Estudios Técnicos’ post-Hurricane Maria study to be featured at research convention in Canada

Anitza Cox and Carlos Torija of Estudios Técnicos (Courtesy)

Puerto Rico consulting firm invited to present methodology developed with Kaiser Family Foundation

SAN JUAN – The methodology developed by Puerto Rico-based consulting firm Estudios Técnicos Inc. (ETI) and the Kaiser Family Foundation (KFF), a healthcare-focused nonprofit, for a study on the socioeconomic impact of Hurricane Maria in Puerto Rico will be featured in a panel during the convention of the American Association for Public Opinion Research (AAPOR).

The research conducted by KFF and the Washington Post and carried out by Estudios Técnicos was published on the latter’s cover on the anniversary of the hurricane. At the AAPOR convention, it will be presented as an example of data collection and methodological considerations after a disaster. The 74th annual AAPOR convention will be held in Toronto, Canada from May 16 to May 19.

“For both Puerto Rico and for Estudios Técnicos, Inc., this is an important opportunity to present our work before the most outstanding researchers in the United States and Canada. This study also has a great social impact in terms of Puerto Rico. To the extent that accurate data compiled after a natural disaster is accessible, not only is there important information for recovery, but it also contributes to our resilience, to understanding how hurricanes, earthquakes and other catastrophes affect us, and to plan how we can improve the future management of these circumstances,” explained Anitza Cox, director of Analysis and Social Policy at ETI.

In addition to collaborating with KFF researchers on the development of the methodology, ETI was in charge, from July 3, 2018, to Aug. 29, 2018, of conducting in-person interviews with 1,500 people ages 18 and older, in 100 groups of “census blocks selected based on a stratified probabilistic sample,” according to the firm. The design of the methodology considered other criteria such as geographic criteria, income level and composition of the island’s population.

“The fact that they are interested in the methodological procedure that we developed for the study is very important, since it projects that in Puerto Rico there is expertise in the field of research and collection of statistical data, even after an emergency or disaster,” ETI statistician Carlos Torija said.

At the convention, Cox will be presenting with Liz Hamel, director of KFF’s Public Opinion and Survey Research team. The survey is the 33rd in a series of surveys dating back to 1995 that have been conducted as part of the Washington Post/KFF Survey Project, a partnership combining survey research and reporting. The study was directed by researchers at KFF with the support of SSRS, a research firm.

ETI noted the following as among the study’s most relevant findings:

  • 83% of Puerto Rico’s population claimed to be affected by the hurricane in one of the following ways: being without electricity for four months or more; losing a job; destruction of their home or serious damage to it; damaged vehicles; worsened physical and / or mental health; problems getting drinking water.
  • A year later, a quarter of Puerto Ricans said that their lives were still disrupted; 26% felt their level of stress had gotten worse; 47% had some type of financial problems; 31% needed more help to repair their home; 22% required mental health services.
  • The vast majority thought that more resources were needed for reconstruction; 94% see it as urgent for roads and 76% for the electric network.
  • 54% percent think that federal aid was worse for Puerto Rico than for hurricanes that struck stateside.
  • Despite being overwhelmed by problems, half of Puerto Ricans said they tend to be optimistic about the future of the island.

Estudios Técnicos Inc. has carried out other post-Maria studies such as on the impact of Hurricane Maria on children, for the Institute of Youth Development, Save the Children and Ángel Ramos Foundation. Another study was about the response of nonprofit organizations after María, commissioned by the Puerto Rico Foundations Network. In addition, it has performed studies, for professional associations, on the impact of the hurricane in specific industries.




Report says Puerto Rico has moderate level of economic freedom

(NASA)

Scores close to average global score but lower than region’s average

SAN JUAN – Puerto Rico was ranked 61 worldwide in the 2018 Economic Freedom Index (EFI), which was developed by the Center for Economic Renewal, Growth and Excellence (Crece by its Spanish acronym), a nonprofit foundation established by former Gov. Luis Fortuño in 2014 and based at the Metropolitan University, in San Juan’s Cupey sector.

The island’s result for the index, which measures the capacity with which a country generates economic activity, signals that the economy is in a state of transition, and headed into positive territory.

Performed by the local consulting firm, Inteligencia Económica, economist Gustavo Vélez, its founder, revealed the results in a presentation he gave Monday alongside Fortuño; Joaquín Villamil, president of Estudios Técnicos; and Rodrigo Masses, president of the Puerto Rico Manufacturers Association.  

The independent analysis was performed to assess and determine the island’s position in comparison with other countries, using the parameters established by the Heritage Foundation’s annualIndex of Economic Freedom, which focuses on four key aspects of the economic environment where government typically exerts policy control. These are: 1) rule of law; 2) government size; 3) regulatory efficiency; and, 3) market openness. 

“The island’s economy is in transition because a lot of fiscal reforms are being implemented now. So it is a transition that goes together with a structural transition, a fiscal transition and the investment of federal funds. The Financial Oversight Board has only been here for three years. We got hit by a hurricane and the money is getting here just now. So there are a lot of processes running at the same time. The economy, for the first time, is in positive territory and will remain there as reforms materialize,” Vélez explained.

Economic freedom goes beyond the capacity of generating economic activity and trade among individuals. The level of economic freedom in a jurisdiction also influences the freedom to interact with others, travel and say “what needs to be said without government restrictions,” according to a release.

There is evidence that suggests that economic freedom is associated with a healthier economic society. The results of the study gave Puerto Rico 61 points, reflecting a moderate level of freedom, comparable among other jurisdictions with Croatia, Oman and Honduras. The average score of economic freedom worldwide is 61.1. When compared with the average score in the Caribbean region, Puerto Rico is below the average.

“Jurisdictions with a higher level of economic freedom have a better quality of life and higher per capita income. This is what we all want for our children. This index is a valuable and practical tool to measure the strengths and weaknesses of our economy. It provides us a clear picture to determine the areas of opportunity to achieve sustainable economic growth,” said Fortuño.

“After analyzing the results of the study and comparing them with other jurisdictions, we can conclude that Puerto Rico’s economic freedom is somewhat limited, and that its potential for economic growth is being affected by a challenging business climate, high taxes and recurring fiscal deficits,” explained Vélez, while emphasizing the need for  tax, fiscal, welfare and labor reforms to improve Puerto Rico’s competitiveness.

Vélez also highlighted the importance of promoting the ease of doing business on the island as a key component for economic development. In this regard, he said Puerto Rico must adopt reforms to improve construction permitting, streamline the process for business permitting and registrations by creating a digital, one-stop-shop system, as well as improving the property registry and taxpaying systems.

Referring to the possibility that President Trump changes the island Financial Oversight and Management Board’s members, unless the U.S. Supreme Court rules otherwise, Vélez said there has been “a learning process over the past three years, so that could be criteria used by the new board members, taking into account the experience.” 

Fortuño, who is a Republican, noted that the issue of the board’s legality is still in court but declined to speak about any of the party’s plan for the board.

Regarding the selection of federal officials to monitor the use of federal disaster recovery funds on the island, a discussion centering on whether an official can work with the local government, as was the case in Louisiana after Hurricane Katrina, Fortuño said:  “I don’t know if one is finally going to be designated, but it is not a person that would take away the power of the local government.”

The EFI measures 12 specific components of the economy, each of which is graded on a scale from 0 to 100. These economic components and their grade for Puerto Rico are:

Vélez said Puerto Rico ranked 71.3 in fiscal health because the fiscal board has given investors confidence. The fiscal health indicator includes the deficit and debt as factors, which have been handled by the board.

“The deficit is also being improved, so the value of the number rose but is still a low number,” the economist said.

Impediments to economic growth in Puerto Rico, according to the report:

·         Limited size of the private sector

·         Government deficit

·         Pension deficit

·         Low labor-force participation rate

·         Population decline

·         Collapse of the mortgage market

·         High cost of energy

Other recommendations in the report to increase economic freedom:

Government Integrity

·         Paying public servants well

·         Creating transparency and openness in government spending

·         Cutting red tape

·         Replacing regressive and distorting subsidies with targeted cash transfers

·         Optimizing the use of technology in government processes 

Judicial Integrity

·         Strengthening internal oversight within the judiciary

·         Modernizing of the court management systems

·         Facilitating the disclosure of information and public monitoring of trials

·         Creating a nonpartisan system to select judges and prosecutors

Trade Freedom  

·         Repealing the Jones Act

Fortuµño said that while the report makes certain recommendations to increase the index, changes need to be made in a consensus with all sectors, including the media, to become more competitive and achieve more economic freedom.

For instance, while the report calls for a hike in the salaries of public workers, it also discusses rebalancing the entire government.  

“As I see it, we are talking about a smaller government but with more efficiency and capability,” the former governor said.

For his part, Masses, the Manufacturing Association’s president, said: “What we are talking about is a renaissance that will take us to another place. A rebirth of all components. It is an opportunity to be able to transition Puerto Rico to a new form.”

Puerto Rico No. 31 Among Countries in Economic Freedom Index




Federal recovery funds to boost Puerto Rico growth to 4.2% in 2020

SAN JUAN – The release of $1.5 billion in Community Development Block Grant – Disaster Recovery (CDBG – DR) Program funds following Hurricane Maria will boost Puerto Rico’s economy, which should grow 4.2 percent for fiscal year 2020 and remain in positive territory until 2022, according to new estimates by economic research and consulting firm Estudios Técnicos Inc.

“According to the Consolidated Plan of this federal program, about $1 billion of these funds will be destined to the construction and restoration of housing, so we expect that, by the second half of the year, an increase in housing construction investment will be seen, and with it, an increase in cement sales, as well as in construction employment. We also expect increases in the retail sale of construction materials and home supplies,” Estudios Técnicos President Graham Castillo said in a statement.

Graham Castillo Pagán, JD, president and COO of Estudios Técnicos Inc. and its Market Strategies Division (Courtesy)

Castillo indicated that the arrival of these funds gives greater certainty to his firm’s revised economic projections, which point toward an increase in economic activity of 4.2 percent in fiscal 2020 and 2.1 percent in 2021, with a 20.2 percent and 15.2 percent rise in investments those years, respectively.

The positive impact of the federal recovery funds would run through 2022 when it is estimated that growth would be 1.7 percent. For current fiscal 2019, Puerto Rico’s economic growth will be 3.1 percent, according to the firm’s revised estimates.

“We hope that the release of an additional $8 billion will be announced soon, which will improve the economic activity on the Island and the social conditions of low and moderate income people with housing needs resulting from Hurricane Maria. A particularly needy group is the elderly population,” Castillo said.

Castillo emphasized the need for a plan for sustained economic development that incorporates innovative projects in areas of opportunity for Puerto Rico. Estudios Técnicos estimates that among the sectors that are most likely to contribute to the economy are manufacturing; advanced services including technology and health and financial services; as well as agriculture and tourism.

 

HUD approves $1.5 billion in disaster recovery funds for Puerto Rico




Report: Puerto Rico retail prices, cost of living unaffected by Jones Act

SAN JUAN – Economists from Boston-based Reeve & Associates and San Juan-based consulting firm Estudios Técnicos Inc. have prepared a report for the American Maritime Partnership that concluded the Jones Act has no impact on retail prices or the cost of living in Puerto Rico.

The Jones Act requires all goods shipped between two points within the United States be transported on a vessel at least 75% owned by U.S. citizens, with a crew of at least 75% U.S. citizens, and built in the U.S. The law was waivered by the Department of Homeland Security for 10 days in the aftermath of Hurricane Maria.

The American Maritime Partnership (AMP) is a coalition that advocates for the interests of its members in the industry, which includes U.S. companies that own more than 40,000 vessels. It says the trade sustains nearly half a million jobs, “$28.95 billion in labor compensation, and more than $92.5 billion in annual economic output.”

The new report, titled, “The Impact of the Jones Act on Puerto Rico,” is the first on the Jones Act following Hurricane Maria, and analyzed the impact on consumers by evaluating the competitiveness of freight rates in the United States/Puerto Rico market, the quality of service provided by the Jones Act carriers, and the impact of the carriers’ freight rates on the prices of goods shipped between the United States mainland and Puerto Rico.

The authors conclude that the maritime trade between the U.S. mainland and Puerto Rico uses technology and provides investments and service that have a positive economic impact to the island, with rates that could be lower than for other Caribbean islands.

In its release, AMP said a “number of news reports claimed that the Jones Act had severely damaged the Puerto Rican economy both over time and in the immediate aftermath of the storm,” but “this new report sets the record straight.”

A Senate investigation in 2015 found the Jones Act did affect the island’s economy, with businesses recuperating the cost of the high shipping fees from consumers. A 2013 Government Accountability Office study was “inconclusive,” but noted the importance of the Jones Act for maritime defense in times of war.

In its 2012 “Report on the Competitiveness of Puerto Rico’s Economy,” the Federal Reserve Bank of New York found that the shipping cost for a 20-foot container to Puerto Rico was twice as much as shipping it to the Dominican Republic.

“The findings of our analysis show that reliable, efficient, and regular Jones Act services benefit consumers and businesses on the island, and no evidence suggests that exempting Puerto Rico from the Jones Act would reduce consumer prices in Puerto Rico. On the contrary, such an action may well increase prices,” John Reeve, the principal in Massachusetts-based Reeve & Associates and the lead economist on the study, said in a release, which adds that he has provided counsel to the U.S. Department of Transportation and the Government Development Bank of Puerto Rico on the Jones Act markets.

AMP Chairman Matt Woodruff added that “the study found that prior claims and press reports that questioned the value of the Jones Act to Puerto Rico were erroneous and their validity completely undermined when compared to the economic facts at hand.”

The release includes the following summarized report findings:

(Screen capture of www.americanmaritimepartnership.com)

The Jones Act has no impact on either retail prices or the cost of living in Puerto Rico.

  • The report found that shipping costs between the mainland and Puerto Rico make up only a small percentage of the retail price. For example, ocean shipping accounts for just 3 cents (or two percent) in the retail price of $1.58 for a can of chicken soup in San Juan. It found that, “[e]ssentially, transportation costs for Puerto Rico are not materially different than those on the mainland.”
  • A market basket analysis of an assortment of consumer goods at Walmart Stores in San Juan, Puerto Rico, and Jacksonville, Florida, found there was “no significant difference in the prices of either grocery items or durable goods between the two locations.” In fact, retail prices of goods in Puerto Rico are essentially the same as on the mainland.

Foreign vessels can deliver directly to Puerto Rico from foreign countries.

  • Finding that 57 percent of San Juan’s port traffic in 2016 was carried on foreign vessels, the report noted that there is “nothing in the Jones Act that precludes foreign-flag vessels from serving Puerto Rico directly from foreign countries.” It concluded that there was strong competition between carriers serving the island, stating that “if cargo owners in Puerto Rico believed that the Jones Act shipping services were adding costs that negatively impacted their business, you would expect to see [an increase in foreign flag shipping].”

(Screen capture of www.americanmaritimepartnership.com)

There is no Jones Act freight rate premium for ocean transport.

  • The report found that freight rates for shipments between the mainland and Puerto Rico are very similar to or lower than rates for shipping between the mainland and neighboring islands, including the U.S. Virgin Islands, Haiti, and the Dominican Republic.
  • The report flatly refuted assertions in other studies that the negative impact of the Jones Act is $850 million per year, noting that total annual gross revenues for Jones Act shipping services “was substantially below” that level. In other words, “[t]he Jones Act carriers could have provided shipping services for free and… there still would have been a negative economic impact”, according to these studies – which defies logic.
  • Moreover, the report found that since 2000, the carriers’ ocean freight rates in real terms have not increased.

Southbound service is vital to Puerto Rico consumers, while the northbound service is a key contributor to economic development on the island.

  • As highlighted in the report, the fact that the vessels operating in the Puerto Rico trade are dedicated to that route “gives shippers very fast transit times directly between the mainland and Puerto Rico without stops in intermediate ports as typically occurs in international shipping markets.”
  • The Puerto Rico-CONUS trade operates in a “closed-loop” route. Goods vital for the welfare of the people are delivered promptly from the mainland, while high-value goods are shipped directly to the mainland from Puerto Rico, providing a high speed and very economic supply chain to Puerto Rican exporters.
  • The dedicated Jones Act vessels’ cargo capacity is highly underutilized in the northbound service. As a result, producers in Puerto Rico obtain shipping services at a very attractive rate.

(Screen capture of www.americanmaritimepartnership.com)

Carriers provide highly effective logistics systems, including economical and environmentally friendly vessels, that ensure a high level of supply chain efficiency.

  • According to the report, “the fact that the Jones Act carriers operate dedicated services for Puerto Rico with vessels and intermodal equipment that are uniquely designed to closely integrate the commonwealth with the advanced logistics systems of the mainland provides cargo owners with major economic and service advantages.”
  • The report noted that the “size of equipment has a major impact on the cost of moving cargo ‘intermodally’ in containers.” For example, a 53-foot container that is widely used in Puerto Rican service has 43 percent more cubic capacity than the standard international 40-foot unit – this differential provides an estimated $92 million of cost savings annually through greater efficiency.
  • The report highlighted that the carriers in Puerto Rico offer shippers options that are “designed to meet the requirements of the range of cargoes moving in the trade,” including fleets of thousands of containers and trailers capable of carrying either dry or refrigerated cargoes, as well as vessels and barges designed to carry vehicles in roll-on/roll-off mode and carry breakbulk cargo that is too large to be accommodated in a standard container. Some carriers have also invested in state-of-the-art containerships powered by liquefied natural gas (LNG), which is significantly more economical and environmentally-friendly than standard bunker fuels used by virtually all other similar vessels.

(Screen capture of www.americanmaritimepartnership.com)




Estudios Técnicos: Government Better Off Reducing Workweek

SAN JUAN – The government should reduce the work week instead of laying off workers because it would result in an $829.8 million loss for the gross national product (GNP) and negatively affect unemployment and public healthcare funds. Those were some of the conclusions of a study conducted by the Estudios Técnicos consulting firm, which analyzed the impact of a $525.7 million cut to government expenditures, of which $151.3 million could belong to the public payroll.

The study was presented during Senate Treasury Committee hearings analyzing the $9.1 billion government budget, which is around $700 million less than the current one.

Jose Joaquin Villamil, economist & chairman of Estudios Tecnicos Inc

José Joaquín Villamil, economist & chairman of Estudios Técnicos

Estudios Técnicos analyzed two scenarios, one in which the $525.7 million reduction was made by cutting the work week and another in which government laid off workers.

The government already cut its consumption expenditures in 2015 by 16%, and the percentage is expected to rise, which could have an impact on the economy as government purchases are 13.4% of the GNP.

If the government opts to cut the workweek without layoffs, the study estimates that some 1,714 indirect jobs would be affected, along with some 5,462 induced jobs, for a total of 7,175 jobs.

“Some $368 million in total salary will be affected, causing a loss to the general fund of $22.4 million in income taxes and $17.5 million in sales and use taxes. In total, the general fund will lose $39.9 million,” the study says.

Unemployment benefits would go up to $2.2 million a month, and nutritional assistance program expenditures would be $803,645 higher each month. Also, $829.8 million in GNP, or 1.2% in 2015, would be lost; personal consumption expenditures would see an impact of about $304.1 million; as would some $525 million in government consumption.

If the government opts to lay off workers, it would have to eliminate 3,469 workers, but would end up affecting 10,636 jobs. These jobs produce $368 million in salaries and are subject to $22.4 million in income tax.

As in the first scenario, there would also be a loss of $17.5 million in sales and use taxes lost,  along with $39.9 million lost for the general fund.

However, unemployment benefits would rise to $3.2 million a month and nutritional assistance program benefits, $1.2 million a month.

The impact to the GDP would be of $829.8 million, the study says.

Job cuts could also increase emigration because the private sector would not be able to absorb the losses, according to the study.

 




Study: Tax Incentives Generated Thousands of Jobs, more Expected

SAN JUAN – Tax incentives created by Acts 20 and 22 of 2012 to promote exports and attract investors have generated an estimated 5,832 jobs, and could create about 56,000 by 2024, according to a study commissioned by the Economic Development & Commerce Department (DDEC by its Spanish acronym) has found.

The Estudios Técnicos consulting firm’s study shows that Act 22 is responsible for a total investment of $266 million in local real estate, and that it produces $228 million in capital investments.

The research measured the impact of the incentives in 2014 and uses as a basis the annual reports submitted by the companies that use them.

The study, whose preliminary results were obtained exclusively by Caribbean Business, encompasses 328 decrees approved under Act 20, and 574 decrees approved under Act 22 from 2012 to November 2015. However, to date, there are a total of 1,291 decrees that have been either signed or are pending approval.

To continue attracting investors, DDEC is promoting the 2016 Investment Summit that is slated to be held Feb.11 and 12 at the Puerto Rico Convention Center in San Juan. The summit is a forum in which guest speakers seek to promote Acts 20 and 22, as well as other incentives such as those provided by Act 73, the Industrial Incentives Law, and Acts 273 and 399, which provide incentives for financial and insurance centers.

Act 20 of 2012 promotes the export of services through incentives that include a 100% tax exemption on earnings and profit distributions on income generated from export services; a 4% flat income-tax rate on income generated from export services or a 3% tax when more than 90% of a service provider’s gross income is from export services; and a 100% property-tax exemption for the initial five years of operation for certain export services.

Act 22, the “Act to Promote the Relocation of Individual Investors,” offers nonresident individuals 100% tax exemptions on all interest, dividends and long-term capital gains to entice them to move to Puerto Rico. An individual’s 183-day physical presence in Puerto Rico establishes a presumption of residency under the Puerto Rico Tax Code.

This new law has attracted much interest because U.S. citizens, even when they live abroad, have to file federal income-tax reports, with the sole exception of Puerto Rico, which is the only place in the world U.S. citizens don’t have to pay federal income taxes unless they report stateside income. Wealthy taxpayers who opt to re-establish overseas to a foreign country have to surrender their U.S. passports and pay an exit tax of 23.8% on unrealized capital gains, but not in Puerto Rico.