FEMA May Extend Puerto Rico Project Estimates Deadline

COR3 Working with Federal Agency to Prepare Requests Beyond Oct. 11

Editor’s note: See the full report on the Sept. 5, 2019, issue of Caribbean Business.

The Federal Emergency Management Agency (FEMA) is evaluating requests by commonwealth agencies and municipalities for an extension to the Oct. 11 deadline to complete cost estimates for repairs and permanent work projects at hurricane-damaged sites throughout Puerto Rico—thousands of which are still being evaluated.

“The [Central Office of Recovery, Reconstruction & Resiliency (COR3)] and the Puerto Rico government are working closely with FEMA to evaluate the deadline, and to prepare extension requests beyond Oct. 11, specific to projects and applicants,” Gregory Bosko, FEMA infrastructure branch director for Puerto Rico, said in a written statement to Caribbean Business, in which he did not identify the applicants or projects requesting the deadline pushback.

“COR3 [and the] commonwealth are currently evaluating these timelines and specific project needs for the purposes of any extension requests,” Bosko added.

Some 50,027 sites on the island damaged by hurricanes Irma and Maria in 2017 are being evaluated to determine costs for emergency repairs and permanent work projects as of Aug. 26, according to Bosko. In February, then-COR3 Director Omar Marrero said 90,000 damaged sites were in the process of being inspected for fixed-cost estimates.

Damaged sites belonging to commonwealth agencies number 30,419, while municipal sites total 16,523, said Bosko, who added that 3,085 damaged sites belong to private nonprofit entities.

A U.S. Government Accountability Office (GAO) report issued last month states that the Oct. 11 deadline for finalizing fixed-cost estimates in Puerto Rico was set as part of FEMA’s alternative procedure for large-project funding under its Public Assistance program for permanent works.

The report says the island is the first U.S. jurisdiction to use the alternative procedures process for all large permanent work projects resulting from a single catastrophic event.




The High Cost of Erosion

(Juan J. Rodríguez/CB)

Huge Cost to Seaside Development

This is part one of a two-part report.

Sun, sand and saltwater are staples of the Caribbean’s image, which Puerto Rico has embraced. Along with the promotion of these resources came developments, but now the decades of warnings from scientists and other professionals about coastline construction appear to be materializing.

From luxury developments to marginalized communities, construction projects along Puerto Rico’s shorelines are experiencing increased problems with erosion, flooding and other related issues.

Many in the scientific and planning communities are calling for a moratorium on shoreline construction. Responding to these voices and the problems encountered in the aftermath of hurricanes Irma and Maria, Sen. Juan Dalmau (PIP-at large) introduced Senate Bill 1122 to establish a 20-year moratorium on shoreline construction.

The science

Planner and environmental scientist Luis Jorge Rivera Herrera explained that “[climate change] is a determinant factor, but what has worsened or deepened the situation is that throughout the various government administrations, they have allowed construction close to the [island’s] littoral, or nearshore, knowing that the littoral and the coasts have dynamic extensions.”

Rivera Herrera, who won the Goldman Environmental prize, explained that waves need room to dissipate their energy, but when a wave hits a hard surface, such as a concrete wall, it returns to the sea with a lot of strength, which in turn does not allow the sand to settle on the sea floor. This causes the loss of beach or erosion.

Addressing the argument that the current beach reduction is part of a cycle, the oceanographic geologist and professor at University of Puerto Rico’s Graduate School of Planning, Maritza Barreto Orta, explained that while there is a cycle in which the shoreline recedes and then expands, the effects on the beaches in such areas as Ocean Park [Santurce, San Juan] are beyond what would be considered a cycle.

“Beyond the cycles, or the periodicity of the cycles, the reality is that the beaches have changed,” said Barreto Orta, who is also director of Red de Playas para Puerto Rico y el Caribe (Puerto Rico & Caribbean Beach Network). Barreto Orta gave her remarks during a site visit to Ocean Park for SB 1122. She was accompanied by climatologist Rafael Méndez Tejeda, who echoed Barreto’s assessment and suggested that during the next season of shoreline expansion, people should not expect as much sand coming back as in previous years.

Geologist & UPR Prof. José Molinelli Freytes said there needs to be a “multi-hazard” approach to the problem because it is not just a loss of beachfront from erosion or an increased sea level. The scientist explained that shoreline properties are exposed to flooding, salinization of the soil, amplification of seismic waves, storm surges, tsunamis and liquefaction of the terrain in an earthquake.

—For the rest of the story, visit CaribbeanBusiness.com to subscribe.




Service at Puerto Rico Permits Office improves following reform

Economic Development Secretary Manuel Laboy Rivera and María Reina Cintrón Flores, auxiliary secretary of the Permits & Endorsements Management Office (CyberNews)

Economic Development secretary: 98% of survey respondents were highly satisfied

SAN JUAN — As a result of the new Single Business Portal (SBP), the Permits & Endorsements Management Office (OGPe by its Spanish acronym) of Puerto Rico’s Economic Development & Commerce Department (DDEC by its Spanish acronym) has improved its efficiency in terms of service to customers who apply for permits and certifications required for construction or remodeling a property, as well as to have their business operations authorized, DDEC secretary, Manuel Laboy Rivera said Thursday.

“On June 7, DDEC’s OGPe incorporated new products and certifications into the Single Business Portal to streamline and provide transparency to the process of requesting these documents. At the moment, the statistics are very positive because they show that the mechanisms to address consumer question through the online chat tool with OPGe staff, are of high satisfaction. Since the integration of the new products to the SBP from early June to June 21, 1,270 individuals were attended, of which 98 percent assured, through a survey, being satisfied with the personalized attention received through the portal,” Laboy said in a release.

The official said during the period, 252 applications were requested, including Single Permit, Single Incidental Permits, Location Consultation and Construction Permits.

OGPe Auxiliary Secretary María Reina Cintrón Flores added that the changes implemented to unify processes and expedite licenses, certifications and permits, among others, are the result of the new Joint Regulation, which aims to provide uniformity to processes at all the island’s municipalities, including the autonomous city halls. This way, the way of doing business on the island is facilitated.

Cintrón used as an example a store in San Germán, whose owner used the SBP website and obtained approval of his Single Permit and inspection in three days. To process permits and certifications through the Single Business Portal, as well as for more information, visit www.ogpe.pr.gov.




Puerto Rico Economic Development Dept. holds Single Business Portal seminars

Offers guidance on permits and licenses

SAN JUAN — Puerto Rico Economic Development Secretary Manuel Laboy Rivera announced Wednesday that his department’s Permits & Endorsements Management Office (OGPe by its Spanish acronym) will hold workshops at several organizations aimed at providing guidance on the new permits that will be managed through the Single Business Portal (SBP), which was created to unify processes and expedite the granting of licenses, certifications and permits, among other procedures.

Laboy said workshops will be offered “on the new products that will be integrated into the SBP as of June 7: Construction Permit, Operational Incidental Only Permit, Single Permit, and licenses for opening and operating businesses. These processes that have been entered in the Single Business Portal are part of the changes stipulated by the Permits Reform of Governor Ricardo Rosselló Nevares, who created a Unified Computer Information System where project proponents can request permits, in order to eliminate bureaucracy, measure effectiveness and give transparency to the processes,” Laboy said in a statement.

The first seminar was conducted by the Builders Association on Wednesday. The second, to be given by the Planning Board, will address the autonomous municipalities and will take place Thursday, May 30. The third will be held at the Architects and Landscape Architects Association on June 4, from 9 a.m. to noon. The fourth will be held by OGPe on June 5, at the Engineers & Land Surveyors Association (CIAPR by its Spanish initials) from 6 p.m. to 9 p.m.

For more information, call 787-721-8282, extension 16356.




Economic activity in Puerto Rico declined 0.7% in last month of the year

SAN JUAN – As of December, the Puerto Rico Economic Development Bank’s Economic Activity Index (EDB-EAI) increased 16.1% over the same month in 2017, marking “the fourth year-over-year increment after 69 consecutive months of negative growth,” the bank’s president, Luis Burdiel Agudo, said Thursday.

The marked difference stems from the fact that in December 2017, much of the island’s electrical transmission and distribution lines had been mangled by Hurricane Maria. During that time the index showed a year-over-year drop of 16.5%.

The index reached 119.5 points in December 2018, a 0.7% decline when compared with the previous month. For the July to December period of fiscal year 2019 the growth was of 8.9% with respect to the same period of fiscal 2018. For 2018, the improvement was of 2.6%, while in 2017 there was a 6% drop.

The EDB-EAI correlates to Puerto Rico’s real gross national product and its methodology is similar to that used for the Coincident Economic Index of 10 U.S. indicators published by The Conference Board, an independent nonprofit think tank. It follows a standard procedure to adjust the data for seasonality and volatility factors.

The EDB-EAI is made up of four indicators:

  • Total Payroll Employment (Establishment Survey/Thousands of employees). This variable is provided by the U.S. Bureau of Labor Statistics on a monthly basis. The establishment survey provides employment, hours and earnings estimates based on payroll records of business establishments in Puerto Rico.

➢ Total non-farm payroll employment for December 2018 averaged 839,700 employees, a decrease of 1.1% on a month-over-month (m-o-m) basis, an annual increment of 0.8%.

  • Total Electric Power Generation (kilowatt-hours [kWh]). This variable is provided by the Puerto Rico Electric Power Authority (Prepa) on a monthly basis. The indicator includes power generation produced by oil, natural gas, coal, solar, two wind farms and landfill gas sources.

➢ Electric power generation in December totaled 1.53 billion kWh, a 0.1% decline on a m-o-m basis, but an interannual increase of 42.5%.

  • Cement Sales (millions of 94-pound bags). This variable is provided by CEMEX Puerto Rico & Argos Puerto Rico LLC on a monthly basis. The data are compiled and converted by the EDB.

➢ Cement sales for December totaled 1.2 million bags, a 0.1% increase in a m-o-m basis, and an annual jump of 13.5%.

  • Gas Consumption (millions of gallons). This variable is provided by Puerto Rico Highways and Transportation Authority (PRHTA) on a monthly basis. The EDB adjusts the series with a three-month moving average.

➢ The preliminary number for gasoline consumption in December was 76.2 million gallons, 2.6% less than in November 2018, and an 18.9% drop compared with December 2017.




COR3 Director Calls for Control Over Recovery Funds

Omar Marrero, director of the Puerto Rico Public-Private Partnerships Authority and the Central Office for Recovery, Reconstruction & Resiliency (CB/Rafelli González Cotto)

Editor’s note: The following originally appeared in the Jan. 24-30, 2019, issue of Caribbean Business.

Omar Marrero, director of the Puerto Rico Public-Private Partnerships Authority (P3A) and Central Office for Recovery, Reconstruction & Resiliency (COR3), insisted he needs control over disbursement of funds for Puerto Rico’s recuperation, saying the excessive bureaucracy imposed by the Federal Emergency Management Agency (FEMA) is delaying the island’s recovery from the 2017 hurricanes and commencing as permanent works.

“At COR3, we have engaged in the task to ensure we can take control of a highly bureaucratic process that FEMA itself has not been able to manage efficiently,” he said.

The island not only has no control of the disbursement of funds, but also has no control over the formulation of projects. “As of today, we have zero permanent works obligated for Puerto Rico. That means everything that has been worked on are Categories A and B, which are primarily emergency categories because FEMA has a highly bureaucratic process,” said a visibly frustrated Marrero.

He said FEMA is not giving Puerto Rico the opportunity to help hasten the processes, even though Marrero said he has provided ideas.

Two weeks ago, Marrero was in Washington keeping the different agencies appraised of the island’s recovery efforts but acknowledged that currently, the challenges and conditions imposed by FEMA to disburse funds still persist.

As of this Caribbean Business interview with Marrero, only 45 percent of public assistance funds, which are used to repair public facilities damaged by Hurricane Maria, have been disbursed. “Because those funds have not been disbursed at the pace we have requested since the first day, certainly, the recuperation process has been slow,” he said.

Contrary to other U.S. jurisdictions, Puerto Rico has no control over the reimbursement process because it is totally in FEMA’s hands. Currently, mayors have complained that two years after Hurricane Maria, they are waiting for the government to reimburse them for what they paid to make repairs after the storm, hurting not only municipal coffers but also private companies.

In an effort to help gain the U.S. government’s trust, the administration of Gov. Ricardo Rosselló created COR3, which not only relies on “experts on disaster” but has a transparency portal of the federal funds that have been disbursed. The island completed two types of reconstruction plans. “We have kept the federal government abreast of what we have done, and with all due modesty, we have done a great job. But at the end of the day, we need to take over control of the process. It is the only way we can hasten the disbursements,” Marrero said.

Limited control

President Donald Trump recently accused the local government of using federal funds to pay debt in violation of federal law. Marrero said his remarks are lamentable and based on wrong premises. He said using federal disaster funds to pay debt is a violation of the Stafford Act. “Also, when you look at Puerto Rico, we don’t have control of the funds. Therefore, anyone who dares to say that Puerto Rico has wasted the funds and used the funds for something not authorized, does not know what he is saying,” he said.

The process to obtain federal funds is highly bureaucratic and consists of at least 10 steps, of which COR3 has only control of one. “I only control the disbursement,” he said.

For instance, if an agency seeks reimbursement for a $1 million repair, Marrero said the agency has to submit a request for investment to COR3 along with required documentation. COR3 then submits the request to FEMA, which does an initial review, examines whether any mitigation measures can be applied, and then puts it through an environmental preservation review and then an insurance review. The application is then returned to COR3 for review. “I usually review it in a day,” he said. The request is then submitted to FEMA again for a final review.

If the request for reimbursement is for more than $1 million, it has to go to an office in Washington, D.C. If it is more than $20 million, it has to go to another office in D.C. Only then is the money awarded.

However, the process does not end there. “That does not mean the funds are put in an account. I only get a notification that says ‘award,’” he said.

The request then has to go through what he called “the 270 process,” which consists of seven other steps in which COR3 must also show need. The process was adopted in November 2017 by the United States because Puerto Rico was a “high-risk jurisdiction.”

The 270 process requires the request to be sent to a Fiscal Transparency Group and FEMA confirms the funds can be disbursed.

“Once the money is put in our account, in less than a day, I disburse the money,” he said. “So, anyone who says we have misused a single dollar does not know the process and that includes the White House,” Marrero said.

Regarding Community Development Block Grant (CDBG) funds, Marrero said that because of the federal shutdown he does not know when the $8.2 billion that has already been allocated is going to be received. Federal officials told the government it would take them longer to evaluate a plan developed by the government.

Which funds is the island at risk of losing because of the dispute over the construction of the wall along the U.S. southern border? “They are not FEMA or CDBG funds, but the ones allocated to the U.S. [Army] Corps of Engineers because the president has discretion over them as chief commander,” he said, referring to $2.5 billion for channeling of bodies of water at Puerto Nuevo in San Juan and other dredging projects in other jurisdictions.




Puerto Rico Permits Office presents new Construction Code

SAN JUAN – Puerto Rico’s Permits & Endorsements Management Office (OGPe by its Spanish acronym) presented Thursday some of the most relevant aspects of the island’s new Permits Code, which includes recommendations for the design of new infrastructure and mitigation measures for existing ones to resist hurricanes and earthquakes.

Inspector Evelyn Moya Ginés, Health and Safety manager at OGPe, presented the document adopted Nov. 15 in a public hearing held by the House Economic Development and Planning Committee, which under House Resolution 756 is investigating the Adoption and Review of the Construction Code of Puerto Rico.

Among the recommendations of the Federal Emergency Management Agency (FEMA) Mitigation Assessment Team report is the creation of micro-zoned wind maps in which the topography of Puerto Rico is considered. According to these maps, 13 percent of the island is exposed to winds of more than 187 miles per hour (mph) and which could reach 250 mph.

To questions from committee Chairman Víctor Parés Otero, Moya Ginés pointed out that the most vulnerable points are established according to wind load and topography, but also the condition of the constructions.

Also recommended was a thorough revision of the codes every three years and that maintenance protocols be established for buildings, for which the official said the 2011 code may be used if the changes are minor but must comply with the new regulations when remodeling extensively.

She added that construction costs, based on $80 per square foot, do not rise if reinforced concrete is used; however spending 0.7 percent to 1 percent more in high-risk coastal areas is recommended when building with wood or a combination of materials, and 2 percent in those same areas if only using wood.

Regarding earthquakes, she pointed out that Puerto Rico already has design parameters that are more restrictive than other jurisdictions since the 2011 code had incorporated amendments based on a study of the island’s seismic history. However, in the revision and update of those regulations, an increase in construction costs of 0.04 percent was recommended specifically to reinforce building foundations.

She said the regulations were adopted so there was a single body of law applicable to reconstruction projects using FEMA funds, which require 2018 codes. The 2011 code may be used in other projects for up to six months after the new regulation was adopted.

Moya Ginés emphasized that with the adoption of the new regulations, taken from the International Code Council (ICC) of 2018, “we are on a par with the latest guidelines in relation to construction worldwide because, besides Puerto Rico, only 12 countries have adopted these regulations.”

A public education campaign will be conducted so people can demand that their constructions comply with the code.




P.R. Mayors: CDBG Funds Should Go Directly to Municipalities

Cayey Mayor Rolando Ortiz Velázquez

Editor’s note: The following originally appeared in the Jan. 10-16, 2019, issue of Caribbean Business.

Although Puerto Rico’s Mayors Association and Mayors Federation set aside their ideological rivalries in May 2018—agreeing that a $1.5 billion federal grant assigned through the Community Development Block Grant for Disaster Recovery Program (CDBG-DR) should go directly to municipal governments and not to the central government—the reality is the U.S. Department of Housing & Urban Development (HUD) is yet to disburse the federal aid while municipalities continue to struggle with their finances.

Mayors from all 78 municipalities that compose the island’s political map continue to point out that in the aftermath of Hurricane Maria they proved to be the most effective and experienced government entities to meet constituents’ needs.

For Cayey Mayor Rolando Ortiz Velázquez, who presides over the Mayors Association (AAPR by its Spanish initials) that comprises the current minority Popular Democratic Party (PDP) affiliated town heads, said 2019 could finally be the year when the municipalities’ battered finances are stabilized, as long as the process is completed in an orderly, analytical and transparent fashion.

“From an optimistic point of view, I hope it is the year in which all these contributions materialize and reach the municipalities. I understand that this past year was a year of adjustments, but it is time we can reach a final decision and the funds reach the municipalities,” the mountain town mayor said.

“The reality is that the situation with the central government is about capacity, credibility, and the reality is I do not see enough credibility in the central government to have these funds disbursed to it because of its behavior with previous programs. That is a reality that is very damaging to Puerto Rico—the fact that this government has not been totally reliable or that it has committed grave mistakes that have affected the trust of the people of Puerto Rico and the federal government—and that price is being paid,” he added.

Ortiz Velázquez was hopeful the municipalities’ fiscal situation and residents’ economic reality will improve somewhat this year.

“I think there is room, and opportunities exist for municipalities’ economic situation to dramatically improve, but that will depend on the state [commonwealth] government gaining trust in the federal sphere and receiving the contributions we are expecting to realize projects we have identified,” he said. The central government, he added, should reinvent itself for Puerto Rico, and go beyond party lines and political ideologies.

Likewise, Félix Delgado Montalvo, mayor of Cataño, who is affiliated with the New Progressive Party (NPP), said that difficult times continue for the municipalities, which he said represent the first line of response for citizens, and assured that there are ways to get those recovery funds directly disbursed to the municipalities to ensure they immediately have an impact on the communities.

The mayor mentioned the creation of an umbrella municipality that would administer the disbursements of his district as one of these alternatives.

“For example, Bayamón can take its district and be the one in charge of the entire process to disburse the money. What this guarantees is that this money will reach the municipalities much faster and the citizens will see the results immediately. If we strictly depend on the state, as requested by HUD, can you imagine 78 municipalities waiting for the corresponding procedure for the Housing [Department] to disburse the money? It would take us years for people to see an improvement in their community, and that’s the concern of the 78 mayors,” Delgado Montalvo said.

The mayor reaffirmed the call by both associations that group the mayors to organize the umbrella-like structure to ensure federal funds are disbursed based on an orderly and transparent process.

However, despite reservations, the executive branch has previously pointed out about disbursing CDBG funds directly to the municipalities, Delgado Montalvo assured that the central government favorably views the proposal.

“Based on the conversations the mayors have had with the governor, he sees it [favorably], but the block is with HUD at the federal government level. One can understand that attitude because, in the past, unscrupulous politicians engaged in corruption with [such] funds, and that is HUD’s concern, but it is also a reality that people have an urgent need to repair their homes, to recover. We have an emergency to move communities that are flood-prone. In six months, the hurricane season begins, so we are running against the clock and, still, the federal government continues to delay the process. This is not a whim; it’s a real need,” the mayor stressed.

In May 2018, U.S. Senate Finance Committee Chairman Orrin Hatch commented about his “disappointment” with the Rosselló administration’s lack of transparency regarding federal funds.




Think Strategically: Gov. Rosselló 20 Months On

Measuring government with unbiased benchmarks

This issue of Think Strategically is dedicated to evaluating how the Puerto Rico economy has performed after 20 months under Gov. Ricardo Rosselló Nevares. Measuring a successful governorship takes much more than these metrics but allows us to measure the overall direction of the island’s economic well-being.

On Inauguration Day Jan. 2, 2017, Rosselló inherited the following benchmarks. In the chart to the right are the results.

Even with headwinds, improvements present

We see improvements in unemployment with a decrease of 24.7 percent over the past 20 months. In addition, the labor-participation rate increased almost 0.25 percent during the same period. It is worth mentioning that by October 2017, the participation rate had stood at 38.5 percent due to the impact of Hurricane Maria. The median household income also increased 2.87 percent, and the results for gross national product (GNP) growth for fiscal year (FY) 2018 showed positive or near-zero growth, reflecting much better performance than the previously projected minus-13.0 percent.

Maria’s aftermath has exposed the fragility of most essential services. As the most devastating hurricane in Puerto Rico’s modern history, we experienced 2,975 deaths from the event. It appears Maria’s economic impact was initially overstated, and the following aid package reflects this stance.

Rosselló’s advances

  • Placing P.R. hurricanes, FEMA relief on D.C. agenda. For decades, Puerto Rico was absent from the Washington agenda, and Gov. Rosselló and Maria changed that.
  • Seeking Medicare and Medicaid parity. Puerto Ricans pay 100 percent of Medicare and Medicaid insurance costs, yet we receive less than 40 percent of our benefits, which is a discriminatory practice. The governor has moved that message to the point that parity may be on the horizon.
  • Inflow of reconstruction funds significant. More than $54 billion in federal recovery funds and an additional $8 billion from private insurance have been approved. As of August 2018, the Federal Emergency Management Agency (FEMA) estimates it has disbursed or approved $8.1 billion in public and private assistance funding. The total expected over 10 years is $62.4 billion.
  • Total employment, including self-employed. Had been declining since 2007. This trend continued into 2017, as total employment reached 964,000 in August 2017, just before Hurricane Maria. This trend has reversed since Maria, with total employment increasing. In July 2018, more than 1 million residents reported having work, which is the highest level since February 2017.
  • Manufacturing increasing. Post- Maria, Purchasing Manager’s Index (PMI) has averaged more than 53, which suggests an expansion in manufacturing activity, and has been particularly noticeable over the past six months. The New Orders index has averaged over 55 post-Maria. This means further increases in manufacturing activity are expected over the coming months.

On the negative side, the governor’s challenges came into full light after the hurricanes.

Some observations

  • Establishing 95 percent of P.R. would have electricity by Dec. 15, 2017. Even as hopeful as this initial goal was, it created expectations for people that were desperate. A less aggressive goal would have been better. Power was restored entirely by Aug. 24, 2018.
  • Not working as a team with the Legislature, FOMB. The best way to cure the financial crisis is by reaching agreements with the FOMB, Legislature and U.S. Congress. Doing so will allow Puerto Rico to accomplish the needed five years of balanced budgets and eventual return to the capital markets. This will imply significant budget cuts and changes in the way Puerto Rico conducts its operations.
  • P.R.’s GNP growth may be temporary. Favorable growth rates of real GNP are anticipated for FY 2019 and FY 2020. Nevertheless, with current and expected growth rates, according to Estudios Técnicos Inc., “It will not be until FY 2026 that the level of real GNP will approach that of FY 2006.” Former N.Y. Fed President William Dudley warned: “Don’t be seduced by temporary reconstruction dollars.” Puerto Rico must find a more permanent economic growth model.
  • P.R.’s debt burden. The still mostly unresolved issues related to the government’s debt will affect its advances in other areas.
  • P.R. at systemic risk in healthcare. Puerto Rico hospitals are being forced to either reduce costs at the expense of creating potentially devastating impacts on the communities served or take less aggressive cost-cutting measures and risk facing severe financial hardships. The scenario with this indubitable Hobson’s Choice (which is a “free” choice in which only one thing is offered) has developed through profound public policy and market moves that transfer financial risk to the local healthcare systems. With little or no financing available, we have considerable similarity to the 2008 systemic risk crisis. Despite detailing the need to improve health services, there is no stronghold activity within the plan to use reconstruction funds (i.e., Community Development Block GrantDisaster Recovery).
  • Demographic changes, loss of population. Although recent data suggest it will not be as severe as expected, there is consensus that by 2025 the population of Puerto Rico will be nearly 3.1 million people. The difference is some 700,000 individuals from the population in 2000 and nearly 1 million below projections made that year for 2025 of about 4.0 million. The consequences related to demand are significant but given a much older and a very low-income population, the need for government healthcare and social services will be higher and will require considerable changes.
  • The federal tax reform. A new challenge for Puerto Rico is the federal tax reform approved in December 2017, which will require the island to radically alter its industrial promotion approach and take steps to mitigate the impact on the industrial sector and overall economy. Much of what will occur in the mid- and long terms depends on how successfully we reinvent our economic growth and development strategies.
  • Governor’s recent executive order increases minimum wage for construction workers to $15 an hour. At the lowest base level, this increase produces a cascade effect on all other payroll levels and industries closely related to the construction sector. The effect increases average labor costs for any government construction project by more than 85 percent.
  • The P.R. Tax Reform. This tax reform is ill-timed; it would have been more advisable to postpone it until 2020.
  • The 2,975 deaths from Maria. It took the government one year to accept this number of deaths, instead of the 64 initially reported.

Final Word: What challenge will make us work harder and faster?

We must find processes to strengthen the ways government is managed, and this can be done if we have the appropriate metrics. Benchmarking is a necessary function of government because it can enhance oversight and accountability of programs, improve effectiveness and efficiency of services, and assess what works and what does not while providing critical information for difficult policy decisions.

As for the challenges, we should begin to wonder: “what will be the next test for the island? What will be the challenges that will make us work harder and faster?” Nothing is more important than rising to the response to these questions.

Puerto Rico needs all the help it can get to emerge from this crisis, and it takes more than one person with a familiar name to do it. Industrialist Efraín D. Vassallo, may he rest in peace, used to say, “Last names do not make the person; it is the person who makes the last name.” The Governor has a once-in-a-lifetime opportunity to make his mark on Puerto Rico’s history.

–Francisco Rodríguez-Castro is president & CEO of Birling Capital.




Caribbean Business Survey: Top 200 Locally Owned Companies in Puerto Rico

Editor’s note: The following originally appeared in the Nov. 8-14, 2018, issue of Caribbean Business.

The latest Caribbean Business survey of locally owned companies indicates resilience in the face of a slow recovery from hurricanes Irma and Maria, which left noticeable scars on island-based businesses.

This year’s survey, the Top 200 Locally Owned Companies, which ranks Puerto Rico-based companies according to revenue generated in the 2017 calendar year, shows a mixed picture of double-digit income increases for several businesses involving security services, automobile sales and leasing, construction and renewable energy, while earnings shrunk for many companies in manufacturing, professional services and healthcare, particularly hospitals.

Local financial institutions, including several insurers and credit unions, also experienced a drop in revenues.

Revenues and jobs

The listed companies’ combined revenues increased nearly 9 percent to $12.8 billion in 2017, up from $11.7 billion in revenues reported for 2016. Revenue is defined as gross income a company receives during a specific period before costs are subtracted from it.

These companies provided 71,387 jobs in key areas of the local economy, namely the service, healthcare, retail, wholesale, construction, insurance, manufacturing, automobile, finance and agricultural sectors. These jobs comprise 7.3 percent of the 984,000 job-holders on the island in 2017, according to the Puerto Rico Labor & Human Resources Department Establishment Survey.

Downsized survey

The latest Top 200 Locally Owned Companies survey is a downsized version of the Top 400 Locally Owned Companies, which had been issued in previous years by Caribbean Business. The list size was shortened because many companies failed to provide the updated information required by the now-revamped survey, which no longer provides estimates of companies’ revenues.

Several businessowners said they could not provide updated financial data given that they were focused on post-hurricane reconstruction. Other local companies could not be reached to provide such information. To qualify for the Top 200 list, a company must be at least 51 percent owned by Puerto Rico residents and have generated at least $5 million in revenues during the surveyed year.

The year-to-year growth in revenues in the Top 200 list is impressive considering that the island’s economy contracted 2.4 percent during fiscal year 2017, which ended June 30, 2017, according to the Puerto Rico Planning Board. It is even more remarkable given the blows dealt by two hurricanes last year, Irma and Maria, which had an impact on local businesses’ revenues due to forced closings as a result of blackouts, limited credit sources and supply chain interruptions.

Storm losses

A survey prepared by the Federal Reserve Bank of New York, released in September 2018 found 77 percent of small businesses on the island incurred losses due to the storms. The hurricane emergencies prompted 25 percent of these businesses to close temporarily and 2 percent to close permanently, according to the survey. The situation led 43 percent of the small businesses surveyed to report losses for 2017, yet 22 percent reported breaking even and another 35 percent even managed to generate profit during the same period.

However, the apparent resilience demonstrated by locally owned businesses cannot hide the deep wounds inflicted by a decade-long recession and fiscal crisis, as well as last year’s catastrophic hurricane season.

The combined revenues of the Top 200 Locally Owned Companies in 2017 was 45 percent lower than the $23.1 billion in combined revenues reported by the first 200 companies on the previous Top 400 list issued in 2016. Moreover, the number of jobs generated by companies in the latest Top 200 list is 35 percent lower than the 110,289 jobs reported by the top 200 companies in the 2016 survey.

The lower revenue and job figures in the latest survey can be attributed in part to the exclusion of such big companies as insurance giant Triple-S Management Corp., which headed the Top 400 list in 2016 and ceased to qualify as locally owned given that it is now a publicly traded company on Wall Street. Other large locally owned corporations on the latest Top 200 list, including Empresas Fonalledas Inc., Sistema Universitario Ana G. Méndez Inc., GFR Media, Packers Provision and Goya de Puerto Rico Inc., did not provide revenue data.

First Medical tops list

First Medical Health Plan Inc., a Guaynabo-based healthcare insurer, heads the latest Top 200 list. The company generated $1.08 billion in revenues in 2017, an increase of 2.17 percent over the $1.06 billion generated in 2016. The company provided 627 jobs last year.

Wholesale

Wholesale companies generated the most revenue as a group on the Top 200 list, reporting a combined $3.13 billion in revenues or 25.5 percent of the total generated by the listed companies. The locally owned company leading this sector is V. Suárez & Co. Inc., which generated $504 million in revenues last year.

Service jobs

In contrast, the biggest provider of jobs on the Top 20 list were companies in the service sector, which encompasses a diversity of labor-intensive businesses and professions, including lawyers, accountants, architects and engineers as well as universities, advertising agencies, waste management companies, job placement firms, maintenance companies and security companies. Listed companies in this sector provided a combined 22,548 jobs, or nearly one-third of the jobs provided by the Top 200 companies.

The leaders among locally owned service-sector companies were security firm Ranger American of P.R. Inc., which provided 2,837 jobs, and Perfect Integrated Solutions Inc., which provided 1,557 jobs. In fact, Ranger American was the fastest-growing company on the list, as its revenues shot up 104.3 percent, from $36.63 million in 2016 to $80 million in 2017.

Healthcare

Healthcare providers, particularly hospitals, were another significant provider of jobs and a big generator of revenues on the Top 200 list. These companies generated $2.38 billion in revenues in 2017, or nearly one-fifth of the Top 200 revenues, and provided 20,966 jobs or nearly 30 percent of the Pavia Health System headed this group of locally owned companies, generating $550.71 million in revenues and providing 4,413 jobs.

Insurance

Insurance companies on the list generated the third-largest amount of revenue as a group, with a combined $2.2 billion in revenues in 2017 or 17 percent of the total but created just 5 percent of the jobs among the companies on the list.

Construction

The gradual influx of post-hurricane reconstruction aid has already had a positive impact on some locally owned construction companies, which made up a little more than 5 percent of the Top 200 revenues and jobs provided. Several construction companies on the Top 200 list registered double-digit growth, although other smaller construction firms registered decreased revenues. Other construction-related companies, such as steel product manufacturers and equipment distributors, also reported double-digit income growth.

Economist Heidie Calero, president of Hato Rey-based H. Calero Consulting Group Inc., attributed the mixed picture concerning locally owned construction companies to the fact that many contracts are being issued to firms on the U.S. mainland.

“The revenue growth in [Top 20] companies seems reasonable in light of reconstruction [after the hurricanes], but our experience is that local construction has yet to be in full recovery,” said Calero, who noted that the island’s economy may remain stalled if the flow of federal aid and insurance payments continue their slow pace. “The government’s persistently slow issuance of permits for construction projects is also not helping things.”

Fuel costs, renewables

Calero attributed the revenue decrease among most locally owned hospitals and some service-sector companies and manufacturers to the costs of fuel used to operate power generators during the hurricane-emergency blackouts.

In fact, local renewable energy companies also registered double-digit revenue increases, including Aguadilla-based Máximo Solar Industries, whose revenues increased nearly 80 percent between 2016 and 2017, making it the second-fastest-growing company on the Top 200 list. The company’s equipment and battery sales to local solar panel system installers increased 250 percent during the aftermath of Hurricane Maria, said company president Máximo Torres, who added that revenues are projected to double this year.