After Category 4 Hurricane Maria tore through the U.S. territory of Puerto Rico, the president focused his attention on the Alabama Senate race and blasting the National Football League over players protesting police brutality. He was criticized for appearing less empathetic toward the devastation in a long-overlooked U.S. territory, compared with his engagement with hurricane recovery efforts in Florida and Texas.
President Trump tweeted that the island already had a lot of problems before Hurricane Maria tore through it. In response, left-leaning media reports and social-media posts claimed that Trump had contributed to the island’s debt, because he declared bankruptcy on a Trump golf course there and left Puerto Ricans with the bill.
We decided to look into this issue after a reader asked us about it. (The bond amount was about $33 million, not $100 million, as phrased in the reader’s inquiry.) Did Trump contribute to Puerto Rico’s “massive debt” by leaving taxpayers to pick up the tab after his golf course folded?
Puerto Rico owes more than $70 billion because of a decade-long economic recession. The government owes so much that it doesn’t have enough cash to pay for core public services. Its infrastructure already was crumbling before Hurricane Maria.
The island is now in ruins. Officials say it could be without power for six months, and there are shortages of water, food, fuel and medicine.
In 2008, Trump took over the licensing and management of a Puerto Rican golf resort, the Coco Beach Golf and Country Club. But the resort filed for bankruptcy in 2015, leaving Puerto Ricans with nearly $33 million in outstanding bond payments.
So on its face, it looks like Trump added $33 million to the island’s “massive debt.” But there’s more to the story.
The property was built through bonds backed by the Puerto Rican government, through its efforts to pay for loans and guarantees to finance its hotel industry. In 2000 and 2004, the Puerto Rican government backed a total of about $25.5 million in bonds for the resort, which opened in 2004.
The resort already was headed toward bankruptcy by the time Trump came along in 2008. It couldn’t finish renovations, so it wasn’t open all year. There weren’t enough people playing golf there, so the resort ran over budget just maintaining the course. Membership dwindled and staff members resigned. In 2006 and 2007, the resort had net operating losses of $5 million to $6 million, according to the 2007 annual report.
Then, the recession hit Puerto Rico hard. The prolonged, decade-long economic turmoil made it tougher for the resort to turn back around.
In 2008, Trump agreed to license his name to the resort, renaming it Trump International Golf Club Puerto Rico, and manage the golf course in exchange for a share of the operating revenue and annual net profits, the management agreement shows. This is a standard management deal in the golf industry, according to Golf News, and Trump leased his name for marketing purposes.
Trump promised to bring the resort back into the black, but the resort kept struggling. In 2011, the resort came out with a new $28 million bond offering. The offering document shows that proceeds would be used to refund the roughly $25 million in outstanding 2000 and 2004 bonds, and the rest to pay for associated fees.
“These 2000 and 2004 bonds were going to default in 2011 at least as certainly as the 2011 bonds eventually defaulted, and Trump had no meaningful role in the issuance of the 2011 bonds,” said Craig McCann, principal at the Securities Litigation and Consulting Group, who has studied this case closely and has testified in other Puerto Rican municipal bond cases.
The Trump Organization’s “involvement didn’t lead to the $33 million debt that is now a part of the Puerto Rico government’s obligation,” said McCann, who said he did not vote for Trump or Hillary Clinton.
The offering document shows that the Puerto Rican government knew just how much money the resort was losing and that taxpayers were on the hook, even if it defaulted. The government lent the money anyway.
In 2015, the property filed for bankruptcy under its original name, Coco Beach Golf and Country Club. It was then sold for roughly $2 million to a private investment firm.
Ultimately, the Trump Organization walked away with more than $600,000 in revenue from the management and licensing deal. Eric Trump, the president’s son and an executive in the Trump Organization, said after the bankruptcy filing, “We made many millions of dollars on it but never invested a dime.” (In the bankruptcy case, Eric Trump filed a claim for about $927,000 in unpaid fees on behalf of Trump Golf Coco Beach LLC, PolitiFact Florida found.)
The elder Trump shares some of the blame for failing to follow through on his promise to turn it around. But even then, the recession was a major factor in the property’s financial woes.
Moreover, it’s important to consider this case in the context of the bankruptcies that Trump’s companies filed since the 1990s as a direct result of Trump defaulting on interest payments to bondholders, through to his irresponsible borrowing and spending practices. In this case, it’s clear that Trump took on a difficult case and tried to pay back the original bonds that were about to default in 2011, but failed to do so — leaving Puerto Ricans with the same debt that they were on track to pay before Trump came along.
“There’s a lot to criticize him for, but not for this resort. You certainly can’t attribute any of the Puerto Rican debt to him,” McCann said.
The Pinocchio Test
Trump’s role in the Puerto Rican economic crisis is limited, in the larger context of the recession and the history of this property, which was flailing even before he came into the picture. Even if Trump were directly responsible for all $33 million in outstanding bonds that this property incurred — and he’s not — it would result in less than 1 percent of the island’s debt. (Note: This is a corrected percentage of an earlier math error.)
The headlines and social-media posts blaming him for adding $33 million to the debt are exaggerated. He didn’t make it any better for the golf course, but he didn’t make it any worse.
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