Special Report on San Juan (Novermber 1960)

November 1960

COMMONWEALTH OF PUERTO RICO

Government Development Bank for Puerto Rico SAN JUAN. PUERTO RICO

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Partial view of central San Juan,

showiit}^ section of hroad i\ew expressway leading to Puerto Rico International Airport.

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Dona Felisa Rincon de Gautier

is Mayoress of San Juan.

Her knowledge of municipal government and her administrative

ability have won her wide acclaim.

SAN JUAN—Capital of Puerto Rico San Juan, the Capital of Puerto Rico, is the twenty-ninth largest city of the United States. Based on the 1960 Federal census, San Juan's population of 450,000 makes the City somewhat larger than Phoenix, Arizona and some what smaller than Columbus, Ohio.

The San Juan Metropolitan Area which includes the adjacent municipalities of Bayamon, Catano, Guaynabo, Carolina and Trujillo Alto, has a population of more than 625,000.

Founded in 1521, San Juan is the oldest city within the United States.

Although still possessing old world charm and historical buildings, the City has become one of the most modern and progressive in the western hemisphere.

Located on the north coast of Puerto Rico, at the northeast border of the

Caribbean Sea, San Juan is about 1600 miles southeast of New York City or 3V4 hours by jet flight. With an excellent seaport and airport, it is the hub of the economic, financial, educational, cultural and governmental activities on the island.

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The Capital of the Commonwealth, San Juan, Puerto Rico.

PUERTO RICO The Commonwealth of Puerto Rico exercises virtually the same control over its internal affairs as do the fifty Stales over theirs. It differs from them

primarily in its relationship to the Federal Government in that it is represented in Washington by an elected Resident Commissioner who is seated in Congress where he has a voice but no vote, and that Federal tax laws are not applicable

in Puerto Rico. This relationship is defined through the medium 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 The original act was superseded in 1917 by the Organic Act of Puerto Rico, which granted United States citizenship to Puerto Ricans as well as unrestricted suffrage for local purposes.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 Con gress enacted Public Law 600, approved July 3, 1950. This law. which is "in the nature of a compact," became effective 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 force 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 C\mstitution 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 bicam eral legislature are subject to regular election every four years. The Legislature operates under standard parliamentary and legislative rules. The judicial sys tem, 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 police and fire protection, education, all major street and highway construction, and public health programs. In addition, the Com monwealth 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.

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Condominium apartment buildings in the Condado section of San Juan.

Expansion and Diversification 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 $1,311

million in 1960. Output of the economy, measured in terms of gross product adjusted for price changes, has shown an average increase of about 5.2% com pounded annually.

Diversification of the Commonwealth's economy has been equally impres sive. In 1940, agriculture generated $70 million or 31 per cent of net income, about half of which came from sugar cane alone. Cane sugar constituted 62 per cent of merchandise exports; manufactured products little more than onefourth. Only $27 million or 12 per cent of Puerto Rico's net income came from manufacturing. In 1940 industrial establishments consisted mostly of small needlework shops and processors of agricultural products. By fiscal 1960, however, although agricultural net income had grown to $177 million, this sector of the economy accounted for but 14 per cent of Commonwealth net income. Sugar constituted less than 20 per cent of merchandise exports.

Manufacturing, having expanded ten times since 1940, now substantially surpasses agriculture in importance. In fiscal 1960, manufacturing provided $289 million or 22 per cent of Puerto Rico's net income. Under the industrial

development program initiated in the early 1950's, Puerto Rico had, as of June 30, 1960, 594 new factories producing petroleum products, apparel, petro-chemicals, electronic products, appliances, abrasives, aircraft parts, plastic products and numerous other items. Many plants are branches or subsidiaries of major mainland companies, including such firms as General Electric Corp., W. R. Grace & Co., American Can Co., Consolidated Cigar Corp., Sunbeam Corp., The Carborundum Co., Sperry Rand Corp., U. S. Rubber Co., Union Carbide Corp., Phelps Dodge Copper Products International Corp., Indian Head Mills, Inc., Nebraska Consolidated Mills Inc., Parke, Davis & Co., Inc., A. G. Spalding ÂŤ& Bros., Inc., Van Raalte, International Shoe Corp., B.V D., Van Camp Sea Food, Star Kist, Weston Electric, and Dentists' Supply Co. One of the most significant developments in the economy has been the in creasing rate of fixed investment in Puerto Rico, especially during the past six years. Investment in fixed capital goods, such as new construction, machinery and equipment, has risen from an average of $136 million for 1950-53 to $323 million in 1960, or almost 21 % of the gross product of the economy.

Incurrence and Payment of Municipal Debt

Puerto Rico is divided into seventy-five contiguous municipalities, each of which consists of urban and rural areas. Municipalities may incur bonded debt

only after receiving approval of the Governor of the Commonwealth. 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 com

mitted 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 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 collects 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 San Juan, are limited by Federal law in the incurrence of bonded debt to 10% of assessed valuation.

SAN JUAN As the largest city in Puerto Rico, the San Juan metropolitan area including its five adjacent municipalities accounts for over one-fourth of the population of the island, or about 625,000 persons.

huersection between Old San Juan

and the Condado and Saniiirce sections

of the City.

A typical medium-priced hou.sing development.

A typical modern high school.

Supreme Court building, San Juan.

San Juan has shared fully in the industrial growth of Puerto Rico. According

to the 1958 Census of Manufacturers, San Juan had over 27 per cent of the manufacturing establishments in the island, and the metropolitan area over 37 per cent. Of over 600 new plants established in Puerto Rico with the help of

the Economic Development Administration up to August, I960, with a total original investment estimated at $500,000,000, 194 were within San Juan itself, and over one-half within the metropolitan area.

The tourist business in Puerto Rico is based largely in San Juan, and the 1960 expenditures estimated at $53,000,000 by some 344,000 visitors, rep resent increases of 28% and 31% respectively over the previous year.

San Juan is the central headquarters for all offices of the Commonwealth

government, as well as for all the autonomous public corporations. It is the center for all Federal Government offices, and large military establishments are maintained by the armed forces of the United States in and around San Juan.

The principal campus of the University of Puerto Rico is located in Rio Piedras, a district of the municipality of San Juan, with an enrollment of over 12,000 students.

The International Airport, located at Carolina, immediately adjacent to San Juan, is served by ten regularly scheduled airlines, and cleared 1,415,000 passengers in fiscal 1960 on international and local or inter-island flights.

The seaport of San Juan handled 75% of the 6,166,000 short tons of cargo moving through Puerto Rico's ports in 1959.

The Ports Authority, operator of both the seaports and airports, is engaged in a $30,000,000 three-year construction program for expansion of the facilities.

Financial Administration

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On November 29, 1960, San Juan will sell a bond i.ssue in the

$5,000,000, maturing July 1, 1961 through 1980. The proceeds

to retire an equal amount of bond anticipation notes which had

from time to time in the preceding year to finance general public imp^ ^ ^ ^ After allowing for the sale of these bonds, gross debt will and net debt, after deducting bond redemption funds, will be

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This includes $2,070,000 in bond anticipation notes, issued in connection wit future borrowing plans described below.

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Growth in assessed valuation, which amounted to $807,716,360 for 1960-

61, has kept pace with net indebtedness, as shown on the following pages. The present ratio of net debt of $17,872,485 to assessed valuation is 2.2%. Per

capita net debt of $39.78 is moderate.

The only overlapping tax supported indebtedness is that of the Common wealth, of which the San Juan share is 45.8%. Net overlapping debt, including this issue, of $74,069,485 is 9.2% of assessed valuation.

Bond maturities over the next five years average about 8% each year of net debt outstanding.

Many of the functions usually associated with municipal administration in the States are handled by the Commonwealth of Puerto Rico itself. Conse

quently, the actual expenditures of the Capital of Puerto Rico are relatively modest. San Juan is empowered to lev}' a basic real and personal property tax for general purposes up to a maximum of 1 per cent of valuation. An addi tional 1 per cent is allowed for street construction and maintenance of hospi

tals. Under the Municipal Borrowing Law, unlimited ad valorem taxes may be levied for payment of all bonds issued. The actual tax rate of $2.13 per $100, of which $1.03 is levied for general Commonwealth purposes, and $.28 for

San Juan bond purposes, is exceptionally low in comparison with cities of similar size.

All property tax collections and all debt service funds are administered directly by the Secretary of the Treasury of Puerto Rico, who retains in his custody from these collections the amounts appropriated for the payment of principal and interest on outstanding obligations. The City relies for its rev enues mainly on the property tax. It also derives revenues from municipal licenses and fees, and a percentage of the cigarette tax and automobile license fees levied by the Commonwealth Government are returned to the City. The Puerto Rico Water Resources Authority pays to the City, in lieu of taxes, 6 per cent of its gross revenues collected in the municipality.

Aerial view of new

sewage disposal plant for metropolitan San Juan.

Shopping center at Rio Picdras.

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^3m:: Aerial view of Port and Central

Market facilities under development.

In 1957-58 the relation of assessed valuations to market values was

reviewed, resulting in a reappraisal as of January 1, 1958. The most recent assessed valuation of $807,716,360 as of January I, 1960, is estimated to average between 85% and 90% of 1957 market value.

In July 1958 San Juan authorized the issuance of $24,100,000 public im provement bonds to cover a five-year capital improvement program. An issue of $5,000,000 Series A bonds was sold in June 1959; following the present sale of $5,000,000 Series B bonds, the remainder will be sold in lots of about

the same size, at approximate one year intervals.

In addition, in 1958 San Juan authorized the issuance of $3,000,000 bonds for the purpose of construction of a stadium. While these will be general obli

gation bonds, it is anticipated that revenues will be adequate to cover debt service. Bond anticipation notes against this issue have been sold in the amount of $1,070,000; the bond issue will be sold in 1961.

In 1959, an issue of $10,000,000 bonds was authorized for construction

of single and multiple unit low cost housing. Again, these will be general obli gation bonds, but San Juan will be liable only for the deficiency by which rental revenues fail to cover operating costs and debt service. Bond anticipation notes in the amount of $1,000,000 have been sold in advance of this issue; a bond International Airport.

San Juan.

issue in the amount of one half of the authorization is expected to be sold late in 1961 or early 1962.

The debt paying record of San Juan is clear of default or delinquency. There has never been any forced or "managed" refunding of maturing bonds to avoid default. A similar debt record exists for the central government and all munici palities and instrumentalities of Puerto Rico.

Outstanding Public Net Debt of San Juan Versus Uegai Debt Limit Fiscal Years 1949-50 to 1959-60 millions

of dollars

LEGEND;

LEGAL DEBT LIMIT

lore oj A'i\isscii Wthuuion— Ri al and Ft r.soncil Property

□ PUBLIC NET DEBT

49-50

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50-51

51-52

52-53

53-54

54-55

55-56

36-57

57-58

See inside cover for fi nancial tables on Assessed Valuations, Property Tax Collec

tions, Operating Receipts and Expenditures, and Trend of Bonded Indebtedness.

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SAN JUAN—Capital of Puerto Rico Property Tax Collections FISCAL

ASSESSED

TAX RATE

TOTAL

YEAR

VALUATION

PER $1,000

LEVY

$129,319,280 140,925,060

$29.70

1947-48 1948-49 1949-50

. . . . . . . . .

1950-51 1951-52* 1952-53* 1953-54 1954-55 1955-56 1956-57 1957-58

. . . . . . . .

. . . . . . . .

. . . . . . . .

1958-59*t 1959-60t . . .

1960-61 § . . .

29.70 33.10 33.10 21.00 21.00 21.00 23.90 25.10 25.10 25.10 21.30 21.30 21.30

163,146,880 222,396,140 298,476,900 334,521,000 358,617,020 391,729,690 418,830,660 451,645,450 521,067,120 709,269,090 753,734,000 807,716,360

CURRENT YEAR

$2,994,310 2,992,626 4,048,808 4,441,187 316,121* 644,802* 4,925,340 6,317,998 6,941,097 6,923,244

$ 3,667,853 4,238,823 5,379,068 5,528,338 6,937,280 6,871,070 7,479,891 9,175,927

10,292,682 11,094,552

7,053,283 8,623,438 7,543,238

11,838,941 13,808,520 13,121,030 14,500,000§

4,493,158$

* Increases in Assessed Valuation resulted partly from annual growth in tax base and partly from a change in basis of assessment.

t Official revised figures. § Official estimates.

Operating Receipts and Expenditures FISCAL

CASH BALANCE

TOTAL

TOTAL

CASH BALANCE

YEAR

BEGINNING OF YEAR

RECEIPTS

EXPENDITURES

AT YEAR END

$1,493,493 2,227,435 1,732,851

$ 6,923,011 7,471,571 16,469,025 10,862,559 10,618,899 11,311,974 15,327,373 13,676,348 22,135,162 20,251,957

$ 6,189,069 7,966,155 9,425,452 12,212,559 11,723,411 11,660,097 14,697,017 14,839,799 18,766,518 24,108,863

$2,227,435 1,732,851 8,776,424 7,426,424 6,321,912 5,973,789 6,604,145 5,440,694

1950-51 1951-52 1952-53 , . .

1953-54 . .

1954-55 . .

1955-56 . .

1956-57 . .

1957-58 .

1958-59 1959-60

8,776,424

7,426,424 6,321,912 5,973,789 6,604,145 5,440,694 8,809,338

8,809,338 4,952,432

GROSS BONDED DEBT

Trend off Bonded Indebtedness

PER CENT OF

AS OF

GROSS BONDED

JULY 1 1940 1945 1950 1951 1952 1953 1954 .

DEBT

$ 6,852,532 4,952,400 3,443,000 4,274,000

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5,193,000 10,761,000 9,988,000

1955 1956 1957 1958 1959 1960

9,253,000 10,766,000 12,915,000 11,884,000 16,170,000 17,118,000

1960(Sept. 30)

21,518.000*

REDEMPTION FUNDS

NET DEBT AS

ASSESSED

AS OF JULY 1

OF JULY 1

VALUATION

Not Available Not Available

Not Available Not Available

$1,170,448

$ 2,272,552 2,720,137

1,553,863 2,142,062 1,957,596 2,826,701 2,466,172 2,528,849 2,461,239 2,519,840 2,606,662 2,847,750 3,645,515

3,050,938 8,803,404 7,161,299 6,786,828

8,237,151 10,453,761 9,364,160 13,563,338 14,270,250 17,872,485

5.0 4.6 2.1 1.2 1.6 3.0 2.5

$28.80

2.2

25.08

2.4 2.5 1.7 2.1 2.1 2.2

29.18 35.00 28.57 35.99 38.10 39.78

- Includes $7,070,000 in bond anticipation notes of which $5,000 000 will be retired out of the

proceeds of this bond issue.

PER CAPITA

20.80 9.30 11.10 14.10 29.25 27.15

::OLLECTIONS uncollected of

PREVIOUS

$ 631,301 503,335 1,151,291 899,261

PER CENT OF

ON 6-30-58

CURRENT LEVY

CURRENT LEVY

$ 3,625,611 3,495,961 5,200,099 5,340,448 789,920 5,809,333 10,670,445 8,675,787 9,503,252 9,513,082 10,749,592 13,303,727 12,085,018 5,941,419$

473,799 5,164,531

5,745,105 2,357,789 2,562,155 2,589,838 3,696,309 4,680,289 4,541,780 1,448,261$

TOTAL COLLECTIONS

PER CENT OF

total

YEARS

CURRENT COLLECTIONS

RESPECTIVE LEVIES

$ 129,131 163,523 170,640 238,288 524,753 480,349 491,330 548,626 809,429 1,123,803 1,438,357 2,481,423

81.6 70.6 75.3 80.3 4.6**

5,577,792

98.8 82.5

96.7 96.6 11.4 84.5

65^8

142.7

68.9 67.4 62.4 59.6 62.5 57.5

94.5 92.3 85.7 90.8 96.3 92.1

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** Tax collections in 1951-52 and 1952-53 were abnormal because the reassessment program resulted in delays in issuance of tax bills, and granting of non-penalty periods pending hearings on protests against new valuations.

t Tax collection figures for 1960-61 are partial collections as of September 30, 1960, compared with June 30 full year collections for previous fiscal years.

Overlapping Debt Assessed Valuation, 1960-61

Commonwealth

. . . $1,763,815,850

Net Direct Debt, June 30,1960 Commonwealth . . $122,698,538 $ 56,197,000

San Juan share 45.8% San Juan

807,716,360

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Percent of total A. V

45.8%

17,872,485

San Juan direct debt

Net Overlapping Debt . . $ 74,069,485

Ratio of net overlapping debt to Assessed Valuation Per capita net overlapping debt

9.2% $164

Bond Maturities Next Five Years 1961

Outstanding Sept. 30, 1960

1963

1964

1965

$1,283,000 $1,262,000 $1,217,000 $1,258,000 $1,258,000 150,000

New Issue Total

1962

150,000

150,000

150,000

150,000

$1,433,000 $1,412,000 $1,367,000 $1,408,000 $1,408,000

Breakdown off Property Tax Rate SAN JUAN

Rfo PIEDRAS

$ .32

$ .32

50 .28

.50 .24

1.10

1.06

1.03

1.03

$2.13

$2.09

Municipal

General Funds

Sanitation Purposes Loans

Total Municipal Commonwealth

Total

ASTRi