Policy group skeptical about Puerto Rico's growth projections

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WASHINGTON – The Puerto Rico Oversight Board is making a mistake in its economic forecast by not taking into account the length of time it will take for federal disaster aid to be spent, the public policy director of the Center for a New Economy told reporters here Wednesday.

Sergio Marxuach and other officials of the nonpartisan, San Juan-based think tank said federal spending on disaster recovery has been slower than in other areas also struck by hurricanes in 2017.

Marxuach said the oversight board's forecast for 8% growth in 2019 is based on a smaller economy than the island had prior to Hurricane Maria. Economic bounces are to be expected in regions recovering from a disaster, he added.

But federal disaster aid will take time to be spent, especially the money that will come through the U.S. Department of Housing and Urban Development because it will flow to Puerto Rico’s housing agency before it is spent on projects, Marxuach said.

Only 17% of the federal funds designated for individuals have been spent compared for 32% for Hurricane Irma and 47% for Hurricane Harvey, according to a U.S. Government Accountability Office report released last month.

A small percentage of homeowners in Puerto Rico had flood insurance, said Marxuach and Raul Santiago-Bartolomei, a research associate for the center.

Only about 5,000 properties have flood insurance even though 200,000 are in flood zones. About 70% of applications to the Federal Emergency Management Agency for disaster aid were denied.

Homeowners have difficulty getting flood insurance because they very often don’t have clear title to the property. FEMA has rejected most damage claims for the same reason, although there has been some progress with a workaround that allows them to use a utility bill as a substitute, Santiago-Bartolomei said.

Public assistance for emergency work projects related to Maria also is lagging behind the work on the damage caused by Harvey and Irma because the territorial government has chosen to use an alternative financing method under Section 428 of the federal Stafford Disaster Relief and Emergency Assistance Act.

Section 428 allows for 100% federal financing, but the territory or state that uses the program is responsible for any cost overruns.

Marxuach said officials at the center have debated the advisability of that approach and understand the island’s government has chosen this option because it is unable to pay part of the cost.

Although it is a gamble, he acknowledged, if the projects come in under budget the island’s government will be able to use the leftover money for other projects.

Residents of Puerto Rico will be dealing with the aftermath of the hurricane for a long time, said Miguel A. Soto-Class, the center’s president.

Although all the utilities are back to normal, there’s a sense of fragility. Utility service is unreliable. The water company still needs backup generators for pump sites. Thirty percent of cell phone towers are operating on generators. Some traffic lights still don't work.

"Nobody’s taking care of cutting the grass” and there’s still debris around, said Soto-Class. “It’s a little bit like the broken window theory.”

Social networks still are disrupted because family members have left the island and children have had to change schools, said Marxuach. “People do not want a new normal,” he said.

Maria was the third most destructive hurricane in U.S. history, according to FEMA with $90 billion in damage lower only than Hurricanes Katrina and Harvey but more than the $71 billion in damage caused by Hurricane Sandy.

“FEMA efforts in Puerto Rico alone were the largest and longest single response in the agency’s history,” GAO said last month. “As of April 2018, FEMA had obligated over $12 billion for response and recovery for Hurricane Maria … reflecting the scale and complexity of efforts given the widespread damage. FEMA tasked federal agencies with more than 1,000 response mission assignments for Hurricanes Maria and Irma in the territories at a cost of over $5 billion, compared to about 400 such assignments for Hurricanes Harvey and Irma and the California wildfires combined.”

The U.S. Army Corp of Engineers, for instance, was asked to install 1,700 emergency generators in Puerto Rico after Maria compared to 310 after Hurricane Katrina in August 2005.

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PROMESA Hurricane Maria Hurricane Harvey Hurricane Irma Economy Disaster recovery Natural disasters FEMA HUD Puerto Rico Washington DC