.S. was in the midst of the Great Depression. Then-President Franklin Delano Roosevelt sent a new governor and chief of police to the island, who militarized the police and started killing nationalists.
Campos himself was targeted by the FBI, attacked, and jailed for 24 years, where he was beaten and tortured. He was released after suffering a stroke in 1964. This movement against nationalists, like Campos, effectively destroyed aspirations for independence. It’s also likely why there isn’t a large movement behind more radical policies for change on the island today.
However, it is the current self-inflicted policies of austerity and an environmental crisis that Ian J. Seda-Irizarry hopes will lead to a “social explosion” that will prompt a people-driven movement for change on the island.
“The purpose of organizations like mine and others is to precisely connect that inefficiency and looting of the resources of all of these administrations and their offices to how the economy has been organized,” he said.
Seda-Irizarry, who is hoping for a more radically left party to be elected into office, concluded: “The ground [in Puerto Rico] is fertile for things, as in many many places all over the world.”
Print This Story
Read the whole story
· · · · · · · · · · · ·
DOJ Cracks Down On Puerto Rico Over Financial Mismanagement
Credit: Ricardo Arduengo/Associated Press The Department of Justice sent a letter to Puerto Rican Gov. Alejandro Garcia Padilla outlining concerns over the government's poor financial management of DOJ grants. 
The Department of Justice is tightening the flow of federal money to a slew of Puerto Rican government agencies after a preliminary audit turned up irregular spending and lax internal controls.
A letter the DOJ sent Monday to Puerto Rican Gov. Alejandro García Padilla, obtained by The Huffington Post, points to the island’s inability to manage funds, describing “a substantial number of questioned costs and significant weaknesses.” Raising “serious concerns,” the letter also calls the fiscal crisis that drove the island into default earlier this month an added complication that undermines proper financial management. The DOJ didn’t describe specific concerns in the letter.
“While the DOJ recognizes the substantial efforts of your Administration to address the crisis, we are nevertheless concerned that the situation poses a substantial risk to the proper management of DOJ’s grant funds,” the letter says.
It also says that eight local government entities -- including the Puerto Rican Department of Justice, the Department of Corrections and Rehabilitation and two public university campuses -- will be classified as “high-risk grantees.”
Under that designation, these institutions have to report the grant money they spend to the DOJ on a monthly basis, provide more rigorous documentation and comply with on-site monitoring if the DOJ requests it.
Puerto Rico’s Department of Justice must now explain irregularities that came up in the DOJ audit, the letter says. Puerto Rican Secretary of Justice Cesar Miranda said he was “caught off guard” by the DOJ's request.
"We intend to appeal the designation within the coming days and file an official motion with the Department of Justice auditing division to reconsider its actions," he said in a statement emailed to HuffPost. "We believe it is unacceptable for the Department of Justice to threaten the funding, and thus, viability of programs -- such as drug court programs -- that continue to have a positive impact on the island."
Jesús Manuel Ortiz, the secretary of public affairs for the García Padilla administration, said the high-risk designation is disappointing.
“The process was atypical to the close collaboration that characterizes the work between the administration of Governor Alejandro García Padilla and the U.S. Department of Justice," he said. "It is important to stress that this does not mean a loss of federal funds. Our administration is working with the U.S. Department of Justice to ensure the proper flow of federal funds.”
Puerto Rican Resident Commissioner Pedro Pierluisi, the island’s lone, non-voting member of Congress, called the grant restrictions “a severe, shocking and shameful indictment of the Garcia Padilla administration’s ability to properly manage federal funds,” in a statement emailed to HuffPost.
“The García Padilla administration must take immediate and concrete steps to address the problems identified by USDOJ, and must clearly explain those steps to the Puerto Rico public,” Pierluisi's statement said. “As part of my oversight responsibilities, I intend to meet with senior USDOJ officials when Congress returns to session in early September. I will ask those officials to provide me with periodic updates regarding the García Padilla administration’s efforts to address the identified problems.”
Miriam Ramírez, a former Puerto Rican senator, said financial mismanagement was a longstanding issue that had plagued prior administrations as well. She said she found the DOJ’s letter “encouraging” and hoped it would prompt local politicians to rein in what she described as widespread corruption.
“Somebody is doing something -- I was excited about that,” said Ramírez. “Will we be seeing a letter similar to this for [the] Education [department]? Will we be seeing a letter like this to Transportation? Health? I really hope so. And I hope that everything they did wrong comes out in the open.”
The Puerto Rican government is no stranger tofederal scrutiny. The police department has been the subject of several DOJ investigations, which pointed to significant financial and human rights abuses. And the DOJ's letter says the department received a “high-risk” designation in March. The Puerto Rico Institute of Forensic Science was also deemed “high-risk” for financial mismanagement last August.
The federal reprimand comes as Puerto Rico struggles to pay off a crippling $73 billion debt to creditors and investors. Many politicians on the U.S. mainland have expressed skepticism that the local government can solve the island’s deepening financial crisis.
UPDATE: 11:05 p.m. -- In a statement, the Department of Justice called its policy a "management tool":
In August, the Department of Justice designated the Commonwealth of Puerto Rico and each component unit that receives grant funding as a high-risk grantee. The Department of Justice’s High-Risk Grantee Designation Policy is a management tool used the by the Department to provide additional oversight of DOJ grant recipients with significant financial management, programmatic, compliance, and/or internal control issues. DOJ provides high risk grantees with additional training, technical assistance, and financial and programmatic monitoring to ensure effective use of DOJ grant funds. The policy does not prevent recipients from receiving new grant awards, but does impose controls on the access to funds and rigorous review of requests prior to the release of funds.
Read the whole story
· · · · ·
Credit: Ricardo Arduengo/Associated Press The Department of Justice sent a letter to Puerto Rican Gov. Alejandro Garcia Padilla outlining concerns over the government's poor financial management of DOJ grants.
The Department of Justice is tightening the flow of federal money to a slew of Puerto Rican government agencies after a preliminary audit turned up irregular spending and lax internal controls.
A letter the DOJ sent Monday to Puerto Rican Gov. Alejandro García Padilla, obtained by The Huffington Post, points to the island’s inability to manage funds, describing “a substantial number of questioned costs and significant weaknesses.” Raising “serious concerns,” the letter also calls the fiscal crisis that drove the island into default earlier this month an added complication that undermines proper financial management. The DOJ didn’t describe specific concerns in the letter.
“While the DOJ recognizes the substantial efforts of your Administration to address the crisis, we are nevertheless concerned that the situation poses a substantial risk to the proper management of DOJ’s grant funds,” the letter says.
It also says that eight local government entities -- including the Puerto Rican Department of Justice, the Department of Corrections and Rehabilitation and two public university campuses -- will be classified as “high-risk grantees.”
Under that designation, these institutions have to report the grant money they spend to the DOJ on a monthly basis, provide more rigorous documentation and comply with on-site monitoring if the DOJ requests it.
Puerto Rico’s Department of Justice must now explain irregularities that came up in the DOJ audit, the letter says. Puerto Rican Secretary of Justice Cesar Miranda said he was “caught off guard” by the DOJ's request.
"We intend to appeal the designation within the coming days and file an official motion with the Department of Justice auditing division to reconsider its actions," he said in a statement emailed to HuffPost. "We believe it is unacceptable for the Department of Justice to threaten the funding, and thus, viability of programs -- such as drug court programs -- that continue to have a positive impact on the island."
Jesús Manuel Ortiz, the secretary of public affairs for the García Padilla administration, said the high-risk designation is disappointing.
“The process was atypical to the close collaboration that characterizes the work between the administration of Governor Alejandro García Padilla and the U.S. Department of Justice," he said. "It is important to stress that this does not mean a loss of federal funds. Our administration is working with the U.S. Department of Justice to ensure the proper flow of federal funds.”
Puerto Rican Resident Commissioner Pedro Pierluisi, the island’s lone, non-voting member of Congress, called the grant restrictions “a severe, shocking and shameful indictment of the Garcia Padilla administration’s ability to properly manage federal funds,” in a statement emailed to HuffPost.
“The García Padilla administration must take immediate and concrete steps to address the problems identified by USDOJ, and must clearly explain those steps to the Puerto Rico public,” Pierluisi's statement said. “As part of my oversight responsibilities, I intend to meet with senior USDOJ officials when Congress returns to session in early September. I will ask those officials to provide me with periodic updates regarding the García Padilla administration’s efforts to address the identified problems.”
Miriam Ramírez, a former Puerto Rican senator, said financial mismanagement was a longstanding issue that had plagued prior administrations as well. She said she found the DOJ’s letter “encouraging” and hoped it would prompt local politicians to rein in what she described as widespread corruption.
“Somebody is doing something -- I was excited about that,” said Ramírez. “Will we be seeing a letter similar to this for [the] Education [department]? Will we be seeing a letter like this to Transportation? Health? I really hope so. And I hope that everything they did wrong comes out in the open.”
The Puerto Rican government is no stranger tofederal scrutiny. The police department has been the subject of several DOJ investigations, which pointed to significant financial and human rights abuses. And the DOJ's letter says the department received a “high-risk” designation in March. The Puerto Rico Institute of Forensic Science was also deemed “high-risk” for financial mismanagement last August.
The federal reprimand comes as Puerto Rico struggles to pay off a crippling $73 billion debt to creditors and investors. Many politicians on the U.S. mainland have expressed skepticism that the local government can solve the island’s deepening financial crisis.
UPDATE: 11:05 p.m. -- In a statement, the Department of Justice called its policy a "management tool":
In August, the Department of Justice designated the Commonwealth of Puerto Rico and each component unit that receives grant funding as a high-risk grantee. The Department of Justice’s High-Risk Grantee Designation Policy is a management tool used the by the Department to provide additional oversight of DOJ grant recipients with significant financial management, programmatic, compliance, and/or internal control issues. DOJ provides high risk grantees with additional training, technical assistance, and financial and programmatic monitoring to ensure effective use of DOJ grant funds. The policy does not prevent recipients from receiving new grant awards, but does impose controls on the access to funds and rigorous review of requests prior to the release of funds.
Read the whole story
· · · · ·
Probe demanded into Puerto Rico murders of 3 gays in 1 month
Human rights activist Pedro Julio Serrano asked Puerto Rican authorities on Saturday to investigate the murders of three openly gay young men over the past month on the Caribbean island, and not to dismiss the possible "hate angle" sparked by their sexual orientation.
"With the murder of Edwin Giovanni Vazquez last night, three openly gay men have been killed in one month. This creates a state of alert in the lesbian, gay, bisexual, transgender and transsexual (LGBTT) community about the possible resurgence of homophobic violence," Serrano said in a press release.
The Puerto Rican activist recalled that historically, when any progress is seen in respect for the rights of LGBTT people, hate crimes increase.
The spokesman of Puerto Rico Para Tod@s, an organization dedicated to defending the rights of the LGBTT community, demanded that the authorities adequately investigate those cases.
Serrano asked Friday for an exhaustive investigation into the death of young university student Jose Ivan Trinidad Cotto under suspicious circumstances in Mayaguez, a municipality on the west coast of the Caribbean island, and whose body was found in the early hours last Wednesday.
The other case is that of hairstylist Miguel A. Rodriguez Fernandez, suspected of being killed by a father and his son in late July, "a case that is already being tried in court," he said.
The activist said that "in none of these cases can the 'hate angle' be dismissed," since "to do so would be irresponsible and would go against the directives of the U.S. Department of Justice, which requires the investigation of the prejudice angle in cases that involve LGBT people."
"We have made progress in the matter of rights, but the investigation of these cases still has a long way to go because of the institutionalized homophobia. It is the government's obligation to eradicate all kinds of discrimination, of which these violent crimes are the worst examples," he said.
Puerto Rico has permitted same-sex marriages since last July 17, once the 20 days are completed for the recent U.S. Supreme Court decision declaring these unions constitutional becomes final.
The decision was backed last weekend with a massive wedding of same-sex couples in the Puerto Rican capital. EFE
Human rights activist Pedro Julio Serrano asked Puerto Rican authorities on Saturday to investigate the murders of three openly gay young men over the past month on the Caribbean island, and not to dismiss the possible "hate angle" sparked by their sexual orientation.
"With the murder of Edwin Giovanni Vazquez last night, three openly gay men have been killed in one month. This creates a state of alert in the lesbian, gay, bisexual, transgender and transsexual (LGBTT) community about the possible resurgence of homophobic violence," Serrano said in a press release.
The Puerto Rican activist recalled that historically, when any progress is seen in respect for the rights of LGBTT people, hate crimes increase.
The spokesman of Puerto Rico Para Tod@s, an organization dedicated to defending the rights of the LGBTT community, demanded that the authorities adequately investigate those cases.
Serrano asked Friday for an exhaustive investigation into the death of young university student Jose Ivan Trinidad Cotto under suspicious circumstances in Mayaguez, a municipality on the west coast of the Caribbean island, and whose body was found in the early hours last Wednesday.
The other case is that of hairstylist Miguel A. Rodriguez Fernandez, suspected of being killed by a father and his son in late July, "a case that is already being tried in court," he said.
The activist said that "in none of these cases can the 'hate angle' be dismissed," since "to do so would be irresponsible and would go against the directives of the U.S. Department of Justice, which requires the investigation of the prejudice angle in cases that involve LGBT people."
"We have made progress in the matter of rights, but the investigation of these cases still has a long way to go because of the institutionalized homophobia. It is the government's obligation to eradicate all kinds of discrimination, of which these violent crimes are the worst examples," he said.
Puerto Rico has permitted same-sex marriages since last July 17, once the 20 days are completed for the recent U.S. Supreme Court decision declaring these unions constitutional becomes final.
The decision was backed last weekend with a massive wedding of same-sex couples in the Puerto Rican capital. EFE
Turning Puerto Rico’s Lament Into Hope
PUERTO RICO has been dealing with economic troubles for a long time, especially since it slipped into a recession in 2006, and the people have faced these hardships with a mix of optimism and frustration. But recently the situation has worsened. The unemployment rate, as of June, was 12.6 percent, the commonwealth’s debt is soaring and the cost of living is crushing, with citizens and businesses trying to endure high water, electricity and tax bills. On top of that, after much speculation about the island’s ability to pay its creditors, the government defaulted on a $58 million bond payment earlier this month.
The middle class has been hit hard. While thousands flock to the mainland in search of employment opportunities, some are reluctant to leave everything behind.
We have a special interest in the island. Mr. Rodríguez, a Puerto Rican from Brooklyn, has documented the lives of families in conflict in Harlem, Los Angeles and Mexico City, to name a few places, but never, before now, in Puerto Rico, the place of his ancestors.
Héctor Díaz in the organic garden he set up in his backyard after he lost his government job. He hopes to use the vegetables in recipes for a food truck he wants to start.
I was raised in Puerto Rico and relocated to New York after economic troubles knocked on my door. I come from a middle-class family, and we wrestled with economic woes in the 1980s. I understood the ripple effects such circumstances have on families and wanted to return to Puerto Rico to bring the human side of the crisis to light.
We traveled to the island in March and encountered both resentment and resilience among the middle class. This contradiction is not uncommon in the island’s culture. In fact, the popular Rafael Hernández song from 1929, “Lamento Borincano” (“Puerto Rican Lament”), symbolizes this. It tells the story of a farmer who wakes up infused with optimism, singing on his way to the market, but returns demoralized, unable to sell his produce.
We met with many people who, like the man in the song, are trying to navigate the realities of the economy in Puerto Rico, those who are making sacrifices for their children’s future and who are trying to find ways to keep businesses open against many odds.
The island is now at a crossroads. Meanwhile, just as Hernández wrote in “Lamento Borincano,” many people are walking down the road with trepidation, but still singing.
— Huáscar Robles
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PUERTO RICO has been dealing with economic troubles for a long time, especially since it slipped into a recession in 2006, and the people have faced these hardships with a mix of optimism and frustration. But recently the situation has worsened. The unemployment rate, as of June, was 12.6 percent, the commonwealth’s debt is soaring and the cost of living is crushing, with citizens and businesses trying to endure high water, electricity and tax bills. On top of that, after much speculation about the island’s ability to pay its creditors, the government defaulted on a $58 million bond payment earlier this month.
The middle class has been hit hard. While thousands flock to the mainland in search of employment opportunities, some are reluctant to leave everything behind.
We have a special interest in the island. Mr. Rodríguez, a Puerto Rican from Brooklyn, has documented the lives of families in conflict in Harlem, Los Angeles and Mexico City, to name a few places, but never, before now, in Puerto Rico, the place of his ancestors.
Héctor Díaz in the organic garden he set up in his backyard after he lost his government job. He hopes to use the vegetables in recipes for a food truck he wants to start.
I was raised in Puerto Rico and relocated to New York after economic troubles knocked on my door. I come from a middle-class family, and we wrestled with economic woes in the 1980s. I understood the ripple effects such circumstances have on families and wanted to return to Puerto Rico to bring the human side of the crisis to light.
We traveled to the island in March and encountered both resentment and resilience among the middle class. This contradiction is not uncommon in the island’s culture. In fact, the popular Rafael Hernández song from 1929, “Lamento Borincano” (“Puerto Rican Lament”), symbolizes this. It tells the story of a farmer who wakes up infused with optimism, singing on his way to the market, but returns demoralized, unable to sell his produce.
We met with many people who, like the man in the song, are trying to navigate the realities of the economy in Puerto Rico, those who are making sacrifices for their children’s future and who are trying to find ways to keep businesses open against many odds.
The island is now at a crossroads. Meanwhile, just as Hernández wrote in “Lamento Borincano,” many people are walking down the road with trepidation, but still singing.
— Huáscar Robles
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Page 2
Puerto Rico statehooders see opportunity as woes deepen
By DANICA COTO, Associated Press
MANATI, Puerto Rico (AP) — Revelers arrived in cars sporting the American flag and wore clothes in red, white and blue as they celebrated the anniversary of Puerto Rico's pro-statehood political party with deafening salsa music and speeches.
Like many others worried about the U.S. territory's future, those rallying Thursday night in the coastal town of Manati believe that statehood can help pull it out of a nearly a decade of economic stagnation. "Puerto Rico has to become a state," insisted 63-year-old celebrant Norma Candelario.
With unemployment at 12 percent, and the public debt reaching $72 billion, advocates for making the Caribbean island the 51st state say the economic woes are strengthening their arguments. As a state, Puerto Rico's municipalities and public utilities would no longer be prohibited from restructuring their debts through bankruptcy. It would also receive more of certain kinds of federal funding that other states get.
"The crisis has made us more visible worldwide," said Carlos Pesquera, a former Puerto Rico transportation secretary who attended the rally. "I would have preferred that the crisis not happen, but we're going to take this as an opportunity to define our status, to see it as a solution."
Puerto Ricans have been divided over their relationship to the U.S. mainland for decades. Since 1967, most voters in three referendums have favored remaining a semi-autonomous territory, which advocates say preserves the island's cultural identity and provides more local control.
Statehood was a close second place in all three votes, with independence coming in a distant third. But support for joining the union rose in each referendum and appears to be gaining. In the most recent election, in November 2012, for the first time more than half of voters said they favored a change from the territory's current status and a plurality said they supported statehood. Backers of the status quo said the ballot was flawed and rejected the outcome.
A recent poll by local research firm Gaither International found 40 percent of Puerto Ricans favored statehood, with 27 percent opposed and 33 percent expressing no opinion. Among those with an opinion, 60 percent favored statehood, compared with 56 percent in a similar poll conducted five years ago.
"Puerto Rico needs statehood at some point because of the economic crisis," said Nel Balseiro, 43, a funeral home owner and former mayor who until two years ago supported the status quo. "We need that to have a real chance at progressing."
The gains for statehood reflect the dismal times on the island, said Gilberto Castro de Armas, managing director at Gaither International.
An estimated 144,000 people left the territory between 2010 and 2013 in the largest exodus in decades and about a third of all people born in Puerto Rico now live in the U.S. mainland. So many businesses and schools have closed and so many people have left the island that some neighborhoods resemble ghost towns.
"Political changes occur during times of economic and social stress," said Castro de Armas. "You don't have to be a fortune teller. People are abandoning the ship because they think it's sinking."
Statehood proponents say the exodus is the best proof of growing support for their cause.
Judith Colon, 44, who manages social media accounts for Puerto Rico's pro-statehood party, said moving to the U.S. is among the few options available to Puerto Ricans struggling economically.
She and other statehood supporters say joining the union would provide the kind of needed economic benefits Puerto Ricans get when they move to the mainland.
By DANICA COTO, Associated Press
MANATI, Puerto Rico (AP) — Revelers arrived in cars sporting the American flag and wore clothes in red, white and blue as they celebrated the anniversary of Puerto Rico's pro-statehood political party with deafening salsa music and speeches.
Like many others worried about the U.S. territory's future, those rallying Thursday night in the coastal town of Manati believe that statehood can help pull it out of a nearly a decade of economic stagnation. "Puerto Rico has to become a state," insisted 63-year-old celebrant Norma Candelario.
With unemployment at 12 percent, and the public debt reaching $72 billion, advocates for making the Caribbean island the 51st state say the economic woes are strengthening their arguments. As a state, Puerto Rico's municipalities and public utilities would no longer be prohibited from restructuring their debts through bankruptcy. It would also receive more of certain kinds of federal funding that other states get.
"The crisis has made us more visible worldwide," said Carlos Pesquera, a former Puerto Rico transportation secretary who attended the rally. "I would have preferred that the crisis not happen, but we're going to take this as an opportunity to define our status, to see it as a solution."
Puerto Ricans have been divided over their relationship to the U.S. mainland for decades. Since 1967, most voters in three referendums have favored remaining a semi-autonomous territory, which advocates say preserves the island's cultural identity and provides more local control.
Statehood was a close second place in all three votes, with independence coming in a distant third. But support for joining the union rose in each referendum and appears to be gaining. In the most recent election, in November 2012, for the first time more than half of voters said they favored a change from the territory's current status and a plurality said they supported statehood. Backers of the status quo said the ballot was flawed and rejected the outcome.
A recent poll by local research firm Gaither International found 40 percent of Puerto Ricans favored statehood, with 27 percent opposed and 33 percent expressing no opinion. Among those with an opinion, 60 percent favored statehood, compared with 56 percent in a similar poll conducted five years ago.
"Puerto Rico needs statehood at some point because of the economic crisis," said Nel Balseiro, 43, a funeral home owner and former mayor who until two years ago supported the status quo. "We need that to have a real chance at progressing."
The gains for statehood reflect the dismal times on the island, said Gilberto Castro de Armas, managing director at Gaither International.
An estimated 144,000 people left the territory between 2010 and 2013 in the largest exodus in decades and about a third of all people born in Puerto Rico now live in the U.S. mainland. So many businesses and schools have closed and so many people have left the island that some neighborhoods resemble ghost towns.
"Political changes occur during times of economic and social stress," said Castro de Armas. "You don't have to be a fortune teller. People are abandoning the ship because they think it's sinking."
Statehood proponents say the exodus is the best proof of growing support for their cause.
Judith Colon, 44, who manages social media accounts for Puerto Rico's pro-statehood party, said moving to the U.S. is among the few options available to Puerto Ricans struggling economically.
She and other statehood supporters say joining the union would provide the kind of needed economic benefits Puerto Ricans get when they move to the mainland.
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