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Puerto Rico and the Complicated Path to Disaster Recovery

By Jake Varn

Friday, September 29, 2017

On September 20, Hurricane Maria made landfall on the U.S. territory of Puerto Rico, just 12 days after the island had been battered by Hurricane Irma. The Category 4 storm brought winds of 155 miles per hour and devastating flood waters across the island. The city of Comerío in central Puerto Rico, for example, recorded a 63-foot-high flash flood through the Rio de la Plata. At least 49 people have been confirmed dead as a direct result of the storm, but local officials warn that more could die without immediate assistance.

Puerto Rico’s path to recovery from this storm will be complicated. The process may take years and will be hindered by the island’s fiscal constraints and economic conditions. Meanwhile, Congress has several impending deadlines to reauthorize programs that will directly impact the relief and recovery efforts, in addition to making much needed reforms to better prepare for and respond to natural disasters in the future.

Assessing the damage

Hurricane Maria was the strongest storm to hit Puerto Rico since 1928, and the damage has been catastrophic. Water, food, shelter, fuel, and medical services are all desperately needed.

Of the island’s population of 3.4 million people, only 40 percent have access to potable drinking water, and nearly all are without power. The storm disconnected an estimated 80 percent of the 2,478 miles of transmission lines, along with roughly the entire 31,485 miles of distribution lines. Fully restoring these power lines that connect homes, hospitals, and businesses to the island’s power plants is expected to take up to 3 to 4 months. Without power, functioning banks and ATMs are scarce. Emergency services and hospitals are running on generators. According to FEMA, as of September 26, 58 of the 69 hospitals in Puerto Rico lack power and fuel. The critically ill patients in intensive care units that require near-term surgeries or procedures may die if power is not restored. To date, FEMA and HHS have coordinated nearly 300 medical evacuations of individuals who need intensive care or dialysis to hospitals in the Southeastern U.S. mainland. Meanwhile, with fuel in short supply, lines for gas stations can stretch for a mile. With significant portions of the population lacking adequate shelter, the Governor of Puerto Rico notes that a “massive exodus” may occur once travel stateside is available.

Nearly every critical piece of infrastructure has been damaged by the storm. For example:

  • Cell service has been nearly completely cut off, with 95 percent of the cell towers damaged. A few hotspots have been found and people have flocked to them to make calls to their loved ones.
  • Fissures have opened up in the 88-year-old, 120-foot high Guajataca Dam, forcing an evacuation for the 70,000 people that live in the river valley below.
  • Lifelines to and from the island have all been impacted; most of the commonwealth’s ports have been reopened but all were damaged to some extent and services remain restricted; several major highways remain inaccessible, not to mention the countless roads and bridges; the major airports are open (despite the electrical problems and damage to the radar systems) and acting as impromptu shelters but flights have been primarily reserved for supplies and military personnel.

Before the storms, Puerto Rico was already in trouble

Even in the best conditions, natural disasters are expensive and the recovery process can take years. Unfortunately, Puerto Rico’s preexisting economic conditions have magnified the impact of Irma and Maria, and will complicate the recovery efforts. Before the storms, the commonwealth’s unemployment rate was at 10 percent (over double the national average), and nearly half of the population was living below the federal poverty level, including 58 percent of Puerto Rican children.

Starting with the passage of the Jones-Shafroth Act of 1917, the United States has maintained a unique economic relationship with Puerto Rico, including specialized tax treatments. Namely, the Puerto Rican bond market was deemed completely exempt from federal, state, and local taxes on interest and thus became a highly attractive market for investors. In 1976, Congress also rolled out tax incentives for businesses to operate in Puerto Rico, driving development to the island, including a surge of pharmaceutical manufacturers. Yet concerns that these provisions were helping corporations avoid taxes led to a 10-year phase out. In 2006, those business-focused tax incentives expired, contributing to a decade-long recession on the island. Employers and employees alike began to leave, shrinking Puerto Rico’s population by nearly half a million people and pushing unemployment to 17 percent in 2010. With high unemployment, outmigration, and low growth, even last-ditch efforts at fiscal reforms were insufficient to boost the economy and avoid a debt crisis.

Today, the Puerto Rican government owes $74 billion in debt obligations and $49 billion in unfunded pensions. Paying off this debt would cost the equivalent of $36,200 per person. Meanwhile the average income in Puerto Rico is only $18,600, or a third of the national average. Not only is the Puerto Rican population impoverished and shrinking, but it is also rapidly aging. The age 65-and-older population has increased by 22 percent since 2006, and more than 60 percent of Puerto Ricans rely on either Medicare or Medicaid.

Further exacerbating the problem, the island’s electric utility and water provider have been struggling with antiquated and dangerous systems for years. The Puerto Rico Electric Power Authority, or PREPA, has long been financially underwater and is responsible for $9 billion of the island’s debt burden. PREPA is operating plants that have an average age of 44 years and rely on imported oil to produce electricity. Between a lack of funding, the loss of skilled workers, and mismanagement, PREPA has four to five times more service outages than the average U.S. utility despite its customers paying the second-highest rate in the nation. On the water infrastructure side, even prior to the storm dangerous drinking water contaminants had endangered the island. According to a 2016 report from the National Resource Defense Council, 70 percent of the island’s population was served by a water utility that failed to meet federal health and safety standards. In 2015, San Juan’s Puerto Rico Aqueduct and Sewer Authority (PRASA) had 24 different health violations. In 2006, PRASA pled guilty to 15 felony violations of the Clean Water Act, was fined $9 million, and entered into an agreement to make $119 million in improvements and restorations, after illegally discharging hazardous pollutants from its wastewater treatment plants into the Martin PeZa Creek.

Due to Puerto Rico’s financial conditions and unique position as a U.S. territory rather than a state (making it ineligible for Chapter 9 Bankruptcy), the path forward on Puerto Rico’s debt crisis and economic turmoil has long been the subject of debate in Washington. Last year, Congress set the conditions for restructuring Puerto Rico’s debt, including the establishment of fiscal control board, through the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA). PROMESA includes a set of financial protections, strict budget control, and a rigorous timetable for paying off the commonwealth’s creditors. Though existing financial obligations remain and will undoubtedly affect the recovery process, the ongoing humanitarian disaster must take precedence. Puerto Rico’s inability to borrow additional money under PROMESA practically guarantees that the commonwealth’s recovery will almost entirely depend on federal support. Without that assistance, Puerto Rico risks continued economic decline.

Federal aid and legislative impact

With three major hurricanes within the span of a month, the rapid deployment and coordination of federal resources to the island is a necessity. FEMA and various branches of the military are on the ground attempting to meet Puerto Ricans’ basic needs, while other federal agencies attempt to assess the full impact of the storm and restore basic functions.

After Hurricane Harvey struck Texas, and Hurricane Irma swept through the Caribbean and along the western coast of Florida, Congress approved $15.25 billion for the first installment of a relief package. As for Hurricane Maria, the current estimates are growing by the day for both Puerto Rico and the Virgin Islands. Puerto Rico’s insured losses alone are estimated to range from $40 billion to $85 billion, but only half of the homes in Puerto Rico are insured for storm damage.

When the final calculations are done, the three storms combined could inflict around $300 billion in damages. As a result of the first relief package from Congress, FEMA’s emergency fund is currently at $5.03 billion, with another $6.7 billion coming in on October 1. Still, the agency anticipates that it will need to send Congress a request for supplemental funding in the “near future.” In a political climate where budgetary fights have reverberated around every issue, the eventual passage of emergency response and relief packages will add a significant new pressure for lawmakers.

While the executive branch will handle the emergency response and act as the primary conduit for coordinating recovery programs, Congress has a few monumental tasks ahead. Not only will it be responsible for allocating and budgeting the multibillion dollar relief packages, but several of the legislative items that are on the fall calendar will directly impact Puerto Rico’s recovery.

National Flood Insurance Program

The National Flood Insurance Program (NFIP) was set to expire at the end of September, but its authorization was extended with the debt limit package until December 8. The NFIP, which is run by FEMA, insures approximately 5 million American homes, businesses, and their contents against flood damage. Though due to several challenges with the program, fewer than 1 percent of Puerto Rico’s 1.6 million homes are covered by the NFIP. The program is also $24.6 billion in debt to the U.S. Treasury and has been listed as “high-risk” by the GAO since 2006. Prior to the recent hurricanes, the Congressional Budget Office projected NFIP debt would swell an additional $1.4 billion this year alone. As of September 20, FEMA reported that it borrowed an additional $5.8 billion and had exhausted the NFIP’s borrowing capacity to payout damage claims. The NFIP will require numerous reforms in order to become financially self-sufficient, and it would benefit from a multi-year reauthorization.

Farm Bill

The “Farm Bill,” also known as the Agricultural Act, was last passed in 2014, and authorizes programs to both assist farmers and provide food assistance until 2018. The farm bill is ideally expected to emerge from the House and Senate Committees by the end of the year, and will include several provisions that will be fundamental to the hurricane recover efforts, especially the Supplemental Nutrition Assistance Program (SNAP). SNAP helps low-income individuals and families buy food, and following Hurricane Irma, USDA encouraged affected Floridians to apply for the Disaster Supplemental Nutrition Assistance Program (D-SNAP), which has expanded eligibility and larger benefits to deal with natural disasters.

Puerto Rico already relies heavily on imported food, with 85 percent of its food coming from the mainland. In the aftermath of Hurricane Maria this imbalance is expected to worsen, as roughly 80 percent of the island’s agriculture has been uprooted, causing a preliminary estimate of $780 million in losses. Puerto Rico’s Farm Service Agency administers several assistance and disaster programs that will depend on the Farm Bill’s reauthorization, including the Noninsured Crop Disaster Assistance Program and the Emergency Conservation Program.

Children’s Health Insurance Program

The Children’s Health Insurance Program (CHIP) is another program that will be crucial to the hurricane recovery efforts. CHIP provides health insurance for children in families with incomes that may be too high to qualify for Medicaid. Nearly half of Puerto Rico’s population was enrolled in Medicaid and CHIP as of June 2015.

But without congressional action, mandatory funding for the Children’s Health Insurance Program ends on September 30. Earlier this year, BPC released a report, Preserving the Children’s Health Insurance Program and Other Safety-Net Programs, with recommendations on CHIP’s legislative timing, funding levels and duration of an extension, interactions with the ACA and Medicaid, and the potential impacts on coverage. A recently proposed bill from Sens. Orrin Hatch (R-UT) and Ron Wyden (D-OR) would extend funding for CHIP through 2022.

Infrastructure Bill

Though the island’s damaged infrastructure will be eligible for disaster assistance through FEMA and other associated agencies, the much anticipated $1 trillion infrastructure bill could play an important role in the recovery. The White House’s current proposed outline includes $200 billion in additional infrastructure funding, regulatory reforms to decrease the permitting time for infrastructure projects, $25 billion for rural infrastructure, $100 billion for local priorities, and a workforce initiative to train 1 million new apprentices.

Given the condition of Puerto Rico’s infrastructure, both before and after the storm, significant investments will be needed. A targeted workforce program could also benefit Puerto Rico’s labor force, which has seen significant declines as its skilled working population has migrated stateside.

Moving Forward

The immediate need in Puerto Rico is to resolve the evolving humanitarian crisis—quickly providing water, food, medical care, and other necessities. But it’s also clear that the island’s existing economic and fiscal struggles will only be amplified. Congress must consider how best to support the recovery and spur long-term economic growth. Given the problems that have plagued the island’s infrastructure systems, money alone will not be enough: Puerto Rico’s recovery will require long-term technical expertise to build, operate, and manage any new systems.

The three major hurricanes that have hit the United States in the past month, resulting in billions of dollars in damages, also provide an important reminder for the country as a whole. At a time when the federal government is attempting to reduce spending to address the ever-increasing debt, hurricanes and other disasters will continue to strike, with the potential to overwhelm our disaster-response programs. Congress and the administration must come together to develop long-term solutions. In particular, as we look at a new infusion of infrastructure spending, Congress should consider how communities can build better, smarter, and more resilient infrastructure, to reduce costs and save lives in future disasters. Puerto Rico’s existing infrastructure problems demonstrate that, as a country, we must develop a better way to prepare for, respond to, and pay for natural disasters.

KEYWORDS: INFRASTRUCTURE, PUERTO RICO, 115TH CONGRESS, HURRICANE IRMA, FEMA, HURRICANE MARIA