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/ Wednesday, October 6, 2021
CNE: Alert on ‘False Sense of Complacency’ on the Economy As pace of Hurricane Maria reconstruction funds increase
E Rosario Fajardo
rfajardo@wjournalpr.com
@RosarioWJournal
ditor’s note: The second article in a two-part series While it’s no secret that the pace of federal disbursements on recovery funds for Puerto Rico related to Hurricane Maria, which hit the island more than four years ago, has been slow, especially during the Trump administration, the island should see a noticeable increase in the coming years. However, the “delayed disbursement schedule” presents several risks for Puerto Rico, according to Sergio Marxuach, Center for a New Economy’s (CNE) Policy director and editor of the think tank’s publication: The CNE Review. In the analysis released by the specialized newsletter, Marxuach cites the Financial Oversight and Management Board’s (FOMB) Certified Fiscal Plan for Puerto Rico – April 23, 2021 on the expected federal disbursements in the next couple of years. According to the FOMB, expects disaster recovery expenditures to amount to $3.95 billion, $5.31 billion and $4.68 billion for each of fiscal years 2022, 2023 and 2024, respectively. “That would be equivalent to 5.6 percent, 7.5 percent and 6.6 percent of nominal GNP [gross national product] in 2020. We note, though, that the bulk of recovery funding, some $47.44 billion, is scheduled
CNE’s Sergio Marxuach >Courtesy
to be disbursed during the ten-year period between 2025 and 2035,” Marxuach writes in “The Threefold Challenge in the Puerto Rican Economy.” The island is facing several risks in this regard. For example, Congress may reprogram funding allocated for disaster recovery in the island, while the economic impact during any given year is diluted as funds are spent over 15 years, CNE indicates. “Conversely, the extended timeline may allow Puerto Rico to properly implement procurement regulations, auditing controls and other compliance mechanisms required by the federal government and to avoid a foreseeable shortage of the skilled labor required for some of these large infrastructure projects.
Dependence on Federal Transfers
“In the end, however, the main risk regarding the Hurricane Maria reconstruction could be the creation of a false sense of complacency as the economy begins to grow when the federal money starts to flow. It would be a mistake to believe that our economic problems will be over once the disbursement of federal reconstruction funding begins in earnest for at least two reasons,” as per the report. Marxuach notes that foremost, all that economic activity will be financed with federal funds transferred to Puerto Rico’s government instead of locally generated resources. “It may be easy to forget that once the good times are rolling and erroneously believe the reconstruction is driven by the strengthening of the Puerto Rican economy, when in fact it is powered by
Congressional largesse. “Second, the reconstruction process, by its nature, is designed to rebuild and repair what was damaged or destroyed by Hurricane Maria. In that sense, its main objective is to restore Puerto Rico’s capital endowment to its pre-hurricane state. The reconstruction of damaged or lost assets does not constitute a net addition to the island’s long-term productive capacity.” According to CNE, four years after Maria wreaked havoc in Puerto Rico and generated some $90 billion in damages, the pace of reconstruction remains slow — while Congress has allocated $64 billion for disaster relief and recovery operations on the island, as of June 30, 2021, only $18.6 billion, or approximately 29 percent, had been spent. “Furthermore, some of the most important work — refurbishing and modernizing the electric grid; rebuilding schools, housing, roads, bridges, and healthcare facilities; and undertaking mitigation activities to increase resiliency and reduce the risk exposure of vulnerable populations — has not yet begun,” the report states. Marxuach believes it is worrisome that economic growth in the short term depends mostly on the receipt of federal transfers that “we do not control. We worry that these expenditures will have a temporary positive impact on the economy that may set back efforts to develop a medium/long-term economic strategy or plan for Puerto Rico. Let’s avoid that trap and keep focused on addressing the structural factors that are the root cause of Puerto Rico’s long-term economic stagnation,” he added.
