The first visible sign that the health care system in Puerto Rico was seriously in trouble was when a steady stream of doctors — more than 3,000 in five years — began to leave the island for more lucrative, less stressful jobs on the mainland, the New York Times reported today. Now, as Puerto Rico faces another hefty cut to a popular Medicare program and grapples with an alarming shortage of Medicaid funds, its health care system is headed for an all-out crisis, which could further undermine the island’s gutted economy. And while the crisis is playing out most vividly today, its cause dates back decades and stems, in large part, from a vast disparity in federal funding for health care on the island compared with the 50 states. This disparity is partly responsible for $25 billion of Puerto Rico’s $73 billion debt, as its government was forced to borrow over time to keep the Medicaid program afloat, according to economists.
Carroll County, N.H., is considering filing for bankruptcy to close a budget shortfall of about $2 million, the Associated Press reported yesterday. The county may freeze payments, raise taxes and cut funding to outside agencies. All of the county attorney’s assistant prosecutors have quit in the last two months after the budget passed in March. Newly appointed County Administrator Ken Robichaud said that many of the financial problems are the result of not auditing the county in three years. A meeting to address the budget concerns will be held Aug. 17.
UBS Group AG has confirmed a U.S. Justice Department criminal probe of an unnamed former employee in Puerto Rico, and disclosed a pair of related investigations by other regulators, the Wall Street Journal reported today. The former UBS employee is José Ramirez, a financial adviser who was fired last year. Ramirez has previously been the target of civil claims that he advised clients to take loans from UBS to buy funds from the bank underpinned by Puerto Rico debt securities that lost value, despite the terms of the loans barring their use to purchase securities. In a filing on Tuesday, Zurich-based UBS confirmed the Justice Department’s inquiry, and also disclosed for the first time that the Financial Industry Regulatory Authority and the Securities and Exchange Commission have made related information requests about clients’ use of loans to buy the UBS funds.
U.S. Treasury Secretary Jacob J. Lew said that a failure by Congress to help Puerto Rico resolve its debts may hit the retirement portfolios of average Americans, as he stepped up his call for lawmakers to help the island, Bloomberg News reported yesterday. Lew endorsed legislation granting the commonwealth access to an orderly bankruptcy regime that’s needed to prevent a chaotic and protracted resolution of Puerto Rico’s financial troubles, an event he said would be costly both for the island and the U.S. “The continued deterioration of Puerto Rico’s economic and financial conditions has the potential to further harm retiree investment portfolios across the country,” Lew said in a letter to Republican Senator Orrin Hatch released yesterday. “A significant portion of Puerto Rico’s debt is still held directly by individual retail investors or indirectly through the municipal bond funds they own.” Lew’s statement comes as Congress prepares to take off for summer recess and as the chances of default are rising. On Aug. 1, $36.3 million of bonds sold by Puerto Rico’s Public Finance Corp. become due. The island’s legislature hasn’t appropriated the funds to settle that payment. Read more.
In related news, New York City Mayor Bill de Blasio yesterday joined calls urging the U.S government to allow Puerto Rico's public entities to file for bankruptcy protection. A bill was introduced last year by Puerto Rico's representative in Congress Pedro Pierluisi to allow the U.S. territory to use federal bankruptcy laws to restructure the debt of its public agencies, but it has not won Republican support. A companion bill was introduced by Democratic Senators Richard Blumenthal (Conn.) and Charles Schumer (N.Y.) earlier in July. "If we don't do it, Puerto Rico simply can't get back on its feet," de Blasio said. Read more.
The August ABI Journal features an exclusive commentary from Puerto Rico's representative in Congress, Resident Commissioner Pedro R. Pierluisi. He outlines Puerto Rico's problems and how his legislation, H.R. 870, works to address them by authorizing chapter 9 for the territory. Click here for more.
Jeb Bush called for debt restructuring relief for Puerto Rico yesterday, including the possibility of bankruptcy for the struggling commonwealth government if needed, the Orlando Sentinel reported today. Speaking to about 75 Christian religious leaders, many of them of Puerto Rican descent, on the east side of Orange County, Florida's former governor and a leading Republican candidate for president said the island's financial crisis must be addressed. "I think we ought to have structured recasting of their debt and structured recasting of their social obligations,” Bush said. And asked if that would include the prospect of bankruptcy, a legal option Puerto Rico does not currently have, Bush replied, "if it is a way to get out of the spiral they have, yeah, yeah, [I] would support that."
Puerto Rico can crawl out of its $72 billion debt hole without defaulting on its government debt, says a report commissioned by holders of $5.2 billion of the U.S. commonwealth's government-backed bonds, Reuters reported yesterday. By cutting expenses, including on education, and improving tax collection, Puerto Rico could erase its deficit by 2017, according to a report by Jose Fajgenbaum, Jorge Guzman and Claudio Loser, former International Monetary Fund economists and now consultants at Centennial Group. Puerto Rico Gov. Alejandro Garcia Padilla's office criticized the report on Sunday. The governor's chief of staff, Victor Suarez, responded in a statement that the island has "already enacted significant fiscal reforms," including pension concessions. Centennial was retained by a group of holders of general obligation Puerto Rican bonds, including Fir Tree Partners, Brigade Capital Management and Monarch Capital Group.
Michigan's most populous county moved a step closer to state oversight Wednesday after Gov. Rick Snyder determined that Wayne County — home to the city of Detroit — is in a financial emergency, The Associated Press reported yesterday. Snyder's announcement came a day after a state-appointed review team came to the same conclusion. Wayne County, which has 1.7 million residents, faces a projected $171 million deficit by 2019 if remedial measures aren't taken. The governor said local leaders took "important steps toward resolving" the persistent financial crisis, but the review team's report clearly showed a financial emergency exists. Snyder noted that a preliminary review of its finances found that Wayne County has had cash flow issues. County officials also had not filed adequate or approved deficit elimination plans with the Treasury department from fiscal year 2010 to 2012. The county also failed to submit a deficit elimination plan for 2014. If it is confirmed, county officials will have the option of working with the state under a consent agreement, having an emergency manager appointed, receiving a neutral evaluation of its finances or filing for chapter 9.
Two Democratic senators have agreed to co-sponsor a bill that would allow Puerto Rico's municipalities to use federal bankruptcy laws, the U.S. territory's representative in Congress, Pedro Pierluisi, said and Reuters reported yesterday. Senate judiciary committee chairman Patrick Leahy and Mark Warner, who sits on the Senate's banking and finance committees, will join 12 other Democratic senators currently sponsoring the bill. The bill (S. 1774) was introduced last week to give Puerto Rico's municipalities and public corporations access to chapter 9 of the Bankruptcy Code to adjust their debts. It is a companion bill to an identical bill (H.R. 870) that Pierluisi introduced in the House earlier this year.
Two financially-strapped Rhode Island cities have agreed to merge their emergency management agencies, The Associated Press reported yesterday. Pawtucket and Central Falls announced that they signed a memorandum of understanding to establish a two-year, cost-sharing pilot program. Pawtucket’s mayor said that it will improve response time, training and services. The merged agencies would be responsible for daily operations, disaster planning and emergency operations. There won't be any layoffs as a result but it's too soon to say how much money the merger will save because the cities are waiting for authorization and funding from the state. The mayors asked the state to stage equipment in Pawtucket for emergencies in northern Rhode Island.
Nothing in the city charter prevents San Bernardino, Calif., from outsourcing its Fire Department, a federal bankruptcy judge ruled on Wednesday in a blow to the fire union that its attorneys immediately said they would appeal, the San Bernardino Sun reported today. The ruling clears the way for the city’s plans to replace city firefighters — plans that have been underway for months —with the San Bernardino County Fire Department and the private firm Centerra. Both are submitting bids to provide fire service, which the city counted on to save $7 million to $10 million a year in its bankruptcy exit plan filed in May. It’s a limited ruling, because Bankruptcy Judge Meredith Jury said that attorneys may be able to convince her later that state law requires the city to go through a formal “meet and confer” process with union officials before outsourcing.
