Reports point to $1M+ in Act 22 donations, impact of economic incentives
Puerto Rico No Se Vende study highlights political donations from tax break beneficiaries and the government analyzes the performance of economic incentives.
A recently released report, titled “Pain and Profit: The Act 22 Donors Influencing Puerto Rico’s Elections,” published by the Puerto Rico No se Vende coalition, delves into the alleged donations received by local politicians from beneficiaries of the Act to Promote the Relocation of Individual Investors, Act 22, which is now under the Puerto Rico Incentives Code, or Act 60 of 2019, in recent years.
In related news, the island’s Department of Economic Development and Commerce (DDEC) released a study, “Evaluation of the Performance of Economic Incentives,” analyzing the return and impact of the various programs under Act 60. The study highlights the fiscal revenue generated by incentivized foreign corporations and the Export Services Act, Act 20, while also identifying areas needing improvement, such as the creative industries and agriculture.
According to Puerto Rico No se Vende’s report, political candidates running in the 2024 primary and general elections have received significant donations from Act 60 beneficiaries.
“Our election disclosure analysis reveals that Act 22 beneficiaries donated over $1 million dispersed between 21 different Puerto Rican elected officials in the last decade, in addition to direct donations to the Popular Democratic Party (PDP) and the New Progressive Party (NPP), the two leading political parties on the island,” the report states.
“Politicians in the highest offices secured lucrative donations from Act 22 beneficiaries, including current Governor Pedro Pierluisi and Resident Commissioner of Puerto Rico Jenniffer González-Colón, as well as leaders in the Puerto Rican Senate and House of Representatives. The reach of Act 22 political gifting extends to the local level, with mayors in towns with the highest number of Act 22 holders — such as San Juan, Dorado, and Guaynabo — all receiving political donations,” the publication reads.
The document highlights how some of the beneficiaries who have made electoral donations have allegedly obtained some kind of benefit or business with the government of Puerto Rico. Examples include the transfer of the docks at Bahía Urbana in a lease that could extend to 80 years to CapRock Partners, Pierluisi’s “donor investment fund.”
According to the report, Pierluisi stands out with the alleged highest amount of donations at $429,795, followed by San Juan Mayor Miguel Romero with $151,270, Dorado Mayor Carlos López with $96,100, and González-Colón with $84,900. The report also includes donations to more than a dozen lawmakers and the two major political parties, whose total sum of reported donations through the end of 2023 is $1,023,591.
The report details the alleged amount of electoral donations received by specific candidates and political parties, as well as the total sum of the donations over the past decade. It is the second in a series seeking to “expose the impact of Act 22 in Puerto Rico.”
Act 60, also known as the Incentives Code, was passed by the Legislative Assembly and signed into law by former Gov. Ricardo Rosselló in 2019. It unifies, classifies and harmonizes more than 50 economic incentive laws under one code.
“For the past two years, the PR No Se Vende coalition has investigated the impact of Act 22 in Puerto Rico. In this time, we have found that many communities in Puerto Rico have been displaced as a result of this legislation while the economic investment that was promised as a result of these tax breaks is little or none,” said Julio López-Varona, co-director of Campaigns at the Center for Popular Democracy.
“This report shows the real reason that motivates many candidates in Puerto Rico to support Act 22. Campaign donations have become the main reason for these candidates to turn their backs on the people of Puerto Rico. We understand that there is still time for these candidates to recognize the nefarious impact of Act 22 and we hope that they will commit to eliminating this terrible legislation,” López-Varona said.
Sonia Palacios, spokesperson for VAMOS expressed several concerns noting: “This report leaves us with a bitter taste. On one hand, it explains the inaction by the Legislative Assembly and the governor in addressing a law that did not deliver the promised results. On the other hand, it raises even more doubts regarding the benefits that these millionaires receive.
“In light of this information, we must question how else these individuals benefit in a country where Puerto Ricans do not have access to basic services or affordable housing. While the Department of Economic Development and Commerce has been incapable of properly supervising these beneficiaries the IRS is investigating them.”
In April, the coalition published its first report, which revealed how beneficiaries of Act 22 identified a way to allegedly evade the annual donation requirement to nonprofits, creating organizations that mutually benefit from donations.
DDEC’s study
Also recently, the DDEC held a roundtable with reporters to release its study, titled “Evaluation of the Performance of Economic Incentives,” which covers the various programs under Act 60.
“This study reflects the results of the return on investment of incentives,” DDEC Secretary Manuel Cidre said. “Although the agency had conducted other studies, it had never collected and created a database as robust as this analysis, which utilized state and municipal tax returns, payroll reports, annual reports and data from program beneficiaries. This type of effort becomes an essential tool for public policy decision-making and for the monitoring and auditing of incentives.”
The study of the different incentive programs, commissioned to Abexus Analytics, highlights that the generated fiscal revenue totaled $3.27 million, while those generated by incentivized foreign corporations in the manufacturing industry reached $2.3 billion, representing a positive return on investment (ROI), in contrast to domestic entities, whose results were neutral. With regard to Act 22 and Act 20, both incentives showed a positive impact according to the ROI formula.
In addition to attracting individuals who generate a fiscal impact, the study showed that, under Act 22, the amount of income paid in 2020 was $130 million, while an increase in collections for 2022 was reported, $144 million, and the contribution in consumption taxes for that period doubled to $24.5 million.
Act 20 also showed notable results, as the service sector was strengthened and employment and salary figures improved.
“In 2020, more than 11,562 jobs were reported, which increased to 22,192 jobs in 2022,” said Carlos Fontán, director of the DDEC’s Business Incentives Office.
According to the report, the sectors that should reevaluate their approach are the creative industries and agriculture with negative returns on investment. In the tourism sector, the incentives have promoted the development of hospitality and entertainment infrastructure, but its historical ROI is neutral.
Cidre added that the DDEC will analyze the report’s results to determine how to continue enhancing programs that reflect a positive performance, as well as potentially reformulating those that are not performing as expected.
“Although the incentives have had positive impacts in specific areas, it is a fact that there is room to improve their design and application to ensure alignment with strategic economic development objectives,” Cidre stated.
Using administrative information and interagency data, the DDEC report analyzes the incentive programs, considering incentive legislations from previous years.
DDEC Deputy Secretary Humberto Mercader said: “This report sets a new standard in analysis criteria for creating an increasingly useful and comprehensive intelligence tool. It is an important step to nurture the public discussion on this important pillar of economic development and base the conversation on data that will allow us to improve and expand our stimulus bets on the economy.”
In addition to data collected from agencies such as the Treasury Department, the Puerto Rico Tourism Co., the Agriculture Department, and the Municipal Revenue Collection Center (CRIM), a cost-benefit analysis was conducted to estimate the cost of incentives that grant preferential tax rates.
The agency said that as part of that analysis, a perspective from the viewpoint of international companies was incorporated to compare Puerto Rico with the countries it competes with to prevent biases and estimates that do not take into account the economic behaviors of the incentive beneficiaries.
“When studying incentives, it is critical for the DDEC not only to look at the return on investment but also at other aspects that are less discussed but very important, such as their effect on business retention and the long-term economic stability they can represent,” Cidre said. “That is why this time the opportunity cost was considered to model what the response of companies would be to different fiscal burden scenarios.”
Fontán highlighted how this type of analysis is also part of the set of oversight tools.
“This effort adds to other DDEC initiatives to promote oversight and responsible management of various incentive programs. As we have previously indicated, the DDEC’s affirmative actions, including the revocation of decrees, have resulted in a significant increase in compliance by the concessionaires,” Fontán said.”
Kevin González of Abexus Analytics highlighted that the methodology used in the report represents a significant advance in the evaluation of economic incentives.
“The analyses performed integrate economic, tax and sectoral information, which evidences a collaborative effort between the main custodial agencies of the island’s economic data,” González said. “The granularity of the analysis provides greater precision and ensures the relevance of the findings. This project not only reflects a measurement effort but also a commitment to strengthening the economic data infrastructure.”
