The Financial Oversight and Management Board held Thursday the first of three listening sessions to inform the process for revising the certified Fiscal Plans of the government of Puerto Rico and its agencies to ensure they reflect Puerto Rico’s new reality in the aftermath of Hurricane María.
“Puerto Rico’s reality has fundamentally changed in the aftermath of the hurricanes, and it is imperative that the revised Fiscal Plan consider feedback from stakeholders who have been affected,” said Natalie Jaresko, executive director of the Oversight Board. “The devastating impact of Hurricane Maria on Puerto Rico’s economy is compounded by the dire fiscal situation that preceded it.”
Members and executive staff of the Oversight Board heard from experts in the private sector, academia, and local and municipal governments from a variety sectors, including tourism, energy, health, construction, food distribution, and services. Among many themes, stakeholders provided feedback on issues spanning demographic patterns, GNP and fiscal multiplier effects post-hurricane.
Heidie Calero, economist and president of H. Calero Consulting Group Inc., said more than a month since Hurricane María ravaged the island, recovery efforts have been “slow and insufficient.”
“The situation is dire to say the least. With a destroyed infrastructure, lack of water and power, and an accelerated pace of emigration, businesses and government desperately need to perform a comprehensive assessment of economic damages, identify risks and opportunities, measure, manage, and minimize risks now and in the next few years,” she said.
The unprecedented devastation that hurricanes Irma and María inflicted on Puerto Rico reflects a “new normal,” she said.
According to the National Hurricane Center’s multiplier damage potential index Hurricane María caused economic damages in Puerto Rico — including infrastructure, expenses and loss of revenues — at $115 billion with a range of plus or minus $44 billion, she said, the highest damage estimate when compared to prior Hurricanes Hugo and Georges.
“Other local consulting firms have estimated Maria’s damages as low as $16 billion, but we considered these estimates completely unrealistic. International companies estimated larger figures,” Calero said.
Catastrophe-modeling firm AIR Worldwide estimated damages could reach $72 billion. Moody’s cited hurricane Maria could be a $95 billion storm for Puerto Rico.
“In our opinion the Board, Congress and local government authorities need to address a more realistic estimate of damages, analysis of most impacted industries, forecast scenarios for the short, medium and long term, role of government, and business opportunities,” Calero said.
“To recover from this natural disaster and mitigate the economic damages, local and federal resources have been channeled to Puerto Rico. However, after more than one month, the results are not impressive,” she added.
The collapse of electricity, communications, drinking water, roads, even private businesses is proof that Puerto Rico did not have a plan to adapt to climate change. Hurricane María evidenced decades of uncontrolled development in vulnerable areas, inadequate and aged infrastructure of electricity and water, and lack of an effective disaster recovery plan in The island’s vulnerable location in the Caribbean.
“With a $115 billion estimate in economic damages, business as usual will not come back quickly. After María, business and government need to plan strategically,” she said. “The Board has ample powers and responsibilities and can take the lead in shaping the future economy of the island. Quality decision-making has never been more important than now.”
Concerned about the “lack of vision and planning,” Calero’s firm suggested five core areas to shape a Puerto Rican emerging economy, capable of sustaining growth and jobs, paying its public debt, and halting the migratory wave of its population. These are:
- Size of damages, federal assistance, and comparison with prior hurricanes;
- Federal and local resources needed to rebuild its physical infrastructure;
- How will local government reorganize, its sources of fiscal revenues in light of a transformed economy, a revised role of the Board; possible scenarios for payment of PR’s public debt in light of a transformed economy and local government;
- What key sectors can play a key role in rebuilding PR; and
- What are the forecast scenarios in the short (one year,) medium (three years,) and long term (5 years.)
“A very preliminary forecast of Puerto Rico’s GNP real growth by our firm had indicated that prior to María, it would have taken the island 15 years to return to pre-recessionary GNP levels of 2005 if we grew at 1 percent in real terms,” Calero said.
“It would take us five years if we grew at 3.4 percent. But, after the devastation of María, it is not unlikely to estimate a scenario of at least 20 years. In fact…María may have set Puerto Rico back by 26 years,” she said.
Better population, travel data needed
During his turn, Puerto Rico Institute of Statistics Executive Director Mario Marazzi said the agency’s work includes preparing annual population projections this year, in response to Puerto Rico’s rapidly changing population dynamics.
“We believe it has come time for Puerto Rico to have high-quality, annually-updated population projections at the municipal level. We expect to publish our first projections in the spring of 2018, and we are hopeful they will be very useful to the Board when the Commonwealth’s Fiscal Plans get updated in future years,” Marazzi said, adding that while the U.S. Census Bureau does a very good job with its population projections, they will be updating these forecasts only once every four years.
Marazzi also said the Statistics Institute believes it is important for Puerto Rico to develop a data source on air flights that is more timely and accessible, so that in future hurricanes Puerto Rico can have faster information to gauge their effects on net migration.
“This brand-new project would require the collection of new information from a series of stakeholders in the transportation and logistics industries in Puerto Rico,” Marazzi told Board members.
“The goal would be to publish data that is updated on a daily basis on each flight [and boat] with information such as the number of passengers transported, amongst many others. With the support of the Oversight Board, the Statistics Institute can execute this project without requiring additional budgetary resources,” he added.
The next scheduled listening session will be held Nov. 28 in Puerto Rico, followed by a last session in New York on Dec. 4. The Board’s intention is to certify the Fiscal Plan by Feb. 2, 2018.