Fiscal & Physical Imbalances

Lincoln’s Birthday, February 12, 2018

Good Morning! In today’s Blog, we consider the outcome of last week’s actions to avoid another federal government shutdown, we consider the ongoing fiscal and physical plights of Puerto Rico.

Fiscal & Physical Imbalances.  Puerto Rico’s non-voting Member of Congress, Jenniffer Gonzalez, and Gov. Ricardo Rosselló have met with a group of New Progressive Mayors to describe the terms of the new federal assistance under the just passed $16 billion recovery assistance approved by Congress—funds ranging from what Secretary of Public Affairs Ramón Rosario Cortés noted would “range from construction to agriculture programs that will allow each municipality to develop its economy and create jobs.” The Secretary anticipates there will be a second meeting with associate mayors. Naguabo Mayor Noé Marcano said that the allocation of these funds represents “a unique opportunity” to repair and/or build infrastructure projects (including roads and bridges) and housing: “Part of the projects that we-at a given moment-had planned as improvements to the municipalities, we understand that this is the best opportunity.”

That could mean a new fiscal chance for this small muncipio of just over 23,000, one founded on July 15, 1821 near the mouth of the Daguao River—founded with the intent of providing a defense for the region from the Caribe Indians, based upon, 27 years earlier, the request of several influential neighbors of the Spanish Crown: on January 9, 1798, the erection of the Naguabo parish was authorized—but construction did not commence on its church until 1841. The muncipio’s name originated from the cacique and chieftainship named Daguao—as the territory was originally populated by Taíno Indians. Naguabo is also known as Cuna de Grandes Artistas (the birthplace of Great Artists) and Los Enchumbaos, “the Soaked Ones.”

For his part, Mayor William Aliceo of Aibonito, the City of Flowers, with the city’s appellation derived from the Taíno word “Jatibonicu,” the name of a Cacique leader of the region; a name also used to refer to a river in the area—and, in addition, a name used by the tribe of Orocobix. At the same time, there is a legend that tells of a Spanish soldier, Diego Alvarez, who, on May 17, 1615, reached one of the highest peaks in the area: upon taking in the view, he exclaimed: “Ay, que bonito!” The exclamation eventually led to the name of the region. Nearly two centuries later, Pedro Zorascoechea, in 1630, was one of the early Spaniards to settle on the island—apparently establishing one of the first fincas or ranches in the region; however, it was not until 1822, when Don Manuel Veléz presented himself before the government, representing the inhabitants of the area, to request that Aibonito be officially declared a town—a request which then Governor Miguel de la Torre granted on March 13, 1824.

Hurricane Maria’s eye tore through the region’s hills on September 20th: it was especially fierce along the exposed ridgelines, whipping in at a hundred and fifty-five miles an hour: it tore apart wooden houses; along the road leading up to Aibonito from San Juan, normally a two-hour drive, Maria tore a panorama of ruined houses and businesses, toppled and twisted trees, and downed utility poles. Mayor Aliceo said he would like to use part of the recovery funds for agriculture, roads, and electrical infrastructure: “In Aibonito, we have a project submitted to the U.S. Army Corps of Engineers for the canalization of the Aibonito River. And with poultry farming, which was well affected by Hurricane Maria, I’m interested (the funds) will find a way to help Aibonito’s poultry farmers, given the million-dollar losses they’ve had.”

The federal allocation came just prior to Puerto Rico’s resubmission of its revised fiscal plans to the PROMESA oversight Board—plans due today, with Puerto Rico’s representative, Christian Sobrino, simply advising the board that the plans comply with the public policy of the government, noting: “[W]e will comply with the stipulated date for the delivery of the fiscal plans. It has been an intense job, but the government will comply with the appointed time. The plans will continue in accordance with the Governor’s public policy of protecting the most vulnerable and that this document serves as a tool of fiscal responsibility and at the same time a path of long-term socio-economic development for the island.”

Nevertheless, uncertainty reigns, especially in the wake of the federal government shutdown. With last week’s Congressional approval of a package to keeps federal agencies running through March 23rd, the date of certainty has now been pushed off while House and Senate appropriators in Washington, D.C. work on final 2018 spending bills. The package suspends the debt ceiling through March 1, 2019, provides $89.3 billion in disaster aid, and extends a number of expired tax provisions, including a Jan. 1, 2022 extension of the rum cover-over for Puerto Rico and the U.S. Virgin Islands, which is projected to generate an estimated $900 million for the two U.S. territories. In addition, a related tax provision calls for all low-income communities in Puerto Rico to be treated as qualified opportunity zones. The disaster aid includes $4.9 billion to provide 100% federal funding for Medicaid health services for low-income residents of Puerto Rico and  the U.S. Virgin Islands for two years, $11 billion in CDBG block grants for the two territories, including $2 billion of CDBG money to rebuild Puerto Rico’s electrical grid—with Resident Commissioner Gonzalez reporting that, in total, $16.55 billion of the disaster aid is earmarked for Puerto Rico.

With the new allocations to mitigate last year’s natural disasters, the federal government has already authorized just over $140.7 billion within the past six months to be distributed mainly between Texas, Florida, California, Puerto Rico, and the US Virgin Islands—with Puerto Rico’s government projecting its share will be approximately $18 billion, plus access to a credit line of $4 billion—albeit, to access that line, the U.S. territory would be mandated to prove lack of liquidity. Of the total, almost $16 billion will surely go to the island from the funds allocated in the budget bill and to mitigate disasters—provided the territory complies with the conditions of both the federal government and the PROMESA Oversight Board. The projected package includes $4.8 billion for Medicaid and $11 billion for CDBG: last week, HUD Deputy Secretary Pamela Hughes Patenaude announced, during a visit to San Juan, that HUD will award $1.5 billion to help repair damaged houses and businesses. In addition, another $ 300 million, half of which would be allocated as a loan, has been allocated to match the FEMA project’s cost. The package includes $6 billion, funds under the U.S. Army Corps of Engineers, provided to U.S. electric companies to repair the power grid. FEMA has stated, moreover, its intent to grant an additional $13 billion to the island.

Puerto Rico’s Federal Affairs Executive Director, Carlos Mercador, notes that an official damage estimate from federal agencies is still pending; Commissioner González notes that Congress’ next disasters relief resolution may be discussed in Congress between April and May, noting: “Speaker Paul Ryan told me that there is going to be a fourth bill on supplementary allocations for Puerto Rico, with specific projects for transportation and electric power.”