Political continuity goes a long way on the economic development front; this is particularly true in Puerto Rico where a “quitate tu pa’ ponerme yo” dynamic interrupts initiatives begun under competing administrations.
Few people know this better than Miguel Romero, the pro-statehood mayor of San Juan, who, in his second term in office, is on the verge of closing a historic bond emission for the municipality that would mark a return to the market that has been five years in the making.
“I just talked to my team; they are in New York finalizing the pricing right now,” the mayor told Caribbean Business during an exclusive interview. “Before, when mu-nicipalities in Puerto Rico went to market, they did so through the Municipal Finance Corporation ascribed to Puerto Rico’s Fiscal Agency and Financial Advisory Authority [AFAAF by its Spanish acronym]. This time we are doing it ourselves. That is why it is historic; it is the first time that a municipality from Puerto Rico has direct access to the market. That is why the credit rating and the transaction are under San Juan’s name,” he said.
“Consistency; five surpluses during those five years. They reviewed our fund balances and they gave us that [investment grade] rating.”
– Miguel Romero -San Juan Mayor
The transaction comprises two issuances; one emission for $238 million is to refinance old debt that includes $209 million of existing bonds and $23 million of new debt. This was covered by local banks in a single transaction to refinance 13 loans, thus achieving better terms over the first seven years, covering $84 million. The second transaction, the mayor explained, is for new public works, which were authorized by the Financial Oversight and Management Board (FOMB) enabled by the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).
“Although San Juan issued bonds in 2005, they did so through the defunct Government Development Bank (GDB) as the financial agent that ran point on municipal debt,” Romero reiterated. “Those mechanisms no longer exist after Puerto Rico’s bankruptcy,” he added, alluding to the demise of the GDB in 2016.”
Although the GDB had a decent track record managing Puerto Rico’s debt from the moment it was founded in 1942, the finan-cial agent began acting as the lender of last resort in 2005 when it covered liquidity gaps in the Commonwealth government’s General Fund. The huge red flag springing from its books was a $2 billion loan to the Puerto Rico Highways and Transportation Authority that killed investor appetite and sent shivers through monoline bond insurance companies covering debt in the event of default.
It was only a matter of time before the GDB became insolvent and then-Gov. Alejandro García Padilla made public that his administration was unable to pay debt built on once sterling triple-tax exempt notes and bonds propped up by Puerto Rico’s constitutional guarantees against default. When Barron’s, a magazine that specializes in financial news and analysis, ran a cover story showcasing Puerto Rico’s financial surrender, the dominoes fell fast and led to the ultimate demise of the GDB and the birth of AFAAF in 2016.
Terms of Endearment
On the day of this interview, Romero’s restructuring brigades were in New York fine-tuning the final terms of the second transaction, which is scheduled to close on August 21. “Things are going very well; there is a good appetite for this second transaction,” the mayor intoned. “Before this interview began, the bond issue stood at $122 million; we now have offers that surpass $700 million. I think we are going to improve interest rates, which had been approved at 5.35 %.
“This is not about getting an approval for a bond issue. I believe that the bond issue is a consequence of the work that we have been doing for the last five years,” he added, as if to put things into perspective. “The most important thing for me is that we got back the credibility of the markets, which is important, because if you earn the credibility of the markets, then you have better options for the people, lower rates. Lower rates means that the municipality keeps money to serve the people, to give them essential services,” he said.
Romero confirmed that revenue from the second transaction will be invested in infrastructure works. He mentioned schools and recreational facilities, while adding that more than half of the funds raised were destined for improvements to hospitals and diagnostic & treatment centers belonging to the Puerto Rico Department of Health.
Staying the Course
Romero’s conversation circled back to continuity. The mayor said that he start-ed by getting finances in order during his first term. When the credit rating agencies came to Puerto Rico and came to San Juan, he explained that “they saw a city with good governance, with a balanced budget for five years, not only a year, not only a good year, five years.
“Consistency; five surpluses during those five years—they reviewed our liquid-ity, our fund balances, and they gave us that rate. So, that means we restored the credibility that was lost since before the enactment of PROMESA and the FOMB,” he added.
The signature of continuity of which Romero speaks has been beneficial on the entrepreneurial front with such initiatives as the Concierge program, which has been described as a one-stop shop for startups in San Juan. The drive to fan entrepreneurial fire started as a campaign promise during Romero’s run for San Juan City Hall amid the Covid pandemic in 2020 would gain traction in 2021 with the launching of a pilot plan. To that end, Romero’s en-trepreneurial brigades established a foot-hold in August 2021 with the Puerto Rico Planning Board to obtain competencies be-longing to the Permits Management Office that would grant the municipality greater control of the permitting process.
“More than control, it gave us greater capacity to provide assistance and sup-port with everything related to economic development,” Romero explained. “As the capital city, by having a land-use plan approved, you can actively support and maximize the economic development capacity of the municipality.”
The two go hand-in-hand, as Romero indicated he did not want San Juan’s priorities on other municipal fronts to “bog down the plan to create jobs. We wanted some sover-eignty in the process that would allow us a little more control. Once we accomplished that, we started to create the program. The first step was establishing the Capital Entrepreneurship program,” known as “Emprendimiento Capital”—on the heels of pandemic recovery, he said.
There is a Shop for That
The entrepreneurial drive in San Juan was somewhat muted as many businesses closed during the pandemic. San Juan received over $123 Million in federal disaster funds to provide residents and businesses with disaster relief. Romero explained that “Emprendimiento Capital” provided greater organization in helping people get back on their feet. With a Memorandum of Understanding in hand, the “Romeronomics” went a step further, setting up the pilot plan that would provide unique permitting and an entrepreneurship program with a first office at Plaza Las Américas mall.
The program has now become a permanent fixture of San Juan’s economic devel-opment drive. To further help entrepreneurs, office hours are extended beyond “regular” government hours, including Saturdays. Helping business owners navigate permits and the new incentive code is also part of the program’s offerings.
“We also look at land-use planning, for example. Things we’ve noticed: merchants who initially see a great opportunity in a place, rent it, but only after renting it do they start to check what type of commercial use it has,” Romero said. “Now, for example, before rent-ing a commercial property, someone can go to the Concierge program and make a pri-or-use query to know what restrictions that place they want to rent has.”
Depending on the type of business, any restrictions on the property can be checked and if a change of use is required during the permitting process, the Concierge pro-gram also helps entrepreneurs with this undertaking.
“[These] are things that sometimes busi-ness owners aren’t really aware of. You would start a process, rent a space, start improving it, and then suddenly realize that you were going to spend six, eight, nine months, or even a year just to get the permits, or it required a change of use and everything that comes with it,” Romero said.
The overall goal of this initiative is to help entrepreneurs navigate these often frustrating and difficult processes so that their startups can get off the ground as quickly and seamlessly as possible.
Tools for Regrowth
While Romero is focused on San Juan’s economic development, he also recognizes that the city faces demographic challenges. The mayor pointed out that Puerto Rico’s capital has lost over 60,000 residents in the past 25 years. In the same vein, the Island has seen a drop in population from over 3.8 million to roughly 3.2 million in a similar time period.
“I believe we are still facing difficult times in San Juan; the situation remains very complicated, it seems to me. Clearly there are challenges regarding electrical infrastructure. There are challenges with the drinking water infrastructure. These are essential services, and the fact that they are not in optimal conditions deals a terrible blow to the city’s prospects for con-tinued growth,” he said.
Beyond the needs of residents, San Juan also has some areas with vacant lots and abandoned buildings, such as the Hotel Normandie in Puerta de Tierra, which has seen several unsuccessful efforts to revitalize the iconic property. Romero said that a new initiative, the Economic Transformation of the Capital City of San Juan, which he unveiled this past April, provides economic support and tax decrees aimed at helping small businesses re-energize San Juan.
These incentives are sustained through taxes that the city collects. Recently, municipalities have come under fire for collecting taxes from projects funded through federal recovery funds. The mayor of the oldest city under U.S. jurisdiction insisted that this is a non-issue because municipalities have always had the ability to tax private projects that are federally funded.
“Construction fees are what we use for projects with impact, such as infrastructure development, sidewalks and lighting for parks and communities,” Romero noted. “These are funds used for that pur-pose; they are part of the revenues that municipalities—which face increasing responsibilities—use to carry out this function.”
Ultimately, Romero is not fazed by the challenges that San Juan is facing and insisted that the positive results he is seeing continue to fuel his desire to stay at the helm of the Island’s capital.
María Soledad Dávila Calero and Rosario Fajardo contributed to this story.
