A Guide to Understanding the Bureaucracy of “Recovery” in Puerto Rico
When the wind slowed down on September 20, 2017, Puerto Ricans went outside their homes, walked through their neighborhoods, made their way through the rubble and began to account for their losses. Estimates in dollars and cents of what Hurricane María destroyed would take a while. A generalized sense of uncertainty and doom was everywhere.
A day later, while then governor Ricardo Rosselló assessed the conditions in which the island was left, Cándida González, a linguist, went to see what remained of the house that her first son’s father had built more than 30 years ago, and found it destroyed.
On the eastern part of the island, Josué Ruiz, a university student and part-time employee, was traveling from his father-in-law’s house in Las Piedras to Punta Santiago, in Humacao, on the eastern side of the island where he lives with his wife, Natalie Torres, and their three children. The ocean water, mixed with that of the nearby overflowing pipes, had flooded the house that they were just remodeling. It was nighttime and in the same neighborhood, Guillermo Arroyo waited on the roof of his house, with his dog Minnie, for the waters to recede. The hurricane had ripped through there. It was his granddaughter’s husband who found and rescued him.
The reconstruction of Candida’s house will cost about $42,275. If she decided to build it in cement, resistant to a new storm, she would have to invest $82,675.
A “strong and resilient” Puerto Rico, as detailed by Rosselló before U.S. Congress in 2018 when presenting his Puerto Rico Economic Development and Recovery Plan, would cost $139 billion. Of that money, two years later the federal agencies had approved $21,044,425,967 as of July 31, 2019.
Puerto Rico faces a tangle of bureaucracy for the disbursement of money from the Federal Emergency Management Agency (FEMA,) the main source of funds for the island’s recovery after Hurricane María.
For the first time, FEMA has applied to an entire jurisdiction a provision of the Robert T. Stafford Act on Disaster and Emergency Assistance that was included as an amendment after Hurricane Sandy in 2013. Since then, it had only been applied to develop 258 projects in 28 states. Section 428 allows reconstruction in a stronger and more resilient manner, as the Stafford Act was designed so that FEMA only subsidized repairs that restore the affected facilities to the conditions they were in before the disaster, regardless of whether they were already unsafe.
The creation of COR3
The negotiation of the guidelines to apply 428 to all of Puerto Rico was mainly carried out by the Central Office of Recovery, Reconstruction and Resiliency, known as COR3, an entity that Rosselló created in October 2017 to receive and distribute federal funds available for the island’s recovery.
COR3 was created as a division of the Public-Private Partnerships Authority (P3 Authority) to guarantee “the efficient and effective use of resources available for recovery” and minimize the duplication of work among government entities, according to the executive order.
COR3’s creation preceded the fifth amendment to the disaster declaration, in which President Trump required the establishment of a grant oversight authority, with support from outside experts, to receive FEMA Public Assistance and Disaster Mitigation funds.
Rosselló appointed Omar Marrero as executive director of COR3, who at the time also served as executive director of the Convention Center District Authority and the P3 Authority. Each agency had offices in different places. He was also the governor’s authorized representative (GAR) before FEMA.
In an interview with the CPI, Marrero justified the creation of COR3.
“We had to address a credibility issue and concerns at the federal level, so we established a centralized office,” he said.
COR3 handles FEMA funds, the island’s primary source of recovery grants, which the federal agency has estimated will amount to $65 billion. Of that amount, the Government of Puerto Rico has only included $49.0 billion in the Fiscal Plan. Part of COR3’s duties are to disburse funds that will come from FEMA’s Public Assistance Program to agencies, municipalities and nonprofit organizations for reconstruction projects.
Meanwhile, the Puerto Rico Department of Housing manages HUD’s Community Development Block Grant–Disaster Recovery (CDBG–DR) Program, which, after Hurricanes Irma and María, has $19.9 billion in funds allocated to Puerto Rico.
The Rosselló administration proposed that the Community Socioeconomic Development Office (Odsec in Spanish) would oversee the CDBG-DR funds allocated to Puerto Rico, as reflected in a memorandum from HUD’s Office of the Inspector General. Under that framework, Odsec would be responsible for the planning, administration and supervision of the program, as well as for preparing the action plan, developing policies and procedures, management, environmental reviews, monitoring efforts and reports. Odsec would delegate to three other entities: The Housing Finance Authority (AFV in Spanish), the Infrastructure Financing Authority (AFI in Spanish), and the Department of Economic Development and Commerce.
But federal agencies rejected Rosselló’s plan.
Among HUD’s concerns were that it was a new agency created in February 2017 of which there was no performance data on its management of these types of funds.
It is also mentioned that Odsec had 103 employees, 32 of whom worked in the now defunct Office of the Commissioner of Municipal Affairs (OCAM in Spanish,) against which HUD’s Office of the Inspector General made accusations for improper reporting on the use of funds and their use for ineligible purposes. It also noted that they did not adequately follow up on fund recipients.
The report highlights “Puerto Rico’s inability to spend the 2008 disaster funds in a timely manner.”
Omar Marrero told the CPI that he was unaware of this memo.
When Rosselló went before Congress for the first time after María on Nov. 13, 2017, he presented the “Rebuilding a Better Puerto Rico” report, which required $94 billion to rebuild the island.
The executive director of COR3 explained that the $94 billion figure that Rosselló included in that report corresponded to a preliminary assessment of the damages and the cost that a stronger and more resilient reconstruction would entail.
Marrero said Rosselló’s team had seen the Eye of the Storm report, which the state of Texas had published a few weeks earlier, estimating at $61 billion the damage caused by Hurricane Harvey, which entered through the Texas Gulf Coast on Aug. 25, 2017.
Texas hasa “Rainy Day Fund,” with the possibility to finance some projects, and one of the largest congressional delegations. When compared, the Puerto Rican team considered that it should raise its standards.
“Rebuilding a Better Puerto Rico” preliminarily reflected the damage that the island had suffered, Marrero said. This work was carried out with help from New York Gov. Andrew Cuomo’s Storm Recovery Office. The Ford, Rockefeller and Open Society foundations provided funds so auditing firm Deloitte — which COR3 commissioned for $31.6 million — would also provide assistance in preparing the report.
According to Marrero, the first damage report did not sit well in Congress and that was the reason why the Government of Puerto Rico was required to prepare a recovery plan within 180 days, when the Congressional Bipartisan Budget Act was signed on Feb. 9, 2018. In this law, Congress included the provision for FEMA to apply section 428 to projects in Puerto Rico, although President Trump had already required it in the fifth amendment to the Puerto Rico disaster declaration.
“Some didn’t like it in Washington, then in February they asked us to ‘Present a recovery plan.’ So, perfect, we presented a recovery plan in 180 days,” the official said.
That’s when the Economic and Disaster Recovery Plan for Puerto Rico came about, with an estimated $139 billion in reconstruction projects, which Rosselló handed in to Congress on Aug. 8, 2018.
“That is a very serious and responsible document that was created with the input of many interest groups and reflects what the public policy is after what has been the largest natural disaster in Puerto Rico. Now, obviously, that document was much more detailed and even identifies the courses of action that have to be taken to move the scale and the responsibility the federal government imposed to identify congressional funds,” said Marrero.
The federal Bipartisan Budget Act also establishes that Rosselló must publish an update report on progress in achieving the goals established in the Recovery Plan every 180 days, in coordination with the FEMA administrator. The 180 days were fulfilled on Feb. 4 and Aug. 3, 2019.
The first 180-day status report states that the implementation of Section 428 of the Stafford Act has meant that the funding reimbursement process for construction of permanent public assistance projects has been extremely slow.
The permanent work refers to FEMA categories C through G, which includes roads and bridges, water control facilities, buildings and equipment, utilities, parks, recreational and other facilities.
“Unfortunately, the progress of permanent work projects under Public Assistance, pursuant to Section 428 of the Stafford Act, has been extremely slow and has limited the recovery from fully taking off,” the report states.
As of Jan. 31, 2019, there was not yet a single project with allocated funding. In comparison, one year and four months after Hurricane Katrina, Louisiana already had the money for 2,424 projects with about $1.4 billion allocated. Meanwhile, after Hurricane Harvey, Texas had $159 million for 2,124 projects.
“The difficulty with Section 428 is that it requires a fixed cost estimate, which, once agreed upon with FEMA, the recipient, and the sub-recipient, cannot be changed or amended,” Puerto Rico told Congress in its 180-day status report.
“Under a typical project under FEMA’s Public Assistance Program, the grant amount is estimated and if circumstances come up during the repair or replacement period changing the scope of the work or cost, the project could suffer amendments. Because of the fixed cost estimate requirement, the review of a project before the obligation of funds is very onerous and time consuming,” the report stated.
The report request Congress to ask the President for an amendment so Puerto Rico’s ability to use the Public Assistance Program outside of Section 428 is not limited. That has not yet happened.
Meanwhile, Marrero said he has asked mayors to identify their priority projects, and other small projects of less than $123,100, which can be moved forward without having to go through the process required by Section 428. The new director of COR3, Ottmar Chávez has also insisted on this.
In the second report, which Rosselló sent to Congress with an attached letter signed on July 31, two days before his resignation became effective, the dissatisfaction is similar.
“Most of the permanent work projects have not yet begun nor do they have funding assigned 22 months after Hurricanes Irma and María devastated the island,” he said.
According to Chávez, of 50,000 sites that should be inspected, only 20,000 had been inspected as of August. These 50,000 sites are expected to be grouped into some 9,200 projects, and to date, the fixed cost estimate has been agreed only for 139 projects.
What has arrived
This process has meant that to date, FEMA, the main source of recovery funds, has obligated $5,816,890,838 in Public Assistance (PA) funds, and approved $2,573,762,155 in Individual Assistance (IA,) according to the COR3 transparency portal. Between FEMA and other federal agencies, a total of $20,310,831,109 has been obligated of which $13,825,576,097 has been disbursed.
The second largest source of federal recovery funding is the HUD CDBG-DR program, which is expected to allocate about $19.9 billion to the island. Of this figure, the first $1.5 billion had not been accessible as of Feb. 2, 2019.
What has been said will arrive
The Puerto Rico Economic Development and Recovery Plan is counting on the availability of $69.1 billion in FEMA and HUD funding, as well as from private insurers. It indicates that FEMA would contribute at least $41.2 billion over an 11-year period, but that estimate has been updated several times since then.
FEMA points to grant $65 billion for the entire Hurricanes Irma and María recovery, while the Government of Puerto Rico’s Fiscal Plan certified by the Financial Oversight and Management Board for Puerto Rico on May 9, 2019, estimates that $49.0 billion will arrive from FEMA through fiscal year 2032 and $19.9 billion in CDBG-DR funds from HUD.
“That [$65 billion] is FEMA’s estimate, but you have to allocate that money. That [FEMA] estimate is based on assumptions, so, for that reason, there will be more conservative numbers [from the Puerto Rican government.] If we don’t obligate that money, it doesn’t become real. At the end of the day, the Fiscal Plan is based on assumptions, they are macroeconomic assumptions. The person responsible for the Fiscal Plan is the government of Puerto Rico, not FEMA,” said Marrero to explain the difference in figures.
The plan includes among the $139 billion needed, $24.5 billion that are available, but whose certainty and source of funds are inaccurate.
For example, the Government of Puerto Rico projects that it will receive $21 billion in funds for which it must compete with states and territories affected by hurricanes Harvey, Irma and María and by forest fires.
Two years after the hurricane, in this category, 10 federal agencies have allocated $6.8 billion, obligated about $2.6 billion and disbursed just over $1 billion, according to the COR3 website.
The plan also warns that another $45.4 billion would have to come through, “but the success of obtaining these funds is not guaranteed.” Sources for these uncertain funds include the Government of Puerto Rico, the private sector and philanthropic contributions.
“There is little probability [about these funds.] That’s the truth. But when we were asked to develop the plan, part of (FEMA’s) requirements were to provide the total cost of Puerto Rico’s reconstruction and long-term economic development. It’s not that that’s what we need to rebuild Puerto Rico. No. It’s that they asked me — and if you look at the law — what does it take to, not just for ‘disaster recovery,’ [but also] for economic recovery, so everything was outlined there, the specific tourism initiatives, economic development, agriculture development… They asked me for everything. That’s what we presented,” said Marrero when he was asked about the uncertainty of obtaining those funds.
“However, the plan also says that in the case of not having those funds, we have to prioritize what we have. And, obviously, we have to prioritize what we have in front of us, which is CDBG and FEMA,” he added.
Marrero also pointed out that the $45.4 billion, while it is not certain where they will come from, had to appear in the plan to justify additional appropriations in Congress in the future.
The plan says that, although only $85.6 billion in federal recovery funds have been identified, most of what is left outstanding could also be obtained through a federal grant.
The uncertainty about the source of an important part of the money needed to replace what was lost is transferred to the communities and families that suffered directly from the brunt of the storm.
Cándida still don’t have all the money she needs to have a house again. Josué and Natalie are now saving to be able to move to a house they recently acquired with the help of their family. They depend on Josué’s salary, who works in a department store and in a nonprofit organization, to support them, as well as three children, because Natalie lost her job after the hurricane. Meanwhile, Guillermo and Genara remain in their home in Punta Santiago, where now, two years later, most of the rooms still don’t have furniture.