Federal Funds and Reconstruction

December 10, 2019
Bricklayer putting down another row of bricks in site; Shutterstock ID 285408257; Job: NL-Comercial Q4; Client/Licensee: Banco Popular; Other: Comercial

By: José J. Villamil
Estudios Técnicos, Inc.

What is the total amount of federal funds for reconstruction after hurricane Maria that has reached Puerto Rico so far? Much of what will happen in our economy over the next five years depends on them.

There is confusion regarding federal funds intended to rebuild the island. It would be beneficial for Puerto Rico—especially for those of us who are active players in the economic processes—to have a notion, as accurate as possible, about the funds’ approval process, how much money has already come in, and how much will arrive in the coming years.

The approval stages

There are four stages in the process of approving reconstruction funds:

  1. Appropriation: When there is legal authority to use the funds.
  2. Assignment: When the money is allocated for a particular use.
  3. Pledging: It occurs after signing a grant agreement with the Federal Government.
  4. Disbursement: It happens when the funds are made available to Puerto Rico.

Shortly after the hurricane, the United States Department of Housing and Urban Development (HUD) agreed to send $20 billion in Community Development Block Grants-Disaster Relief (CDBG-DR) funds. Of those, $1.5 billion have already been disbursed and are being invested in our economy. Another $8.2 billion are pledged and should be available in the coming months.

That gives us a total of $9.7 billion that are already disbursed—or will soon be.  Of those, about $4.8 billion will be allocated to housing and over $1 billion to economic development activities. The remaining funds, which will complete the $20 billion, will take longer and will be received in 2021 and 2022.

How much money has been pledged or disbursed so far?

The amount is just over $20 billion—from which we must subtract about $4.8 billion used by FEMA for administration and operational purposes.

That would leave a total of about $16 billion from October 2017 to September 2019. To this amount we should add about $5 billion in payments made by private insurers. In short, $21 billion is a reasonable estimate of the obligated and disbursed funds, including payments from insurance companies.

Who benefits?

The construction, retail, and construction materials sectors are the ones who benefit the most from these funds. However, a large proportion of construction projects started by FEMA and the Corps of Engineers were handled by foreign companies. That’s why, in part, the Fiscal Oversight and Management Board states in its fiscal plan that only 13% of federal funds will impact the economy.

What are future projections in terms of federal funds?

The Fiscal Oversight Board has estimated that approximately $64 billion will be received in Puerto Rico between 2018 and 2024.

This influx represents a huge potential to drive immediate economic activity and, more importantly, allow flexibility to plan a roadmap for the post-reconstruction years. That roadmap, based on a clear vision of the future, is essential. We must define what kind of economy and society we want so as to execute the necessary economic measures for a better economic future once the post-hurricane Maria reconstruction comes to an end.

Banco Popular de Puerto Rico (“Popular”) has no affiliation or relationship with Mr. José Villamil and/or Estudios Técnicos, Inc. This article is for informational purposes only and does not represent an endorsement or guarantee of its accuracy. Popular nor any of its affiliates, subsidiaries or related parties, are, nor will they be liable for any special, direct or indirect, incidental or consequential damages, including, but not limited to profit losses resulting from or related to communications, articles or counseling provided by Mr. José Villamil and Estudios Técnicos, Inc. or that may arise from the information contained in this article. Popular is dedicated to providing banking services, so it is not dedicated (directly or indirectly) to providing any type of services related to those stated in this article. If you require any of the related services, you should seek advice from a competent professional of your choice. Popular is not responsible in any way for the outcome of any related endeavor if you decide to voluntarily communicate with Mr. José Villamil and/or Estudios Técnicos, Inc.

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