A Special Report on Ponce (August 1960)

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COMMONWEALTH OF PUERTO RICO

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Government Development Bank for Puerto Rico SAN JUAN, PUERTO RICO

UTUADO

GUArANdU

JUANA DIAZ

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Aerial view oj ihe cenier oj ronce, an educational and

industrial center oj Puerto Rico, and second íargest city in llie Conunonwealtb.

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PONCE, PUERTO RICO The municipality of Ponce, founded in 1692, is the second íargest city in Puerto Rico. Located on the south coast, it lies on the Caribbean Sea, about mid-point, east to west, on the island. Its population in the 196Ü census was 145.345. compared with 126.810 in 1950.

Geographically, it is the center of the southern plain of Puerto Rico, and as such is the centcr for commerce, industry, government and education for a wide adjacent area. Industry. vvhich had

formerly consisted primarily of sugar grinding and refining. rum distillation and cement production. has expanded and diver.sified substantially in the surrounding area in recent years. with the addition of an oil refinery. an anhydrous ammonia-ammonium sulphate piant and an ethylene glycol plant.

PUERTO

RICO

Puerto Rico, with an area of approximately 3,400 square miles and a population of 2,340,632 by the 1960 Federal census, is located at the northeast border of the Caribbean Sea, about 1,600 miles

southeast of New York City and 1,000 miles southeast of Miami.

The Commonwealth of Puerto Rico exercises virtually the same control over its internal affairs as do the fifty States over theirs. It differs from them primarily in its relationship to the Federal Government. This relationship is defined through the médium of a compact entered into by Congress and the People of Puerto Rico and described below.

History

Puerto Rico came under United States sovereignty by the Treaty of Paris on December 10, 1898.

The Congress of the United States provided for a civil government for the island in 1900. The orig inal act was superseded in 1917 by the Organic Act of Puerto Rico, which granted United States citizenship to Puerto Ricans as well as unrestricted suffrage for local purposes.

In accordance with the wishes of the People of Puerto Rico, the 81st Congress enacted Public Law 600, approved July 3, 1950. This law, which is "in the nature of a compact", became efíective upon its acceptance by the electorate of Puerto Rico. It provides that those sections of the Organic Act which define the political, economic and fiscal relationship between Puerto Rico and the United States shall remain in full forcé and shall be thereafter known as the Puerto Rican Federal Relations

Act. It also authorized the people of Puerto Rico to draft and approve their own constitution. The Constitution was drafted by a freely elected constitutional convention, overwhelmingly approved in a special referendum, and approved by Congress and the President. It became effective upon proclamation of the Governor of Puerto Rico on July 25, 1952.

The Commonwealth Government

The Constitution recognizes and assures a separation of powers among the executive, legislative, and judicial branches. Both the Governor and the bicameral legislature are subject to regular election

every four years. The Legislature operates under standard parliamentary and legislative rules. The judicial system, administered by a Supreme Court appointed for life, is composed of lower and intermediate courts. Writs of error and appeals entered by the District Court of the United States for Puerto Rico and appeals from the Supreme Court may be taken to the United States Court of Appeals for the First Circuit, and to the Supreme Court of the United States, as provided by law.

Governmental responsibilities assumed by the Commonwealth are greater than those normally assumed by a State government. Municipalities which combine both rural and urban areas are the only local political subdivisions. The only units of government with the right to levy ad valorem taxes are the Commonwealth Government and the municipalities. There is, therefore, no other overlapping taxation or bonded indebtedness payable from taxes. The Commonwealth Government assumes responsibility for a number of important functions normally performed by local governments in the continental United States. Among these are pólice and fire protection, education, all major street and highway construction, and public health programs. In addition, the Common wealth Government supervises municipal fiscal affairs to a very substantial extent.

Commonwealth and municipal governments are relieved of most of the responsibility for constructing and financing electric, water and sewer, and harbor and airport systems by the Water Resources Authority, the Aqueduct and Sewer Authority, and the Ports Authority. The bonded debts of these public corporations are and will be supported entirely by revenues derived from their operations.

Expansión and Diversiffication of the Economy of Puerto Rico

Economic growth in Puerto Rico since 1940 has been very rapid. Net income of the economy has increased from a level of $225 million in 1940 to $1,148 million in 1959. Output of the economy, measured in terms of gross product adjusted for price changes, has shown an average increase of about 5.2% compounded annually.

The Conimonwealth Government's program of industrialization has aided the economy to shift from one principally agricultural to ene much better diversified between industry and agriculture.

Concurrently with the expansión in net agricultural income from $70 million in 1939-40 to $162

million in 1958-59, manufacturing income increased from $27 million to $244 million, surpassing agriculture as a source of income.

Puerto Rican manufacturing has been increasingly diversified during the last two decades. In 1939-40 the manufacture of sugar products accounted for 35% of manufacturing income. By 1958-59, about 10% of manufacturing income resulted from this industry. Manufacturing income is now generally derived from the production of new types of manufactured commodities, principally for shipment to the United States. Such shipments amounted to only $20 million in 1947-48. By 1958-59 they had reached a total of about $287 million.

These new products are manufactured in about 600 modern plants and cover a wide range, such as apparel, petroleum and electronic products. Large, heavily capitalized manufacturing operations have shown a significant increase in recent years as compared to those labor intensive operations promoted during the early part of the industrialization program. These include two ^ petroleum refineries with investments of over $70 million, the $8 million W. R. Grace paper and paperboard plant, the $28 million glycol plant of Unión Carbide and Chemical Corp., and a $5 million flour and feed mili. Several large tuna fish canneries are in the process of construction or expansión, while a new industrial type slaughterhouse will go into operation soon. Further, many of the plants are branches or subsidiarios set up by such firms as General Electric, Consolidated Cigar Corporation, Sunbeam Corporation, American Can Company, Phelps Dodge Corporation, Sperry Rand Corpora tion, Weston Electric Co., Carborundum Corp., Sprague Electric, Van Camp Sea Food, Van Raalte, B.V D. Corp., W. R. Grace and Company and Unión Carbide and Carbón Corp.

Underlying Puerto Rico's growing and changing economy there has been a steady expansión in investment. Gross fixed investment during the three consecutivo fiscal years 1957 to 1959 ran at the high rato of 21% of gross product. Inflowing long term U. S. capital rose from $30 million in postwar 1947 to $165 million in 1959 when it equalled 57% of the $292 million fixed investment registered in that year.

One of the principal factors (others being improved transportation facilities and an abundant labor supply) which has brought about the industrial growth in Puerto Rico in recent years has been the exemption granted from Commonwealth taxes for a ten-year period to "qualified" manufacturers of new products. This has naturally raised the question of how permanent such industries, attracted originally in this manner, may be once the exemption period begins to termínate. A recent study of fifty-nine enterprises which are about to end their period of exemption and gradually start paying Commonwealth taxes indicated that only eight would probably cióse; seven were undecided.

These plants were among the smallest of the plants studied, had the lowest wage scales and were among the least profitable. The remainder of the plants planned to continué operations.

This, and other surveys, indicates that the termination of tax exemption will have a limited impact on the industrial program. Most plants, although originally attracted by tax exemption, and able to expand rapidly by reinvesting tax free profits, have formed sufficient advantages during their first years to plan for continued operations eventually under the Puerto Rican corporate tax structure where rates are only slightly more than half of the usual 52% Federal corporate rate.

Incurrence and Payment of Municipal Debt

Municipalities may incur bonded debt only after receiving approval of the Governor of the Com monwealth. This is obtained only after recommendation of the Department of Justice, the Planning Board and the Department of the Treasury, and the bonds must be sold through the Government Development Bank as fiscal agent. The Governor is empowered to veto any municipal bond ordinance where legally available debt margin is not sufficient or where adequate revenues are not or cannot be committed to debt service. There is no limitation on the amount of taxes that may be levied on property for the payment of public debt.

The Municipal Law in Section 184 of Title 21 of the Laws of Puerto Rico provides that interest

Ponce Harbor. The port of Poiice ranks second in tonnase to San Juan

Parí O] the financial district of Ponce is shoM'n in Ihis view froin across the central plaza of the city. At ¡eft is the main office of Banco Crédito y Ahorro Ponceño, and ai right, the main office of Banco de Ponce, two of the leading commercial banks of Puerto Rico.

Interior view of the Serralíés distiilery.

Destilería Serralles plant at Ponce, distiUers of

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"Don Q" ruin and other producís

Aerial view of Commonwealth Refinery

and Unión Carhide: South Coast Steam plant in foregroiind.

Aerial view of Ponce Cement plant.

on the public debt and amortization thereof constitutes a first budgetary charge on any and all available municipal revenues. Property is assessed by the Secretary of the Treasury throughout Puerto Rico, and he coüects directly all municipal and other taxes upon real and personal property. From these collections, the amount allocated for the payment of principal and interest on outstanding obligations is retained for each municipality and deposited in redemption funds. Sums sufficient to meet payments on municipal debt as it becomes due are withdrawn and paid by the Secretary of the Treasury of the Commonwealth from the appropriate municipal bond redemption fund.

The larger municipalities, including Ponce, are limited by Federal law in the incurrence of bonded debt to 10% of assessed valuation. Assessed valúes are currently estimated to average about 85% of actual property valúes.

MUNICIPALITY OF RONCE As the second largest city in Puerto Rico, with a 1960 population of 145,345, Ponce is the center of a regional distribution and trading center with an estimated population of 462,000.

The Market Area

The existing highway structure of southern Puerto Rico runs generally east-west and parallel to the coast, with spurs running northward into the central mountain area, thus making Ponce the most accessible and dominant trading center for some sixteen smaller municipalities. Five of these are about a half hour distant while the most remote is not farther than one hour's travel time. Some

2,288 wholesale, retail, and service enterprises of all sizes were operating in Ponce at the time of the 1954 Census of Business.

The región centered around Ponce is one of Puerto Rico's most important industrial and agricultural arcas. Net income generated as a result of all economic activity within the Ponce región has been estimated to have been about $170 million for fiscal year 1957-58.

Manufacturing

The Ponce-dominated región, particularly Ponce proper and nearby municipalities, has experienced marked industrial growth. Including those within the Municipality, some 72 new manufacturing firms

have been promoted under the Industrial Development Program. Industrial investment in the región is estimated to total some 33 per cent of new prívate industrial investment made in Puerto Rico. A large part of this investment is concentrated in municipalities immediately to the west of Ponce in three petrochemical plants, whose total investment is about $135 million. These include Common wealth Oil Refining Co., Caribe Nitrogen Corp., a subsidiary of W. R. Grace & Co., producing ammonium sulfate, and the ethylene glycol plant of a Unión Carbide subsidiary. The latter firm

recently announced plans for an additional $30 million investment in facilities for the production of polyethylene.

Manufacturing activity is carried on within the Municipality of Ponce by 144 enterprises of all

types and sizes, as reported in census revisions to October 1959. By May 1960, new plants promoted as a result of the Industrial Development Program totalled 34, or almost half of the total for the Ponce-dominated región, with a number of others in the process of establishment. Among the plants

within the Municipality are a textile mili which is a subsidiary of Indian Head Milis, and a tuna fish cannery, a subsidiary of Van Camp. Excluding sugar and its derivatives, some of Ponce s leading manufactures are: cement, rum, food products, textiles, wearing apparel, candy, construction malc riáis, leather goods, furniture. The larger of Puerto Rico's two cement milis opérales in Ponce. The area is served with electric power by the South Coast Steam Plant of the Water Resources Authority, with a present capacity of 80,000 kw, and with an additional steam electric unit of 82,500 kw under construction.

Agrículture and Agriculturally Based Industry

Agricultural activity in the Ponce región includes growing of sugar cañe, coffee culture, dairying, and the raising of beef cattle and vegetables.

Ponce is located in a fertile irrigated coastal plain, called the Ponce-Patillas Alluvial Plain, which runs eastward through most of the Ponce-dominated región. The inland central mountains provide ampie water for prívate and publicly owned irrigation works. The result of ideal growing weather, flat fertile lands, and adequate water supply has been that about 20 per cent of Puerto Rico's sugar cañe is produced on the 15 per cent of Puerto Rico's cañe land which occupies the Ponce-Patillas Plain. Six sugar milis, including one in Ponce, grind cañe grown in the area. Three additional milis grind cañe grown to the west of Ponce in Lajas and Tallaboa Valley and nearby areas. The nine milis in the Ponce región together grind about 35 per cent of all cañe ground on the island.

The sugar mili within the Municipality grinds cañe for both Ponce and a wide surrounding area.

A sugar refinery operates in conjunction with the mili as does one of the island's largest rum

distilleries, maker of Don Q rum. Ponce's pasteurizing facilities handle the milk production of a large part of the entire southern coastal región. A large farmers' cooperativo, based in Ponce, handles the financing, warehousing, and marketing of an important part of Puerto Rico's coffee crop.

Other Important Features

The port of Ponce, the second largest in Puerto Rico, serves the shipping needs of the entire región.

Ponce's airport handles frequent daily flights connecting with San Juan International Airport.

Hotel accommodations have been enlarged to meet commercial needs and Puerto Rico's rapidly growing tourist flow. The 170-room El Ponceño Hotel, constructed at a cost of about $4 million,

operated by International Hotels Corp., a Pan American Airways subsidiary, was opened in 1960, while Ponce's oldest established hostelry, the Hotel Meliá, will soon complete an expansión and modernization program.

The home offices of the second and third largest Puerto Rican chartered commercial banks have been located there since the times of Spanish rule. The rapidly growing University of Santa María is also located in Ponce with an enrollment of 2,700. Many of the departments and agencies of the Commonwealth Government maintain regional offices in Ponce to serve the southern area of the island.

Financiai Sfatement

On August 18, 1960, the municipality of Ponce will offer for sale a bond issue in the amount of $2,030,000, maturingJuly 1, 1961 through 1980.

Assessed valuation of taxable property in Ponce in 1959-60 was $127,546,330, on which a levy of $18.40 per $1,000 was made. This levy consisted of $10.30 for Commonwealth purposes and the balance for municipal purposes, of which $3.50 was for the general fund and $4.60 for bond redemption funds.

Collection of the current levy of $2,275,962 in this year amounted to $1,547,928 or 68.0%. This represents net current collections after allowing for discounts granted of approximately $160,000 for prompt payment. In other words, current collections amounted to payment and cancellation of

75% of the current tax levy. Total collections of $2,143,999 in 1959-60 were 94.2% of the amount levied.

ASSESSED VALUATION AND PROPERTY TAX COLLECTIONS Tax Rate

Total

Total

Total Collections Per Cent of

Fiscal Year

Assessed Valuation

per $1,000

Collections

Current Levy

1950-51

$ 42,988,155

$30.90

Levy $1,328,334 1,373,509 1,474,199 1,645,373 1,806,307 1,873,176

$1,384,090 537,957 1,220,789 1,800,707 1,751,041 1,756,940

104.2% 39.2 82.8 109.4 96.9

1951-52

1952-53 1953-54 1954-55 1955-56 1956-57 1957-58 1958-59 1959-60 1960-61

127.546.330

19.50 21.20 20.90 22.90 22.90 22.90 22.90 18.40 18.40

137,370,000

18.40

56.243,79063.752,790 77,780,750

78,878,020 81,798,070 85,770,410

90,618.270 119,722.660-

Increase resulting partially from reassessment programs.

1,992,253 2.079,623 2,111,467 2.275,962 2,400,000

93.8

1,781,979 1,848,868 2,220,646

105.2

2,143,999

94.2

—

89.4 88.9

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Puerto Rico Water Resources Authorií} Souíh Coast Thermo-electrlc Station

Cloth drying eqidpment at ttie plant of Indian Head Milis iii Ponce.

This mili fabricatcs greige goods.

Average animal production is 15,000,000 yards.

One O] the many modern industrial plañís in Ponce is that of the Bristol Shoe Corp.

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The St. Regís Paper cv Bag Corp. plant ai Ponce occupies 27.000 squure feet of floor space. Sho'wn here are the plant's se\\'ing machines. Production of hags al prcsent totals ahout ¡8.000.000 vearlv.

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Ponce Plaza.

The record of municipal receipts and expenditures given below indicates maintenance of comfortable cash balances. Receipts in 1959-60 of $3,770,563 were comprised of $1,038,678 from property taxes, $402,110 from local imposts, $319,506 from in lieu of tax payments from government authorities, licenses and other sources, $325,946 from Commonwealth advances against subsequent tax

collections, $684,323 from other non-budgetary sources, and $1,000,000 from the sale of bond anticipation notes which will be retired from the proceeds of the current bond issue.

OPERATING RECEIPTS AND EXPENDITURES Ca.sh Balance

Cash Balance

Beginning of Year

Total Receipts

Total Expenditures

At Year End

$1,569,158 1,651,857 1,400,279 2,674,517 2,553,213 2,023,076 2,030,165 2,408,936 2,277,339 1,968,405

$1,802,427 1,463,334 3,584,230 2,364,013 2,675,987 2,129,832 3,024,232 2,777,215 2,746,502 3,770,563

$1,719,728 1,714,912 2,309,993 2,485,317 3,206,124 2,122,743 2,645,461 2,908,812 3,055,436 3,320,389

$1,651,857 1,400,279 2,674.517 2,553,213 2,023,076 2,030,165 2,408.936 2,277,339 1,968,405 2,418,579

1950-51 1951-52 1952-53 1953-54 .

. ..

1954-55 1955-56 1956-57 1957-58 1958-59 1959-60

Ponce Inlercoiiliiienial Hotel

M'illi city in backí^ronnd.

Bonded debt as shown below has remained modérate over the past ten years, although there has been a more than threefold increase in assessed valuation. Gross debt of $4,045,000 as of July 1, 1960 was

offset by bond redemption funds of $837,766, leaving a net debt of $3,207,234. Of this amount $1,000,000 represents bond anticipation notes to be paid off from the proceeds of the $2,030,000 bond issue now being sold, making a net debt after the sale of $4,237,234. This will be 3.08% of the 1960-61 assessed valuation, and a per capita net debt of $29.

Ponce is responsible for 7.78% of the Commonwealth net debt of $123,369,171, or $9,597,810, the only overlapping tax supported debt burden. This will result in a net direct and overlapping debt of $13,835,044, after the sale of this issue, or 10.71% of assessed valuation, and $95 per capita.

TREND OF BONDED INDEBTEDNESS

1950 .

1951

Redemption Funds

Net Debt

$2,549,000 . .

2,263,000 . .

2,033,000 3,786,000 3,712,000 3,735,000

$571.718 583,018 545,484 666,862

$1,977,282 1,679,982 1,487,516 3,119,138 2,904,265 2,987,335

3.652,000

737,193 673,727 660,159 706,178

2.914.807

The Ponce District Hospital,

3,584,273 3,198,841 2,743,822

completed in 1955 at a co.st oj

837,766

3,207.234

Gross Bonded Debt

July 1 ..

1952 1953 1954 1955 1956 .

. . .

1957

4,258.000

1958

3,859.000 3.450,000 4,045,000

1959 1960

807.735 747.665

Hiüh Schoo! in Ponce.

$8,150.000. has a capaciiv of 434 heds.

BOND MATURITIES NEXT FIVE YEARS

June 30, 1960 New Issue

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Univer.siiy stndents \ i.\it the plañí of the Puerto Rico

1961

1962

1963

1964

1965

$406.000 80,000

$397.000 50,000

$423,000 50,000

$375,000 50,000

$373,000 50,000

$486,000

$447,000

$473,000

$425,000

$423,000

¡ron IVorks at Ponce.

IVeston IHcctric's plant at Ponce

The current issue of $2,030,000 of bonds is part of a total issue of $4,380,000 authorized in 1959.

It is not expected that any additional bonds of this authorization will be sold within the next year.

í,\ lypical of the niodern industrial plani.\ which have estahlished tlieniselccs in

that city in the past lew years.

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