In Florida, Puerto Ricans want equality back home

In Florida, Puerto Ricans want equality back home

• Article by: LAURA WIDES-MUNOZ
• Associated Press
• December 1, 2013 – 3:20 PM

MIAMI — Puerto Rican attorney Iara Rodriguez waved campaign signs and cheered at the 2012 Democratic Convention as President Barack Obama was nominated. But the delegate’s euphoria faded when she returned home and, like everyone else living in Puerto Rico, could only watch as the rest of the country voted for its commander in chief.

Florida Flag

By January, she had moved to Orlando, joining a record number of Puerto Ricans who have left the island in recent years — more than 60,000 in 2012 — the majority landing in Florida. Most are fleeing Puerto Rico’s economic crisis, yet their presence on the mainland is drawing newfound attention to an age-old question back home of whether Puerto Rico should become the 51st state, remain a territory or become independent.

A loose coalition of civic leaders in Florida and on the island is seeking to leverage the state’s growing Puerto Rican presence to turn this issue into something the rest of Americans can easily understand: a fight for equality and the right to vote. Puerto Ricans are U.S. citizens by birth, but because the island is only a territory, its residents can vote for president only if they move to a state.

«It’s a citizenship issue. It’s like when women weren’t able to vote, when African-Americans weren’t able to vote,» Rodriguez said. «One of the reasons that my husband and I moved here to Florida was to not feel like a second-class citizen.»

Florida is home to nearly 1 million Americans of Puerto Rican descent and is fast gaining on New York, which has around 1.2 million, according to the U.S. Census. Statehood advocates are counting on Florida’s influence in presidential elections to amplify their message in a way that those in the Democratic stronghold of New York haven’t been able to do.

Supporters are pushing their message of equality at the state and national level. This fall, the Puerto Rican Bar Association of Florida held its second annual moot court, inviting law school teams to argue the constitutionality of giving the island full political rights. In Orlando, former GOP state representative and attorney Tony Suarez is launching a grassroots Republican group that puts Puerto Rican equality among its top priorities. And in November, a group founded by the former president of the University of Puerto Rico held a rally outside the Capitol in support of equal rights.

The U.S. seized Puerto Rico during the Spanish-American War in 1898 and gave its residents citizenship in 1917, as the nation needed soldiers to fight World War I. Ever since, Puerto Ricans have been divided over their relationship to the mainland — members of a radical independence group attempted to assassinate President Harry Truman in 1950 and opened fire on the House of Representatives in 1954.

Today, those passions are more subdued. The 3.6 million residents of Puerto Rico pay only Social Security and Medicare taxes to the federal government. They have one member of Congress, but they don’t get a vote on the House floor. They also have no say in most federal laws and regulations that govern them.

In a 2012 nonbinding referendum, just over half of voters rejected the island’s territorial status for the first time. In a follow-up question, over 60 percent of those who answered said they favored statehood over partial or outright independence.

Both the Democratic and Republican parties support Puerto Rican statehood in their platforms, but neither has done much to make that happen, especially as Puerto Rican Gov. Alejandro Garcia-Padilla continues to argue the island is better off without statehood.

For Puerto Rico to become a state, a bill would have to pass Congress, which can’t happen without significant GOP support. But many in the GOP are unenthused about creating a new state with the population of Connecticut that they fear could add two Democratic senators, up to five House members and seven electoral votes for Democrats.

Florida U.S. Reps. Ileana Ros-Lehtinen and anti-tax activist Grover Norquist were among a handful of Republicans who came out in support of last month’s rally at the Capitol. But Republicans made up only about a dozen of the 125 co-sponsors for a House bill introduced last spring to give Puerto Rico statehood.

Victor Rodriguez, a law student at Barry University in Orlando who participated in the moot court, is among those young people in Florida and on the island who believe the island’s older generation values Puerto Rican culture and the Spanish language above potential statehood benefits.

Rodriguez, whose father is Puerto Rican, said he was surprised to learn through his preparation for the competition that he would lose his vote if he moved to the island.

«Younger people see the issue as a question of fairness, and they’re more likely to want statehood if that’s what it will take to be like the rest of Americans,» he said.

Carlos Javier Velez, a 32-year-old Marine veteran who lives in Puerto Rico, agrees.

«My generation is becoming more Americanized, more comfortable with the culture,» he said. «How is it I can’t vote for the person who will send me to war?»

Velez says he’s been pushing his siblings and father in Florida and New Jersey to become more politically engaged — providing him something of a proxy vote.

«The reason my immediate family voted in this last election was because I activated them,» he said.

San Juan attorney Andres Lopez believes Puerto Ricans should take notes from the gay community, which shifted in recent years from a more abstract push for gay rights to focus specifically on marriage equality.

«When you talk about status and territory, those are abstract concepts, but equality of citizenship is something everyone can get,» he said.

Lopez, an Obama campaign adviser, has been pressuring his party to take a more proactive role. He helped engineer Obama’s 2011 visit to the island, the first official trip of a sitting president to Puerto Rico in half a century.

Lopez is among a number of statehood advocates who believe the island’s current economic crisis cannot be resolved until Puerto Rico’s status is.

So far, all 37 states that have asked to join the union have been accepted. Hawaii earned statehood just two years before Obama was born in Honolulu. The president has said he favors statehood, if a clear majority on the island support it.

«Every indication is that’s where we’ll end up,» Lopez said. «But who’s going to claim the political credit for doing it?»

© 2013 Star Tribune

http://www.startribune.com/nation/233993951.html?page=all&prepage=1&c=y#continue

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MIAMI (CBSMiami/AP) — Fleeing their homeland’s economic crisis, a record number of Puerto Ricans are coming to Florida.

Their presence on the mainland is drawing newfound attention to the age-old question of whether Puerto Rico should become the 51st state.

A loose coalition of leaders is seeking to leverage Florida’s growing Puerto Rican presence into something the rest of Americans can easily understand: a fight for equality and the right to vote. Puerto Ricans are U.S. citizens by birth, but because the island is only a territory, its residents can’t vote for the U.S. president.

Equal rights advocates are counting on Florida’s influence in presidential elections to amplify their message.

http://miami.cbslocal.com/2013/12/01/record-number-of-puerto-ricans-fleeing-to-florida/

12/01/2013 

Default: Puerto Rico’s Inevitable Option

This article was written with Justin Vélez-Hagan, executive director of The National Puerto Rican Chamber of Commerce.

Washington politicos aren’t the only ones instigating a perpetual debt crisis. Puerto Rico too is experiencing a political stalemate-induced fight for their financial lives that affects not only its 3.7 million residents, but millions of others who have purchased bonds to help finance its government, causing us to wonder if the next logical step is a debt default.

Some Painful Facts

With triple tax exemption (federal, state, and local), combined with higher-than-average yields, Puerto Rican bonds became so popular in recent years that it was able to rack up $70 billion of debt now held by institutional investors and mutual funds alike. The debt-to-GDP ratio is now nearly 70% and growing, not including pension obligations, which raises the ratio to over 90%. With a per capita debt load of $19,000 and growing, Puerto Ricans shoulder almost 4 times the burden of U.S. leader Massachusetts which carries a deficit of $5,077 per citizen. Even the fiscally retarded number three ranked Illinois shows only a per capita load of $2,539. For another vista California, with $97.6 billion in absolute debt has a population about ten times that of Puerto Rico but only carries 1.4 times the debt. A seemingly perpetual recession has enshrouded this island paradise for the last eight years which has seen its economy contract by over 16%. If you don’t get it yet, Puerto Rico has entered a debt vortex that is inexorably sucking the life from its economy and its continuously shrinking populace.

The 2013 deficit was around $2.2 billion. A $9.8 billion budget was approved for fiscal year 2014, with a still significant deficit of nearly $300 million. Some investors expect the shortfall to be as much as $800 million. Puerto Rico will have no choice but to answer in typical American fashion: finance debt with more debt. But will investors answer the call to, in my opinion, throw good money after bad?

Many experts say Puerto Rico is entering the eighth year of a recession, with at least one who considers it to be in the midst of an all-out depression. Gustavo Vélez, former economic adviser to the Governor, is one such analyst, acknowledging that the economy has been kept afloat by increasing taxes, with little or no effort to fix underlying structural problems.

Some reforms have been enacted with the recent passage of a pension reform bill and the relatively bold 2014 budget. (Pensions are only 7 percent funded). The fix will again fall short, with substantial tax increases (another $1 billion) and a dash of restructuring (a mere $575 million of restructured bond debt, equal to less than 1% of total debt, and a reduction of $600 million in pension contributions) that offers little incentive for economic growth.

A government shutdown (sound familiar?) brought Puerto Rico to the brink of default in 2006, so the government passed its first sales tax. In 2009, under a new administration, payroll tax reduction and regulatory reform hoped to incent new growth. The Governor even reduced the overall corporate tax rate and fired tens of thousands of government employees, ideas mocked by Democrats in Washington. All of which contributed to debt reduction and a light, albeit a dim one, at the end of the tunnel.

Nonetheless, new taxes couldn’t be avoided. When little growth ensued, bondholders and rating agencies again applied the pressure to increase revenues, leading to a new tax on foreign corporations, the one stable group of taxpayers Puerto Rico can’t afford to scare away. Puerto Rico has long been a hub for American and international pharmaceutical manufacturing, but fears of another round of tax increases combined with looming patent expirations are forcing one of the island’s most reliable sectors to reconsider its presence in the Caribbean. A 2006 repeal of IRS rule 936 which exempted Puerto Rican subsidiaries from Federal income tax was the first wheel to fall off. In 2011 a 4% excise tax on corporations hastened the exodus. Teva, (TEVA) Merck (MRK), Bristol Myers Squibb (BMY), and Actavis (ACT) are all giant pharmaceuticals that have either closed and/or announced they will be leaving the island altogether. Manufacturing jobs have contracted over 30 percent since 2006.

Gustavo Vélez thinks Puerto Rico will continue to meet its sales tax, general obligation, and other bonds in the short-term. But in the long-term his opinion shifts. In order to avoid a forced default, politicians are going to have to risk their jobs by making decisions that voters aren’t going to like. A creative and substantial economic plan that combines tax incentives to attract investment and regulatory reform to streamline it will be necessary to counter a welfare state so dependent on transfer payments from the U.S. that only 40% of eligible workers are even trying to work. On top of this there is only 41 percent labor force participation rate. (The U.S. is 63 percent down from more normal levels of 66 to 67 percent.) Food Stamps, or NAP or Nutritional Assistance Program as they are euphemistically referred to in Puerto Rico, were over $2 billion for 2012 and as many as one third of the island’s population availed themselves to this accoutrement. Over all, including Section 8 Housing, Head Start, Social Security, disability, VA benefits, Medicare, Medicaid, and others, the mainland in 2012 contributed $21.8 billion or over 21% of Puerto Rico’s slightly greater than $100 billion economy.

With $70 billion in debt outstanding – let’s estimate an average 3 percent coupon – then $2.1 billion or over 20 percent of the budget would go to service debt. As Puerto Rican bonds have fallen so much in price they now yield above 9 percent in many cases, so refinancing maturing debt at these levels would be crippling. If Puerto Rico was forced to issue new debt at 9 percent, it wouldn’t be too long before debt service would start to eat up 30, 40, or even 50 percent of its budget…….not too unlike the scenario in mainland America should rates spike by several hundred basis points.

Other Factors

At over 29 cent per kilowatt hour Puerto Rico has double the average electricity costs of the rest of the US. Powerful unions make meaningful pension reform difficult. The last reform was fought all the way to territory’s Supreme Court, makings this option politically dangerous if not unfeasible. Privatization of state-owned firms, like the Puerto Rico Electric Power Authority (PREPA), would offer some relief with better management and a reduction in the high energy prices. Politicians don’t seem interested in tackling these issues head on. Perhaps they realize the inevitable and believe that devaluing bonds will make it easier to significantly restructure them. Or maybe they are just apathetic financial managers more interested in saving their political careers than making structural changes.

Bankruptcy, Default, and Investors and Moral Hazard

This past July Detroit filed the largest Chapter 9 municipal bankruptcy in U.S. history. As the judge sorts out fire and police pensioners’ claims versus creditors’, some eyes are shifting south and wondering whether this may be a template for what happens in Puerto Rico. It is clear that the current business model is unsustainable and default or restructure is not if, but when. Restructure to avoid bankruptcy would imply an agreement by bondholders to take a principal haircut usually with some demonstration of fiscal reform or an increase in collateral. A voluntary restructuring like this is unlikely given the vast numbers of bondholders and their disparate opinions to achieve their goal of getting paid back.

Since there doesn’t seem to be the political will to reform the economy, in my opinion, some sort of bankruptcy scenario is inevitable. And the sooner the Band-Aid is ripped off the better. The big pushback will be from all the literally hundreds of mutual funds that hold Puerto Rican bonds. Oppenheimer funds hold almost $5 billion of “paper” or 14 percent of total holdings. Franklin Templeton group of funds owns over $4.8 billion, which represents 6.5 percent of overall positions.

These and other firms may push for some sort of bailout or invent some new reprieve for beleaguered Puerto Rico. The Obama Administration too will be tempted to woo the nearly four million potential Democrat voters into their good graces with another option: the cushy bailout. Politically, there’s about as much chance of this happening as there is Boehner and Obama enjoying cocktails together on weekends. Bailouts, however, aren’t always comprised of direct cash injections and the Obama Administration has proven its adroitness in finding behind-the-scenes alternatives.

It would be interesting to know if Dodd-Frank has any language prohibiting financial assistance for municipalities. These mutual funds must simply be responsible, take their lumps, and do better homework next time. In fairness though, any municipal fund that indexes in any way, by definition, would be required to hold Puerto Rican bonds in their portfolios.

Puerto Rico has to restructure. They can’t keep borrowing at 8 and 9%, raising taxes on the only ones paying any, and chasing away its brightest contributors to the relative economic paradise of the mainland. Bondholders have already taken a big hit and are going to take a long, slow and inevitable bigger one if they don’t restructure now.

Even if there is a bankruptcy, and even if bondholders get 30 or 40 or 60 cents on the dollar and even if pension obligations are reduced 30 or 40 percent, Puerto Rico must undergo an economic structural reform and create a competitive economy that incentivizes new business and creates an atmosphere that that makes it more profitable to work than to be on the dole. With 13.9 percent current unemployment and 25 percent of the workforce employed by the government the kind of change needed requires a change in ethos……a change in attitudes by the populace from being dependent on the government to being much more independent and self-reliant. Effectively a suzerainty of America, Puerto Rico is encumbered with the welfare state mentality that discourages work, much less innovation. Subsistence on the largesse of America is now endemic to the psyche of the populace…..and once established, it is a cycle nearly impossible to break.

Some giant bond funds, think PIMCO and Blackrock (BLK), predict tumult for the markets if Puerto Rico defaults or if Fitch downgrades bonds to junk status. Puerto Rico is less than 2 percent of the total municipal market. There might be some bumps but this is not a falling rock that will start a landslide. The truth is, Puerto Rican debt is junk and should have been rated as such long ago. In my opinion, it is but one more example of disingenuous behavior on the part of our rating agencies. Think Washington knows a thing or two about kicking the can down the road? Puerto Rico could teach a class.

Justin Vélez-Hagan is executive director of The National Puerto Rican Chamber of Commerce, economic policy researcher at the University of Maryland-Baltimore County, and author of the upcoming book, Nousonomics: The Common Sense behind Basic Economics.

http://www.forbes.com/sites/richardfinger/2013/12/01/default-puerto-ricos-inevitable-option/