Economic development scarce for P.R.’s micro and small entrepreneurs

The government’s initiative to speed up the permit procedures for new businesses is two years behind and its regulations have not been enacted. The internet page does not work, there’s a lack of inspectors and some incentives have been eliminated.

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Piu Bello Gelato's nauguration

Photo courtesy of Piu Bello Gelato

“To avoid a headache,” Wilfredo Cubero hired a professional authorized by the Permit Management Office (PMO) to get the Use Permit for his business Piu Bello Gelato, located in Plaza del Sol mall in Bayamón.

His biggest setback at the moment is that he still does not have the sanitary license required for all food businesses, because a Health Department inspector has yet to visit his place to do the mandatory inspection.

Cubero submitted the application for the sanitary license on Oct. 23, 2018 and it was not until five months later that a Health Department inspector reached out to him for the inspection. At that time, the inspection could not be done because the area where the business is located in the shopping center was closed for remodeling. He has been waiting since March.

The entrepreneur, who previously had a business in Arecibo in 2016, recalled having to wait then for the sanitary license, but less time, only three months.

Nelson Reyes, creator of the Incubator Model of Community Solidarity Microenterprises (iMECs, for its initials in Spanish,) said he knows many “horror stories” about the process of granting permits and anecdotes of small merchants from across the island who waited up to six months to get the permit. In his experience, Reyes — who has been training microentrepreneurs for more than 15 years — the delay in awarding the use permits is in part because the Environmental Health and the Fire Department do not have enough inspectors to issue the certifications. Both authorizations are necessary for the PMO, which has the final say, to issue a use permit.

Nelson Reyes, in the middle, has been training microentrepreneurs in Puerto Rico for almost two decades

The Health Department is also in charge of the sanitary license for food businesses, which requires the visit of an inspector to the establishment, as well as the issuance of labels for processed foods.

In another case interviewed by the Center for Investigative Journalism (CPI, for its initials in Spanish), in which the small entrepreneur asked for anonymity, he paid rent without being able to operate the business during 18 months. That’s how long it took for him to get the use permit and the license to sell alcoholic beverages for an establishment where cultural, community and artistic events are held.

“Six months passed after we submitted everything, with no follow-up. At the end, the Municipality of San Juan told us: ‘if you pay an intermediary, it will probably be released faster because they have accesses that you will not have’,” said the entrepreneur, who began the request online.

“In a matter of two weeks the intermediary arrived with the permit in hand,” the source added. Two weeks later he received the liquor license, he said.

The CPI found a 21% drop in the number of Environmental Health inspectors in the past 10 years. Environmental Health is an agency within the Health Department whose responsibility is to prevent and control environmental problems that affect public health.

In 2012, there were 132 Environmental Health inspectors, while in 2019, the number is 104, according to information provided by the Health Department.

As for the cases where the Environmental Health permits were granted, there has also been a decrease: in 2015, 32,034 were granted, while during the first four months of this year it has only granted 8,881.

The endorsement of the Fire Department, Environmental Health and Categorical Exclusion are also required. The Health Department acknowledge that they have less Environmental Health inspectors, but said they are taking measures so that the service continues.

“Currently, under the Centers for Disease Control’s (CDC) recovery funds we have managed, through proposals, to bring in personnel to increase our staff and guarantee the different tasks that our crew performs,” said Carlos J. Mercado-Ruiz, of the Environmental Health’s Deputy Office.

Regarding the decrease in the number of permits granted, Mercado-Ruiz said that, “may be due to several factors; for example, business closures [due to remodeling or elimination,] administrative processes and/or compliance, among others.”

The Fire Department, meanwhile, currently has 83 inspectors, according to Karixia Ortiz, press spokeswoman of the Department of Public Safety.

However, José Tirado, president of the Puerto Rico United Firefighters Union, told the CPI that there are only 70 field inspectors, and 10 other supervisors that don’t do inspection work.

Tirado said that in the past three years, the number of inspectors was around 100, and that the decline is due to the freezing of job openings after firefighters retire. He mentioned that in the southern Ponce region, there are only two inspectors, which caused a backlog of 1,500 cases since last year.

“They are still issuing certifications from last year,” he said about that region.

The Firefighters’ Union leader stressed that they don’t have enough inspectors to cover the amount of work, which entails not only issuing certifications for businesses, but also annually inspecting schools and hospitals, among other public and private venues, as well as large-scale events.

Tirado also said that the Union is against that firefighters inspectors be used to issue Health permits, and therefore they filed a complaint and are willing to go to court if they don’t reach an agreement with the agency. The labor leader believes that firefighters are not trained to issue health permits, plus, this means more work for the same salary. Around six months ago, Fire Department inspectors were forced to do the Environmental Health inspections, but after the Union’s complaint, the policy was revoked, for now, said Tirado.

Víctor Hugo-Rivera, executive president of the Community Development Alliance Inc., which has an incubator for community enterprises, remembers a kind of “manifesto” that decorated the façade of a pizzeria in Yabucoa, after Hurricane María hit in 2017. The owner explained how permit problems caused him to never being able to open its doors. Rivera, who has been supporting microentrepreneurs for five years, said he advises participants to take in account in their business plans that the use permit, “in real terms, may take more than a year.” He also advises them to use authorized intermediaries.

In the back on the left, Víctor Hugo Rivera, executive president of the Community Development Alliance Inc.

For Jorge Argüelles-Morán, president of the United Retailers Association, the delay in the granting of use permits is one of the pitfalls that businesses face today. They have to make an initial investment to set up the place to meet the Environmental Health and Fire Department requirements. However, the inspection delay results in loss of income.

‘Single Use Permit’ promised by Rosselló is far away

Gov. Ricardo Rosselló administration officials recognized the historical deficiencies of the business permit system, which is why in April 2017 the Permit Reform was amended to allegedly make the process faster and more agile.

Two years after Rosselló-Nevares signed the amendment to the law, its most important part, the “Single Use Permit,” is still “in the testing stage.” The Single Use Permit would consolidate the certification of Fire Prevention, Environmental Health, licenses and authorizations in a single document and transaction.

Following the signing of this new version of the Permit Reform, the Single Business Portal was created and launched in January 2018, to replace the PMO’ Unified Permit System. The portal is managed by the PMO, which last year was placed under the umbrella of the Department of Economic Development and Commerce (DDEC, for its initials in Spanish). Professionals and entrepreneurs interviewed by the CPI believe the online application is agile. The problem, according to their experience, is in the delay in the granting of permits. However, none of the CPI’s three attempts to register on the website, on different occasions and with different emails, was successful.

Upon the arrival of the Single Permit, the Permit Reform and the economic development expected with the Opportunity Zones and the recovery funds, DDEC Secretary Manuel Laboy said the they began to train DDEC, Fire Department and Environmental health inspectors. The Treasury Department is participating in the training, since the Single Permit will include the license to sell tobacco and alcohol. He also mentioned that the DDEC received federal funds that will allow them to hire 98 inspectors.

Photo courtesy of La Fortaleza

From left to right, Governor Ricardo Rosselló and Secretary Laboy

“For fiscal year 2019, 50,218 permits request have been filed at the Permit Office. As of today, 44,061 had been awarded, while 6,157 were pending. I think those numbers are positive,” said Laboy, referring to a Metrics Report.

Laboy said the Single Use Permit program is in “a trial stage,” mainly to integrate it into the Single Business Portal website.

“The reason why we haven’t been able to get it out is that we’re making sure that we do the appropriated tests, and that the system is going to run as designed,” added Laboy.

“The truth is, and I don’t like to give excuses, but there is a reality. The permit law was enacted during the first semester of 2017 and when we began to implement all this, both the Joint Regulations as well as what needs to be done technologically, that was all interrupted by the hurricanes. The emergency was the priority. By 2018, the work was resumed,” he said.

According to Laboy the delay in the launching of the Single Permit system is due also because they haven’t approved the Joint Regulations for the Evaluation and Issuing of Permits related to the Development, Land Use and Business Operation, which they need to revise, given the amendments made to the Permit Reform and also due to Hurricanes Irma and María.

Though the Secretary didn’t dismiss the fact that the amount of cases that are pending to be ruled on are due to government problems, he laid the responsibility on the proponent citizens for the delays.

“In many of the cases, the proponents don’t submit the documents on time, or are incomplete or require further clarification,” he said.

Intermediaries or authorized professionals?
Given the delays in the PMO’s granting of Use and other permits, intermediaries come into play, who according to information compiled by the CPI, can bill up to $2,000 per case.

Laboy said he did not know if there are any regulations the permit intermediaries must follow. The CPI verified with several officials and experts that there are no regulations that cover the practice.

There is an important difference between a permit intermediary and an authorized professional. The authorized professionals are licensed and trained by the PMO to issue routine permits that don’t require a decision based on their personal judgment, whereas the intermediaries are persons who offer to file documents or give follow-up to a given process. Authorized professionals can be surveyors, architects, engineers, geologists or planners.

Then there are the inspectors approved by the PMO, who are trained and can issue Environmental Health and Fire Prevention certifications.

Jeymarie Correa, director of the firm Permisos SOS, said they received a minimum of two calls per week, from people who had “bad experiences with intermediaries”.

Correa stressed that intermediaries don’t have decisional authority and they are subject to the same process as everyone else, to request and receive permits.

In the case of Permisos SOS, she made it clear that they are not intermediaries and that the owner of the office is a professional authorized by the PMO. According to her, in Permisos SOS, they give advice and analyze the requirements that are needed to obtain a permit or license, depending on the case. Correa said one of the most common problems at the beginning of the process of requesting a permit is that people don’t look up the information regarding requirements and this occasionally results in that they are missing documents at the time of filing.

Since they have an authorized professional, Correa explained that Permisos SOS charges $850 in fees, per job, plus $300 for permit filing costs (Use Permit, Environment Health, Fire Department and Categorical Exclusion). They issue permits within 24 to 48, from their own office.

Eliminating support to the micro businesses community

Reyes said community micro businesses have been “abandoned because the economic sector does not acknowledge them as an important sector which generates jobs.” He even denounced that, since the Roselló-Nevares administration began, the $5,000 incentive for community micro businesses that was established on 2013, has not been available at Puerto Rico Trade and Export, an agency under the Economic Development umbrella.

He added that the Trade and Export incentive for incubator communities, which are entrepreneurships that train micro business people, was also eliminated by this administration, a situation he regretted.

“With incubator procedures you get better results than with a person that is all alone, requesting permits. That is why many times, they fail,” he lamented.

An independent study done between 2010 and 2015 by Consultores Asociados and the Incubator Micro Business Alliance concluded that the incubators give “the opportunity for the development of a united, self-management business culture which generates local jobs and wealth.” It also stated that in Puerto Rico, the community incubators incentive “is limited.”

“In Puerto Rico, evidently, there is a very serious problem of inequality, which manifests itself in every level. For example, how is it possible that there is only one very low incentive for incubator projects for micro enterprises? How can they not understand that every dollar invested in the incubation of micro enterprises will result in economic activity that will be formalized and, in turn, will pay patents, CRIM, taxes, etcetera? In the United States, the government has acknowledged that for every dollar invested in incubating there is a $40 return, in the areas mentioned,” says the study.

The study also sees as an “injustice” the fact that the request and granting of permits does not distinguish between a micro enterprise from a multi-national.

“How is it possible that fairer and simpler ways do not exist to facilitate a ‘formal’ way of operating? Does the government not realize that structures and permits processes ‘invite’ and sometimes ‘force’ a business to operate informally?” the study questioned.

Law 73-2008 created the Special Fund for Economic Development from which two incentives for micro businesses originate: one for incubators and another for businesses themselves. The incentive for incubators “is in the process of being revised,” according to the DDEC and they are preparing a work plan to request that the Puerto Rico Industrial Development Company (PRIDCO) give them a grant. As for an incentive for micro businesses, they are presently accepting proposals for business initiatives that qualify.

Laboy added that, through Puerto Rico Trade and Export and Law 135 for Young Entrepreneurs, there is another incentive, the Economic Incentive for Community Micro Businesses (of the DDEC Youth Development Program in collaboration with Puerto Rico Trade and the Economic Development Bank.) However, before this investigation was published, Reyes showed CPI an email, as evidence that the Puerto Rico Trade incentive for community micro businesses was not available, according to an employee of the agency who requested that his name be withheld.

There are abundant negative experiences of micro entrepreneurs and small businesses like that of Marina Martínez, owner of Bistro del Mar. Martínez, had to move her food truck from Fajardo to Luquillo because the municipality began to fine them, although they had given them permission to be in a green area by the road. Recently, Martínez received a new contract from Puerto Rico Trade and Export for the use of her food truck, which was granted to her in 2011 under the Pa’ mi Gente program. The new contract is from the “Puerto Rico Emprende Contigo” program and, according to the government, it requires training before the food truck is delivered. Martinez has not signed the contract yet because they have not given her the training.

Despite having the desire to work and create jobs, cases like Joshua Hernández’s, show how the lack of a permit can end the dreams of entrepreneurs. For approximately eight months, Hernández has been trying to operate his business, Aqua Sunset Tours, in the bioluminescent bay of Vieques. He stated that the permits process has been difficult and that each time they request different documents from the Department of Natural and Environmental Resources (DNER). His biggest concern is that, after he has made an investment in the acquisition of four vehicles, two vans and 12 kayaks, the DNER will not approve the permit he needs to start working. This permit, he explained, requires the payment of a non refundable $500 fee if the Department does not approve the permit in a period of 12 months. His fear is based on the fact that, on three occasions, agency staff has already verbally denied him the use of the space because, allegedly, it was not available.

Hernández expressed his outrage over the fact that, from the beginning, the DNER told him that there was no space in the bay, yet he has seen how another concessionaire recently established in the bay, with permits from the agency.

While micro and small merchants avoid obstacles to establish their businesses and lack seed capital, in Puerto Rico there is Law 22, approved under the administration of Luis Fortuño, which encourages the transfer of investors to Puerto Rico through tax exemptions. There is also Law 20, which provides tax benefits to companies that export their services, including foreign companies that are established on the Island.

On February 2018, the governor announced a new incentive aimed at small and medium-sized enterprises (SMEs) related to the fields of science and technology. At the time, it was said they would be granting up to $100,000 in seed capital per company.

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