Used to be Middle class

WATCH: Most Americans used to be middle class — but today, the middle class is shrinking. (via @frontlinepbs, @Marketplace and us)

Used to be Middle class

Chamber welcomes Puerto Rico businesses

s large numbers of Puerto Ricans migrate to Florida, thousands are also bringing businesses.

And the Hispanic Chamber of Commerce of Metro Orlando is preparing to help them with free chamber membership and other resources.

One of them is Carlos Barrio Ruberte, owner of AMB Rental Corp., in Ponce, Puerto Rico.

“Business in Puerto Rico is very low,” Barrio said. “We are in a good position here, but I like the market in Orlando.”

Barrio, whose grandfather moved to Puerto Rico from Cuba decades ago, said he is ready to move his permanent residence to the Orlando area.

He plans to keep an office in Ponce but expand here. The business focuses on party rentals for tents, chairs, audio-visual equipment and other rental items.

He said Hurricane Maria’s destruction was the final kicker that made him decide to move.

According to the chamber, as many as 5,000 businesses are moving to Florida from the island. The group announced the free membership option at its “Savor the Night” cocktail mixer event at Orlando City Hall on Saturday.

“We know starting over and relocating from home during any circumstance is not easy, let alone due to a natural disaster,” said Karla Muñiz, chairman of the chamber’s board. “We hope that by offering complimentary access to our resources, and peer support, business owners from Puerto Rico can thrive here.”

Orlando City Commissioner Tony Ortiz praised the chamber for making the free offer.

“Central Florida is one of the most economically sound regions in the nation, and the Hispanic community contributes a great deal,” Ortiz said.

P House ownership

A Miami company that operates a chain of Asian cuisine restaurants plans to buy Parliament House, the 40-year-old gay resort on Orlando’s west side, as part of a reverse merger process, according to a news release.

But the purchase might be just a financial technicality, and longtime owner Don Granatstein apparently isn’t moving out of the picture. Granatstein confirmed that there have been talks about a transaction, but he said no deal was final yet, and he declined to elaborate on Wednesday.

Under a plan announced in a news release attributed to Miami-based Kenergy Scientific, the resort would continue to be run by Granatstein. Granatstein said this week’s announcement was premature; attempts to speak to Kenergy weren’t successful.

Kenergy is a publicly traded company (OTC: KNSC) that is already part of a reverse-merger process involving a chain of Asian cuisine eateries called Hibachi Grill. The restaurant company said it acquired Kenergy in a reverse merger that started in 2015.

Reverse mergers are often used as a cheaper way to list a company on a public stock exchange, bypassing the lengthy Initial Public Offering process. According to the announcement, Parliament House could become a brand of gay resorts that would be expanded nationally.

The goal for Parliament House is to acquire more resorts, license the name Parliament House to be used for a chain of gay-themed resorts, and build a new major chain boutique hotel with 150 new rooms on the Parliament House property, according to the release.

Parliament House refinanced a loan to beat a foreclosure in 2015. Granatstein registered a new company in 2015 called Parliament Partners Holdings. According to the news release this week, the new company will address all the “needs of the gay community,” including banking, insurance and senior care.

Kenergy’s CEO has been Adel Abu Nassar, who launched the restaurant chain, but the news release says Granatstein will become CEO of the new company upon completion of the Parliament House purchase.

Tax evasion

A federal jury found McKenzie Calixte guilty of one count of conspiracy to commit theft of government property and five counts of theft of government property. He faces a maximum of 5 years in prison on the conspiracy count and up to 10 years’ imprisonment for each of the theft counts.

According to evidence introduced during trial, Calixte conspired with Tanya Fox and others in a scheme involving the filing of fraudulent tax returns using identities that had been stolen from a variety of sources.

Fox then worked with Calixte and the conspirators to withdraw the funds and spend the money.

Calixte had 127 fraudulent tax refunds deposited into this account totaling more than $160,000.

Calixte is the 11th person to be found guilty as a result of this scheme. Approximately 2,400 names were provided to him from other defendants for data at the Orange County Health Department.

Got a news tip? pbrinkmann@orlandosentinel.com or 407-420-5660; Twitter, @PaulBrinkmann

Paul Brinkmann
Chamber welcomes Puerto Rico businesses

Puerto Rico Court Win Strengthens Governor’s Hand

Puerto Rico’s governor won a decisive court victory that could boost his role in shaping the island’s financial recovery as he seeks $94 billion in federal aid to pay for the devastating damage dealt by the September hurricane.

A federal judge struck down a request by the U.S. board that oversees the island’s finances to appoint its own manager to turnaround Puerto Rico’s bankrupt electric utility. Governor Ricardo Rossello had opposed the move, saying it encroached upon the authority of elected officials and was beyond the scope of the power given to the panel in an emergency rescue law enacted last year.

U.S. District Court Judge Laura Taylor Swain said Monday that the federally appointed overseers must share control with local officials. While the law allowed it to put Puerto Rico’s various public agencies into bankruptcy, it doesn’t allow it to manage those institutions, she ruled.

“These are not managerial powers,” Swain said in federal court in Manhattan.

The ruling marks a victory for Rossello’s effort to keep control of the island’s government as it works through a record-setting bankruptcy and rebuilds from the storm. It came just as he asked President Donald Trump for $94 billion in aid to recover from the unprecedented disaster, which has worsened the government’s financial strains.

The court fight between the federal board and Rossello centered on who had authority to oversee the reconstruction of the government-owned electric company, known as Prepa, that was already bankrupt and in need of major investments before the storm. Creditors argued that an outside receiver was necessary to mitigate what they said was a history of mismanagement.

Last month, the board said it was appointing it’s own manager after it was revealed that Prepa had entered into a $300 million contract with a little-known Montana company with only two full-time employees before it started work. The contract raised questions about the ability of Puerto Rico’s government to administer the billions in federal funds it will receive, with Rossello requesting $18 billion for the electricity system.

The court ruling or aid request had little immediate impact on the price of Puerto Rico bonds or those issued by its electric company, which have tumbled since September. Some of the island’s most frequently traded bonds, which are due in 2035, traded for about 26 cents on the dollar Monday, similar to where they traded Friday.

The court’s ruling will likely be popular in Puerto Rico, where many residents have resented the board’s authority, said John Mudd, a San Juan bankruptcy and constitutional lawyer. Mudd, who has been involved in the case, said he told the governor’s lead lawyer, Peter Friedman with the law firm O’Melveny & Myers, that Rossello got a complete victory.

“I told him, ‘You got everything you wanted. You got everything the government asked for,”’ Mudd said. “The government and the board are now equal.”

Swain said the rescue law enacted by Congress leaves the board and the local government with shared responsibilities. While the board has authority to approve Rossello’s fiscal-recovery plans, Rossello also has the power to reject the board’s recommendations, Swain said.

“Congress may have made the board’s job easier” by giving it direct control over Puerto Rico’s government, as lawmakers did in bailing out Washington D.C., she said.

Instead, Congress created a “power-sharing structure that allows for mutual sabotage,” Swain said. She urged the two sides to work together rather than fight a “death match in which the winner takes all.”

The case is In re Puerto Rico Electric Power Authority, 17-4780, U.S. District Court, District of Puerto Rico (San Juan)

— With assistance by Michelle Kaske

Puerto Rico Electric Power Authority (PREPA) employees fix power lines in Santurce, San Juan, Puerto Rico, on Oct. 19. 

Photographer: Xavier Garcia/Bloomberg

By 

Steven Church

 and 

Rebecca Spalding

Puerto Rico Court Win Strengthens Governor’s Hand

Statehood for Puerto Ricans: Billions More in U.S. Programs—and in Taxes

Even before Puerto Rico was devastated in September by Hurricane Maria, the island existed in a strange nether world.

Its residents are U.S. citizens, but they can’t vote for president. They pay payroll taxes, but not income taxes. They receive benefits from some government programs, but not others.

The same is true for other U.S. territories, but Puerto Rico is the largest and most populous.

The island has an area of 3,515 square miles, a population of 3.4 million and, in 2016, a per capita gross domestic product of $38,400.

What Price Statehood

If Puerto Rico were a state, its residents would receive more federal dollars and pay more taxes.

ANNUAL EXPENSES

In Puerto Rico

Program

Medicare (2010)

Medicaid (2011)

SNAP* (2011)

Supplemental

Security Income (2011)

Actually spent

Spent if P.R. were a state (range)

10

3

2

1

$0b

7

6

9

5

8

4

ANNUAL REVENUES

In Puerto Rico

Actually paid

Paid if P.R. were a state (range)

Program

Individual Income Tax

Corporate taxes

Corporate taxes

if some businesses left P.R.

1

10

3

4

5

6

9

8

2

7

$0b

*Supplemental Nutrition Assistance Program—also known as food stamps—provides vouchers for certain foods to low-income citizens.

Source: Government Accountability Office

It’s larger than two states, more populous than 21 and outranks six in per capita GDP. The five states most similar to Puerto Rico in terms of population and median household income are Alabama, Arkansas, Kentucky, Mississippi and Oklahoma.

It’s unlikely Puerto Rico will become a state any time soon, if ever. The prospect divides its residents nearly in half, and even if they agreed in favor of statehood, it would take an act of Congress. 

But if did happen, residents would receive billions more in federal dollars and they would pay billions more in federal taxes.

To assess the economic impact, the U.S. Government Accountability Office examined expenditures for programs it determined would be affected by Puerto Rico statehood, as well as tax revenues collected from individuals and corporations.

Because it’s unknown at what rate eligible residents of Puerto Rico might participate in different programs and because some companies might relocate, the GAO estimated a range of potential effects.

Overall, it found that as a state, Puerto Rico would have received $8.8 billion to $12.5 billion from the four largest federal programs, instead of $7.1 billion. Its corporations would have paid $5 billion to $9.3 billion in taxes instead of $1.4 billion, assuming none relocated. And its residents would have paid $2.2 billion to $2.3 billion in individual income tax.

The GAO conducted its analysis in 2014 and generated estimates based on Puerto Rico being treated the same as the states in either 2009 or 2010, depending on which year it had the most current data.

Here’s the breakdown of the largest of 11 programs the GAO determined would be affected by Puerto Rico statehood:

Medicare: Puerto Rico residents, who pay payroll taxes at the same rates as residents of the states, received $4.5 billion in Medicare benefits. But Medicare funds allotted to Puerto Rico are capped, and if it had been a state, it would have received up to $6 billion.

Medicaid: Medicaid spending in Puerto Rico was $685 million, but as a state, it would have received $1.1 billion to $2.1 billion. The estimates don’t include home-health services or nursing homes because of a lack of data and because Puerto Rico lacks a network of nursing-home facilities. If that changed, costs would likely go up.

SNAP: Spending on a program similar to the Supplemental Nutrition Assistance Program was $1.9 billion. As a state, eligible residents would have received $1.7 billion to $2.6 billion. The low end is less than actual spending because Supplemental Security Income, for which residents would also become eligible, would affect SNAP.

SSI: Spending for a program similar to Supplemental Security Income was $24 million, but as a state, residents eligible for SSI would have received $1.5 billion to $1.8 billion.

The total for all four would amount to an increase in spending of 24% to 42% in Puerto Rico and represent 1% to 1.4% of the total spent by the federal government on those programs.

Individual Income Tax: On the revenue side, Puerto Ricans paid $20 million in payroll taxes, but if the island had been a state, residents would have paid $2.2 billion to $2.3 billion.

Corporations are trickier.

Puerto Rican corporations are considered foreign entities under U.S. tax law and, in general, don’t pay federal tax. Meanwhile, U.S. parent corporations with subsidiaries in Puerto Rico can defer tax on foreign income until it is repatriated to the U.S.

Corporate Taxes: The GAO estimated that corporations paid $1.42 billion in taxes. Had the island been a state, they would have paid $5 billion to $9.3 billion, assuming none relocated. If some did relocate, the GAO calculated the range of corporate receipts would be from a loss of $100 million to an increase of $3.4 billion. The negative figure at the low end was attributed to potential tax write-offs by U.S. corporations for prior-year losses.

Together, revenues from individual and corporate taxes would increase by as little as 48% to as much as eight times what was actually collected.

The GAO cautioned that the effect of statehood would be influenced by the terms of admission, strategies to promote economic development and other decisions.

In addition, the report doesn’t quantify the effect of Puerto Ricans who have migrated to the states. As of 2013, 5.1 million Puerto Ricans lived in states where they qualify for equal treatment under all federal programs.

More have left since Maria struck—but according to the Stafford Act, which governs federal response to major disasters, the federal government should treat Puerto Rico like a state.

Write to Jo Craven McGinty at Jo.McGinty@wsj.com

By  Jo Craven McGinty


Two flags important to Puerto Rico fly in Old San Juan. If Puerto Rico were a state instead of a U.S. territory, its residents would receive far more federal-program benefits but also pay a lot more in federal tax, a U.S. government study says. PHOTO:JOE RAEDLE/GETTY IMAGES

The Government Accountability Office estimated that corporations paid $1.42 billion in taxes. Under statehood, they would have paid $5 billion to $9.3 billion, assuming none relocated

Statehood for Puerto Ricans: Billions More in U.S. Programs—and in Taxes

Is That $300 Million Puerto Rico Power Contract 'Whitefishgate' Or Just a Red Herring?

Just days after Hurricane Maria devastated Puerto Rico, Andy Techmanski, the CEO of Whitefish Energy, arrived and offered his assistance to the Puerto Rico Electric Power Authority (PREPA) to help repair the island’s devasted power grid. He first connected with PREPA after Hurricane Irma’s glancing blow a few weeks prior had knocked out power to parts of the island. Then Maria completed the devastation.

Techmanski was ready to get to work. After two decades building power transmission systems across the U.S., U.K., Middle East and western Canada with the likes of Quanta Field Services, Techmanski launched Whitefish three years ago with just this kind of high-complexity, high-impact job in mind. As Puerto Ricans struggled to come to terms with their new reality, Techmanski and PREPA scoped out vital repairs to be done, and on Sept. 26, at a table illuminated by cellphone screens, Techmanski and PREPA CEO Ricardo Ramos inked a contract outlining up to $300 million worth of work.

First up: restoring the toppled steel towers that prior to Maria’s tempest carried high-voltage lines north-south for 30 miles across the island’s mountainous interior. In the past month, says Whitefish spokesman Ken Luce, Techmanski has brought 350 linemen to the island, many from power utilities in Jacksonville and Kissimmee, Fla. Working with Chinook heavy-lift helicopters and truck-based cranes, Whitefish has succeeded in rebuilding and re-energizing one high-voltage line, and they expect to finish the second within a couple weeks.

That is, if Puerto Rico lets them.

Since word of the deal got out Whitefish has faced accusations of being Trump cronies out to scavenge Puerto Rico for federal disaster dollars. The laundry list: Whitefish Energy had only two full-time employees at the time of the deal. It’s based in the same small Montana town where Trump’s Interior Secretary Ryan Zinke is from. Techmanski has employed Zinke’s son as an intern. What’s more, the biggest financial backer of Whitefish appears to be Dallas-based HBC Investments, which is run by Joe Colonnetta, who in recent years has given tens of thousands of dollars to GOP pols like Rick Perry, John McCain and Marco Rubio (he was partner at private equity giant Hicks, Muse, Tate & Furst).

The loudest outrage has been over the terms of PREPA’s contract with Whitefish which include $20,000 an hour for Chinook heavy-lift helicopters, $300 an hour for each lineman, and another $300 or so per day for food and lodging. Those numbers strike many observers as exorbitant. There was also a contract clause barring the government or PREPA from auditing the “cost and profit elements” of the labor charges.

FEMA last Friday said in a statement that it had “significant concerns” over how PREPA awarded the contract. The Sierra Club calls it “Whitefishgate.” The head of Puerto Rico’s electrical workers union is demanding a probe. Whitefish even got in a spat with San Juan Mayor Carmen Yulin Cruz, who has said of the contract, “It is scandalous; it is an affront on our people.” In response to Mayor Cruz, Whitefish tweeted: ”We’ve got 44 linemen rebuilding power lines in your city & 40 more men just arrived. Do you want us to send them back or keep working?” They’ve since apologized. Sort of. Says Luce, “If people think the rates are high, consider what its worth to get power back on.”

So what is it worth? Is charging PREPA $300 an hour for a lineman highway robbery? I talked with Gerri Boyce, spokesperson for the Jacksonville Electric Authority, which sent 41 workers and their trucks to work with Whitefish. For the past month in Puerto Rico they have been making about $90 a hour — double their rate back home – and working hard 12-hour days. Whitefish pays their room and board and transportation to and from the island, so for a month of work in Puerto Rico many of these guys will bring in more than $30,000 — a big chunk of the average journeyman lineman’s salary of about $80,000 a year. So it’s good work for the men, with what looks like a juicy margin for Whitefish of about $200 per man per hour. “You do have to charge a premium,” says a 25-year industry veteran who expects his company to be working in Puerto Rico soon. ”We’ve done a lot of emergency restoration work. You run into a lot of issues that you wouldn’t have with well-planned projects. When you show up in an area ravaged by a storm, you will incur costs that you didn’t know about.”

As for the $20,000 an hour for heavy-lift helicopters, this does not appear unreasonable. The U.S. Forest Service makes long-term contracts with helicopter companies for firefighting at a rate of nearly $8,000 an hour for the biggest birds, plus a daily stand-by rate (to guarantee the helicopter is available) of several thousand a day. Under “call when needed” contracts, the stand-by rate can run into the range of $35,000 per day, according to a person familiar with government contracting. Erickson Air-Crane has in recent years contracted with the Forest Service at a rate of $15,000 an hour for heavy-lift helicopters, while last year Los Angeles County Fire District figured that its hourly cost for firefighting choppers ran to $100,000 an hour. According to this report, the all-in cost of the U.S. Marines’ heavy CH-53K chopper fleet runs to $20,000 an hour.

Fun fact: each hour in the air, these most powerful helicopters gulp 500 gallons of jet fuel, not great on an island suffering monumental fuel shortages. Columbia Helicopters of Portland, Ore., operates a fleet of Chinooks as far afield as Afghanistan (but isn’t working with Whitefish). Santiago Cresp0, VP of business development, says that in Columbia’s fleet, each Chinook requires at least four pilots, six mechanics, and a careful fuel storage program. ”These are maintenance intensive helicopters,” he says.

On the suspicions of political ties, Secretary Zinke has declared, “I had absolutely nothing to do with” the Whitefish contract. Luce says Whitefish moneyman Colonnetta “did not ask for help or seek help from the Administration. He hasn’t called anybody.” For what it’s worth, one of HBC’s former principals, Peter Brodsky, has donated to Democrats for years (though he left HBC a couple years ago). Smart businessmen cover all the bases, and this is far from their first rodeo; HM Financial made $500 million selling Triton Energy to Hess Corp in 2001. In 2007 they sold Regency Energy Partners for $600 million to G.E. Financial, and in 2014 dealt BlackBrush Oil & Gas to Ares Management. Another Whitefish investor, Lance Etcheverry of Flat Creek Capital, spent 17 years on JP Morgan’s utility company finance team.

There’s been plenty of criticism of PREPA too. How could this bankrupt, mismanaged electric utility award such a large contract without competitive bidding or approvals from the likes of FEMA? Why didn’t the utility immediately take the customary step of requesting “mutual aid” from other power companies? PREPA didn’t respond to a request for comment. Whitefish says there was one other company vying to rebuild the high-voltage lines, but they wanted PREPA to fork over more cash to pay for crew mobilization. Whitefish reportedly got $3.7 million upfront.

Any way you look at it, Techmanski was gutsy to drop into a disaster zone, cut a deal with bankrupt, mismanaged PREPA and assume massive execution risk. Techmanski has proven in the past month that being a small company is not an obstacle when you know how to round up an army of workers. He had been working to ramp up from the 350 workers already recruited from the Florida utilities to 500. For work done so far, Whitefish has received about $20 million and reportedly expects another $10 million or so as work is finished up. Keep in mind that the $300 million is a cap, not a guarantee. Even though PREPA, under pressure, said it was cancelling the Whitefish contract, the contract terms call for a 30-day de-mobilization period. “The talk right now is about finishing the work and doing a good job,” says Luce.

If you think $300 million sounds excessive, consider that fixing the P.R. grid is going to take a lot more than that. The freshly expanded FEMA-approved contract with Fluor so far calls for $840 million worth of work. And that’s just to get the grid back to the sorry state it was in prior to Maria. A 218-page report by Synapse Energy Associates commissioned last year by the Puerto Rico Energy Commission found PREPA to be woefully mismanaged, with a dire lack of reporting systems, a budgeting process that’s ad hoc at best and maintenance deferred so long that traditional power plants run at low efficiency requiring reliance on costly diesel generators. According to Synapse’s findings, the outmoded P.R. grid couldn’t support Elon Musk’s grand plan for solar and batteries because it’s not robust enough to integrate the distributed loads. Brock Long, FEMA administrator, has said more investments will be needed to make the island’s grid more resilient.

It’s easy to second guess the desperate actions taken by politicians and contractors in the fog of confusion during the early days of disasters. PREPA CEO Ramos has insisted that the contracting process was justified given the emergency situation. Whitefish insists that its only objective was to help Puerto Rico get the lights back on — and to make some money doing it. And Whitefish isn’t the only one. PREPA reportedly signed a strikingly similar contract with Oklahoma-based Cobra Acquisitions two days after inking the Whitefish deal.

Critics jumped on Whitefish because of its tenuous connection to the Trump Administration plus their own uninformed assumption that the terms of its PREPA contract were outrageous. Once we can show that the terms actually look reasonable, don’t Techmanski and Co. deserve the benefit of the doubt? Who knows, maybe they are all corrupt. The FBI is investigating, while the House Committee on Energy and Commerce has requested that Techmanski brief them in early November. Meanwhile, a month and a half after Maria’s landfall, more than half of Puerto Rico remains without power.

Other reading:

Though Puerto Rico canceled his controversial contract last weekend, Whitefish Energy CEO Andy Techmanski is still working to restore the island’s power — and his reputation. 

Christopher Helman
Is That $300 Million Puerto Rico Power Contract 'Whitefishgate' Or Just a Red Herring?