Thursday, February 21, 2019

Sen. Scott becomes an ally for Puerto Rico

By on February 8, 2019

The Senator From Florida Goes After Low-Hanging Fruit

Editor’s note: The following originally appeared in the Feb. 7 -13, 2019, issue of Caribbean Business.

When freshman Sen. Rick Scott (R-Fla.) speaks about Puerto Rico issues, he gives the impression that he is just becoming acquainted with the island’s many challenges impeding economic development—this despite his terms in office as the governor of Florida, where more than 1 million Puerto Ricans reside along the I-4 corridor. He knows a thing or two about the tremendous challenges Puerto Rico faces under the constraints of the Financial Oversight & Management Board enabled by the Puerto Rico Oversight, Management & Economic Stability Act (Promesa) because he had to cater to his Puerto Rican constituents to win the Senate seat he now holds.

Yet, during a meeting hosted inside the Puerto Rico State Department’s executive boardroom, hosted by Secretary of State Luis G. Marín and Puerto Rico Federal Affairs (PRFAA) Executive Director Carlos Mercader, Scott listened attentively to members of the island’s private sector as though he were unaware of the laundry list of gripes voiced in that room.

For instance, when it came to disaster-relief funding, he was not aware of the fracas between Gov. Ricardo Rosselló’s administration and the Federal Emergency Management Agency (FEMA) over the conditions under which that money was to be disbursed. People in the room explained that Puerto Rico gets only half ($750) the national average in Section 8 housing vouchers; that FEMA was cutting disaster relief. “We at the AGC [Associated General Contractors of America] are very vigilant about the funding that is supposed to come for Puerto Rico’s reconstruction,” said AGC President Alejandro Abrams, in reference to the Community Development Block Grant. “We heard in today’s news that FEMA cut $1 billion from the reconstruction of schools. They had included all sorts of money for Puerto Rico’s reconstruction in their assessment and now they are changing that assessment based on the application of the Bipartisan Budget Act of 2018, which included language indicating that Puerto Rico was not going to have pre-existing conditions tied to funding. While there are general guidelines that apply, that is changing by the minute.”

“That is done through HUD?” he asked, to which he got an affirmative response, which prompted him to punctuate his remark with “just put that in writing for me and I will get it to [U.S. Department of Housing & Urban Development] Secretary [Benjamin] Carson.”

Urgent, urgent—emergency?

It seems unlikely, however, that the senator’s work on Puerto Rico’s behalf will lead to swift action by HUD. Sen. Scott has been vocal in calling for President Donald J. Trump to declare a national emergency over the $5.7 billion that Democrats in the U.S. House of Representatives are refusing to assign for the construction of a wall along the Southern border of the United States. Caribbean Business asked the senator whether he was aware that in so doing Trump would be able to access unseized military funding originally destined for the reconstruction of jurisdictions that were impacted by the 2017 hurricanes.

“Well, here’s what I believe. First of all, I don’t believe that the government should shut down,” Scott said with a steely stare. “I also believe we should fund it properly through U.S. Congress. If you look at all of us, we are not for a government shutdown. Does anybody think that we should not have border security?— ‘No.’ So Congress should do its job. I understand the frustration on the president’s part when the things he is proposing do not happen. So, I would hope that he doesn’t have to use emergency funding. But if he does declare an emergency, I hope he does it a way that does not impact disaster relief because of what Puerto Rico has gone through. People need that relief funding, that is why I am hoping that Congress will do their job. Also, if he does obtain the funding, I think he should take care of the DACA [Deferred Action for Childhood Arrivals] kids at the same time. They did not do anything illegal. They came here, and we helped raise them.”

Truth be told, Puerto Rico exposed itself to be treated differently early in the recovery process when it insisted on receiving other funding—Community Disaster Loan (CDL) money from the U.S. Treasury (UST) in March. That the Rosselló administration wanted the money without ties caused friction within the rank and file at the UST.

When U.S. Treasury Secretary Steven Mnuchin visited Puerto Rico in March 2018 for a meeting with Gov. Rosselló and members of the Financial Oversight & Management Board (FOMB), many local government officials were encouraged by news that the feds had increased a liquidity threshold for the release of funds tied to the CDLs. The original conditions for fund disbursement—that Puerto Rico’s Treasury Single Account had to dip below $800 million—was increased by $300 million to $1.1 billion. The loan agreement is hardly free of conditions, according to additional terms being drafted by the UST.

“The conditions tied to the loan are perhaps more complicated because of Promesa and what it calls for, which is not something other jurisdictions have to deal with,” one source on the Hill, with ties to the Trump administration, previously told Caribbean Business. “It is precisely what the governor has been trying to do [get the funds unencumbered] and the U.S. Treasury has been pushing back because this is not optional. This is the way the U.S. Congress has laid out the law. This is the way it has to be.”

The conditions were mapped out in an addendum that is particular to Puerto Rico’s case which, because of Promesa’s stipulations, sets in black and white the CDL funding uses. The doctrine underpinning this set of rules hinges on keeping monies destined far from debt servicing and payment for lobbyists and advisers.

The loan, whose purpose is to support cash needs, may be drawn upon until Oct. 31 and, after that time, no drawdowns can occur. It will be repaid twice a year, in July and January.

The money can be used to fund essential services, payroll and benefits, pensions, facilities maintenance that is not infrastructure improvements and to buy materials or pay suppliers. It cannot be used to pay debt service, refinance debt, pay for capital improvements, restore damaged facilities, provide tax refunds, pay for lobbying or pay for any Title III costs. It cannot be used to transfer funds, pay for administrative costs of federal disaster assistance or pay for disaster-related expenditures.

“The stuff that it cannot be used for seems fairly reasonable, because if you are going to obtain money from FEMA to repair things, don’t get charged against this—that is a different bucket of money and we are not going to let you do that,” the Trump source added.

Two sources with knowledge of the negotiations tied to the loan explained that because Puerto Rico is restructuring its debt through Title III of Promesa, the funds will not be granted unencumbered. “The other important thing to know is that this document is heavily predicated on the Promesa board’s approved budgets—the thing that baffles people is that the governor believes it is predicated on his budget, no matter what the board says. If that is true, he is never going to get that money.”

Where there is a will…

Decidedly there is much that could be done by U.S. Congress if there were the political will. Among the low-hanging fruit discussed at the meeting was the lack of parity in Medicare and Medicaid funding for the island. At this writing, Puerto Rico is pushing for Congress to pass the Puerto Rico Integrity in Medicare Advantage Act (Prima), which would increase the reimbursements to Medicare Advantage. The legislation also seeks to stop the exodus of medical professionals by eliminating payment disparities.

Some in the room feel Sen. Scott is all in on Puerto Rico. “There are reasons to be encouraged that we have Sen. Scott as an ally for Puerto Rico, although it is easy to be pessimistic based on past experiences,” PRFAA Executive Director Carlos Mercader told Caribbean Business in a quick aside after the roundtable with the senator. “Puerto Rico issues had never had the exposure that they have now. He has self-proclaimed that he is the senator for Puerto Rico. He has only been in his post for six weeks and he has taken Puerto Rico to heart as something very personal. Add to that the help that [U.S. Sen. Charles] Chuck Schumer [D-N.Y.] has been providing. It doesn’t mean things are going to change overnight. But there is good reason to be optimistic.”

It all boils down to politics, according to the GOP source. “I think this is Jenniffer González trying to flex her muscle showing she has access and that being in the House minority doesn’t mean she won’t be able to get things done for Puerto Rico. And he gives her credit for his performance in the [midterms] with the Puerto Rican constituents. He views her help as being instrumental in Florida in general and that community in particular. So, I think those are the big-ticket items.”

Rallying support of his colleagues in the GOP—let alone bipartisan support inside a very dysfunctional Congress—is an exercise steeped in hardship. “I was only one person when I started a company and, 10 years later, we had 5,000 people working and we added 1.7 million jobs in Florida. I believe you just have to work hard at it. We all have to work together to get things done,” Scott said in reference to the dysfunction that reigns on Capitol Hill. “I have gotten things done by building relationships and having ideas that I believe in. It isn’t going to be easy. Everybody ought to work together to figure out how things can get done.”

(Screen capture of www.c-span.org)

“So, I’m optimistic that if we all go up there with the right ideas and work together, we can get things done. My experience with government is that they are like actors, they just talk, and nothing gets done,” said Scott, who knows Capitol Hill politics well from his two terms as governor of Florida. “I’ll give you the example of Florida. When I came into office, the prices of homes had dropped 50 percent and we managed to create 1.7 million jobs and home prices went up by 50 percent. Now, we actually need workers. So, if you get on a plane today, you can have a job in Florida tomorrow. That makes it difficult for Puerto Rico. So, we have to figure out Puerto Rico’s strengths and play to them and then build on them.”

If we build it, they will come

Among the strengths the senator sees for Puerto Rico is the development of the island’s tourism industry as an untapped source of job creation. “The island is a part of the United States; it has beautiful beaches, beautiful weather. So, I see an opportunity to grow tourism if the money is spent properly—it will represent a lot of jobs. When I became governor of Florida, we had 80 million tourists coming to the state. The last year I was in office, we had 125 million [visitors] and we had some 4 million jobs,” Scott told Caribbean Business. “The other opportunity Puerto Rico has is in the ports. In Florida, we had some 15 seaports. In Florida, we invested over $4 billion over eight years, and we saw more than a 300,000 increase in trade jobs.”

Added to that the senator believes the new Congress should see to it that there is a change in tax policy, so it benefits the island and is not a hindrance. “We have talked quite a bit about that; we saw what happened at the end of 2017, and we have to work on that. Those are the things long term that are going to help the island become self-sufficient,” the senator added.

Provisions in Trump’s tax policy, which aim to bring operations and jobs back to the United States from overseas locations, apply to Puerto Rico just as they would to foreign countries. In addition, a 12.5 percent tax on profits derived from intellectual property held in foreign jurisdictions also applies to the island.

González, however, is trying to equalize matters by filing legislation that would extend supplemental Social Security benefits to Puerto Rico, which are mainly available to stateside residents.

The source with ties to the Trump administration put it like this: “The senator is really smart on financial issues; [Scott] understands that Puerto Rico doesn’t have a real government and the actions are subject to review by the courts and all of this debt problem could eventually be transferred to the U.S. Treasury. Sen. Scott knows that if things are done that can create economic activity for Puerto Rico, it is important for the federal Treasury because it would be very difficult for Republicans to explain potential future actions if those had to be taken. Democrats who believe in identity politics would be happy to write a big check for Puerto Rico; Republicans would not.”

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