A drought in Puerto Rico poses new challenges as the government struggles to rev up growth to boost tax revenues.
The National Drought Mitigation Center characterizes the water shortage as "moderate" in most of the eastern half of Puerto Rico and "severe" in a smaller area. The remainder of the eastern half is considered abnormally dry.
Puerto Rico's slumping economy has been a stumbling block for Gov. Alexandro García Padilla's efforts to restore the commonwealth's credit since taking office in January 2012. The island's last major drought, in 1994, cost the economy $300 million, said Gustavo Veléz, chairman of Puerto Rico-based Inteligencia Econ-mico.
Economists say the impact on growth would worsen if the drought continues through July, August and September, which are usually the island's rainiest months, along with October and November.
The Caribbean Regional Climate Outlook Forum predicts a 40% chance of below normal rainfall for June through August in Puerto Rico, compared with a 25% chance of above normal rainfall and 35% chance of near normal rainfall. The chance of below normal rainfall in September to November is 45%.
Anthony Barnston, chief forecaster for the International Research Institute for Climate and Society, also predicts an enhanced probability for drier-than-normal weather in Puerto Rico in June through August.
The Puerto Rico Aqueduct and Sewer Authority, which has about $5 billion of bonds and notes outstanding, instituted conservation measures in May that are costing about $6.25 million a month in expenses and lost revenue.
PRASA's conservation measures have become more stringent with time. Initially, they affected the Carraízo reservoir basin, which includes parts of San Juan and extends south nearly to Caguas and east to Rio Grande.
As of mid-May PRASA started to turn water service off every-other-day. On Wednesday this was extended to two days off, followed by one day on.
PRASA announced that the conservation measure may become three days off followed by one day on as soon as the week of June 15, according to the El Vocero web site. PRASA also announced that one day on, one day off service may be extended to additional suburbs south of San Juan and suburbs to its west in the week of June 15.
For the time being PRASA has kept continual water service to the tourist-popular San Juan neighborhoods of Old San Juan, Isla Verde and Condado.
Up to now the economic impact of the water turn-offs has been mitigated by business use of rooftop water storage tanks, said Vicente Feliciano, president of Puerto Rico-based Advantage Business Consulting. This will become less effective as the two-day off, one-day on policy is instituted. If PRASA moves to three-days off and one-day on, this would apply even more pressure.
Even two day breaks may mean hospitals and hotels would have to truck water, which would be expensive, Feliciano said. Restaurants are already reportedly spending hundreds of dollars to truck in water each day the service is turned off.
Tourist areas may be added to the conservation next, Feliciano said.
"Water rationing is hitting the San Juan metro and eastern part of the island very hard and it impacts ALL businesses, from fast foods to office buildings," said Heidi Calero, president of the Puerto Rico-based H. Calero Consulting Group, in an email
Since the 1994 drought, "businesses have learned to take necessary precautions, and created new ways to prepare themselves for a drought," Inteligencia Econ-mico's Veléz said. "For example, we have developed a more modern and approachable cistern and storage tank system. People are now aware of the importance of conserving water for times of need and acquired the knowledge of other external resources in which they can rely on. Therefore, the effects of this drought will not be as extreme as the ones in the past.
"Also, since many people don't have water they go out to eat and spend money on food and bottled water, helping local restaurants and businesses," Veléz said.
Any negative impact on the economy would be a problem for the government, which has been working to boost the economy with a partial aim of improving revenues. In addition to pushing a 75% sales tax increase through the legislature to help balance next year's budget, the administration has lured outside firms like Infosys to commit to building facilities on the island and expanded private investment in agriculture to fiscal year 2014 from fiscal year 2012 by 24%.
While the government's economic activity index has gone up for the last four months, some economists have voiced concerns about the economic impact of increases in consumer taxes, which are planned to start in July.
Besides affecting the economy, the drought will have at least some impact on PRASA. The $6.25 million monthly cost of conservation measures compares with authority fiscal year 2014 operating expenses of $985 million, according to its audited financial statement.
The authority is expected to sell a several hundred million dollar bond this summer to refill its capital improvement program account.
