Federal Disaster Relief Provides Billions of Dollars for Puerto Rico

The federal spending law enacted on Friday provides tens of billions of dollars to Puerto Rico for recovery from Hurricanes Maria and Irma.

The law also allows the Federal Emergency Management Agency (FEMA) to fund construction of new government infrastructure in the territory, not limited only to facilities that were damaged by the disasters. The only condition is that the undamaged infrastructure be related to facilities that were damaged.

The new law authorizes FEMA to replace as well as restore government facilities that were damaged to bring these up to “industry standards” without regard to pre-disaster conditions. “Industry standards” is a much broader standard for funding than “hazard mitigation,” the standard at which FEMA can now make infrastructure repair grants to enable facilities to better withstand disasters.

The law also includes a specific $2 billion in the U.S. Department of Housing and Urban Development’s Community Development Block Grant program (CDBG) for the islands’ power system in addition to funding for FEMA that can be used for the power generation system.

The $2 billion is part of $11 billion in CDBG grants for disaster recovery earmarked for Puerto Rico and the U.S. Virgin Islands.

FEMA was also provided with $150 million for loans to the territorial government for its 10% share of projects 90% funded by FEMA. This would be in addition to  $150 million appropriated in October for loans for Puerto Rico’s 10% share of FEMA costs. In the past, 92% of such loans made to communities have been forgiven.

The law, additionally, provides Puerto Rico with $4.8 billion for Medicaid costs from this past January 1st through September 30, 2019. Without the increase, Federal spending for Medicaid in Puerto Rico would drop in April from about $1.6 billion a year to less than $400 million a year.

With the increase, the Federal government would pay 100% of the cost of Medicaid in Puerto Rico through September 30, 2019. The territorial government will not have to provide 45 cents for every 55 cents of Federal funds. This will save the insular government close to $4 billion in spending included in its proposed Fiscal Plan.

$1.2 billion of the additional $4.8 billion, however, is contingent upon the territorial government making fraud control and data improvements in its Medicaid program. It is expected to be able to do so.

At least $10.425 billion would be appropriated for Army Corps of Engineers flood and shore protection projects in Puerto Rico and the Virgin Islands and areas of Texas and Florida affected by Hurricanes Harvey and Irma, with the projects in the two territories only funded at 100% Federal cost.

The law also requires the governor of Puerto Rico to develop 12 and 24-month economic and disaster recovery plans within 180 days covering: housing; workforce development; industry expansion and cultivation; health and social services; natural and cultural resources; governance and civic institutions; power systems; environmental issues, including solid waste facilities; and other infrastructure, such as water and sewer, communications networks, and transportation systems. The plans need to be consistent with Puerto Rico’s ability to pay costs for operations and maintenance of covered facilities.

The plans are to be developed in coordination with the FEMA Administrator and the Puerto Rico Financial Oversight and Management Board, with support and contributions from the Secretaries of the Treasury and Energy, and are to be developed transparently. There need to be 30-day updates on the development of the plans before submission and progress reports on the implementation of the plans every 180 days afterwards.

In a pointed message to the governor, the bill includes language providing that the Financial Board is able to report to the Congress on the governor’s coordination with it and that the Board may review plan amounts in excess of $10 million.

A major provision of the disaster assistance bill passed by the House of Representatives in December not included in the new law would have provided $4 billion for low-cost loans to Puerto Rico, the Virgin Islands, and communities in Texas and Florida affected by Hurricanes Harvey and Irma, with the loans to Texas and Florida communities limited to $5 million. This would have left most of the $4 billion for Puerto Rico but the territory has not been able to justify loans from $4.9 billion similarly appropriated last October from which it was originally expected to receive close to $4.7 billion. The Virgin islands, however, has already been granted close to $371 million of the $4.9 billion.

The bill grants Puerto Rico and the U.S. Virgin Islands $13.25 per proof gallon of the $13.50 Federal tax on rum from January 1, 2017 through December 31, 2021 instead of lesser amounts under current law, including the recent Tax Reform Act, which lowered the tax rate on liquor.  This gives Puerto Rico an additional $80 million a year or so in rum tax grants.

Companies based in the States that manufacture in Puerto Rico as U.S. companies (vs. through foreign subsidiaries) were made able to deduct nine percent of their income from Puerto Rico during 2017 from their taxable income. This saves the companies about $100 million and represents about $3 billion in economic activity in the territory last year.

Puerto Rico and all four of the other territories were exempted from limits on funding for highway disaster repairs through September 30, 2019, and spending in Puerto Rico and the Virgin Islands would not need to be matched by the territorial governments.

Cost sharing was also waived for existing but unspent Environmental Protection Agency water and sewer grant funds for areas affected by Hurricanes Irma and Maria – Puerto Rico, the Virgin Islands, and portions of Florida.

All of Puerto Rico was also made an Opportunity Zone for Federal tax purposes. Under the recent Tax Reform, businesses that make and hold investments in Opportunity Zones for long periods owe less or no taxes on gains from their investments when sold, depending on how long they have owned the property. Without this provision, only selected Census tracts in the islands – limited to 25% of all eligible areas – would be made Opportunity Zones.

• $39 million was appropriated for Job Corps facilities in Puerto Rico.
• $39.4 million was allocated for customs and border protection in Puerto Rico and the Virgin Islands. Further, Puerto Rico would share in $45 million for reconstruction of customs and border protection facilities.
• $14 million was provided for Women, Infants, and Children food program infrastructure in Puerto Rico and the Virgin Islands.
• The Department of Defense was given funds to pay 100% of the cost of a readiness center in Arroyo, Puerto Rico.
• The bill includes $519.3 million to repair National Guard facilities. At least most of the repair work is expected to be in Puerto Rico and the Virgin Islands.
• There is also $4.1 million to restore the Puerto Rico National Cemetery and the Veterans Benefits office in Houston.
• $16.3 million was dedicated to repair the Arecibo Observatory.

Puerto Rico will also share in many billions of dollars in additional appropriations for disaster recovery through many other Federal programs.