Puerto Rican Government Spends $20.6 billion in Tax Credits

For the first time, the Puerto Rico Treasury Department has published a Budget Expenditures Report, (IGT, in Spanish) outlining the costs associated with tax credits, exemptions, deductions, and incentives offered by both major parties to individuals, corporations, and nonprofits in Puerto Rico over the last five decades. 

Among other things, the document indicates that in 2017, these incentives cost the Island more than $20.6 billion—roughly $5 billion less than its entire budget for the year, and nearly two and a half times the amount in Puerto Rico’s general fund ($9 billion).  

According to the IGT, roughly 80% of the tax credits are aimed at Puerto Rico’s industrial sector. Of these, the most costly by far are those outlined in tax credit laws passed in 1998 and 2008, Act 135 and Act 73 respectively. These two laws alone represent roughly 60% of 2017’s tax credit-associated losses – nearly $15.7 billion. The next most expensive credit was established by 2012’s Act 20, which set a tax rate of 4% to those exporting services from Puerto Rico. It cost $111.3 million in 2017. 

The IGT does not outline the return on investment associated with the tax incentives.  

Sale of EDB’s Loan Portfolio Referred to Investigative Authorities

Months after the Puerto Rico Economic Development Bank (EDB)’s sale of approximately $300 million of its loan portfolio, it has been referred to the Puerto Rico Department of Justice and other regulatory agencies. A forensic audit to discover why the EDB made those sales– which were made for less than ten cents on the dollar– has been requested.    

Among the assets sold were those backed by the U.S. Small Business Administration (SBA) and the U.S. Department of Agriculture’s Rural Development Administration.

The sale of the loans had been originally explained to be part of a plan to transform the EDB and merge it with the Housing Financing Administration (AFV, in Spanish), as part of former governor Ricardo Rosselló Nevares’ plan to consolidate government agencies.

Once the reorganization was complete, the EDB was meant to shift its focus, from providing loans to guaranteeing commercial loans provided by private banking institutions. However, at first glance, the sale of the $300 million in assets so depleted the EDB that it has, in five years, lost 90% of its net income, and has been forced to halt loans to small and mid-sized businesses. Its current assets total $175 million, down from nearly $1 billion, while its income is currently around $7 million, down from $108 million in 2014.  

Pew: 5.6 million Puerto Ricans lived in the United States by 2017

According to a Pew analysis of Census data, Hispanics of Puerto Rican origin living in the 50 states or the District of Columbia – a group including those who were born in Puerto Rico and those who trace their family ancestry to the Island – numbered an estimated 5.6 million in 2017. This represented a 65% increase since 2000, when the population was 3.4 million. That year, Puerto Ricans made up 10% of the U.S. Hispanic population, making it the second-largest population of Hispanic origin living in the United States.  

The Pew analysis also reveals that about 29% of Puerto Ricans living in the United States were born in Puerto Rico, and that 21% of those have a Bachelor’s degree or higher, compared with 18% of Puerto Ricans born in the 50 states or DC.  

Additionally, Puerto Ricans performed better than other Hispanic groups in several metrics, including education, annual personal income ($25,000 for non-Puerto Rican Hispanics, compared with $28,600 for Puerto Ricans), and income for full-time year-round workers ($34,000 vs. $40,000). On the other hand, Puerto Ricans performed worse when it came to poverty: 23% of Puerto Ricans in the 50 states or DC live under the poverty level, while the same is true of 19% of non-Puerto Rican Hispanics. The report also indicates that Puerto Ricans are most concentrated in New York (20%), Florida (20%) and New Jersey (8%).  

Employment in Puerto Rico Rises to 1,003,000

After adjusting employment and unemployment figures in accordance with recommendations from the Bureau of Labor Statistics, the Puerto Rico Department of Labor and Human Resources found an increase in the employment level and a decrease in the unemployment level for August 2019 when compared with the previous month. 

The adjusted employment estimate for August 2019 was 1,003,000, an increase of 5,000 when compared to July 2019, and an 8,000 increase when compared to August 2018. Meanwhile, the adjustment unemployment figure for August 2019 was 83,000, representing a decrease of 5,000 when compared to July 2019, and a decrease of 10,000 when compared to August 2018. The participation rate was found to be 40.8%, a 0.9% decrease from July 2019, but a 0.5% increase from August 2018.