The $750 million fund set aside by the Puerto Rican government to advance money for reconstruction projects expired on June 30. Although few municipalities used it, the fund — comprised of state money — was intended as an additional safeguard against economic liquidity shortages.

In May, Governor Jenniffer González introduced an administrative measure to extend its validity until 2027. The House of Representatives approved Joint Resolution 111, but the Senate did not vote on it before the legislative session ended on June 30. La Fortaleza, the Governor’s office, expects it to be approved in the next session starting in August, according to Carlos Rivera Justiniano, Legislative and Regulatory Affairs Advisor at La Fortaleza.

However, the Governor’s measure limits the fund’s use to energy transformation projects, effectively excluding municipalities from requesting advances. In 2020, Joint Resolution 85 authorized the Puerto Rico Department of the Treasury to establish the fund with state money under the name “Revolving Fund for Recovery Advances and Administrative Expenses.” Initially, it allowed for advances on road, bridge, water service, and public building projects through loans, lines of credit, or advances for projects funded under FEMA’s Public Assistance and Mitigation programs. Eligible entities (municipalities and agencies) were required to repay the advance money to the Puerto Rican government.

A Fund That Found Little Use

By mid-2022, $9.6 million was disbursed to the municipalities of Yabucoa, Las Piedras, and Caguas and repaid to the fund, according to the Department of the Treasury. As of last week, the fund still held $750 million.

Municipalities such as Morovis, Canóvanas, Yabucoa, Vieques, Las Piedras, Bayamón, and Caguas, along with the Department of Education, requested approximately $79.9 million for 42 projects. These transactions were later canceled, as the Central Office for Recovery, Reconstruction, and Resilience (COR3) confirmed. It was not specified if the applicants themselves made the cancellations.

Jorge “Georgie” González Otero, president of the Mayors Association, said that the low municipal participation was due to a highly technical, slow process that was not adapted to the operational realities of the municipalities.

Each entity requesting an advance from the fund had to navigate through several government agencies and the Financial Oversight and Management Board (FOMB) for Puerto Rico, delaying the process. Because it is structured as a loan or line of credit, these advances are considered a debt-like transaction and therefore require the FOMB’s review and approval.

According to Gabriel Hernández Rodríguez, president of the Mayors Federation, municipalities had a short timeframe to award projects and return the money. Few municipalities requested funds due to the evaluations and information requests required.

Advances were granted once projects had obligated funds from FEMA to expedite work while awaiting federal disbursement. After FEMA approved a project with its funding allocation, a municipality, agency, instrumentality, or public corporation could request an advance from the fund for eligible reconstruction work.

The Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF, in Spanish) and COR3 administered and supervised the fund under the scrutiny of the Fiscal Control Board. Payments to the fund were deposited once applicants received FEMA disbursements.

“The majority of small municipalities lack the technical or legal staff to navigate this bureaucratic maze,” González Otero, also the mayor of Jayuya, said. “And if you add the lack of technical assistance in using this fund, it definitely doesn’t help expedite reconstruction,” he added, noting that the lack of uniformity in rules and the discretion with which FEMA and COR3 approve projects have generated distrust.

Additionally, many mayors face duplicate requirements and parallel approvals between COR3 and FEMA.

So, the fund practically did not work. It remained almost intact since its approval about five years ago, when the Legislative Assembly, weeks before the 2020 elections, announced the measure as an essential step for reconstruction. It asserted that without the fund’s approval, “the island’s reconstruction could be delayed due to the lack of liquidity of government entities to start certain works that operate on FEMA reimbursements,” according to the positive report that led to the measure’s approval.

“Robbing Peter to Pay Paul”

The Governor’s bill, presented in May, not only seeks to amend Joint Resolution 85 to extend the fund’s validity, but also proposes that advances be limited to energy transformation projects, eliminating the requirement that the work to be developed has FEMA’s disbursement commitment. Advances can also be paid with “any other financing source” allowed in guidelines to be issued later by the Treasury Department or AAFAF. Besides municipalities, agencies, instrumentalities, and public corporations, the measure includes that “other eligible entities” could receive money from the fund.

Neither the Mayors Federation nor the Mayors Association, representing mayors from both parties, was consulted about this measure before presenting it to the Legislature or during the legislative process stages, the presidents of both organizations acknowledged.

The president of the Federation did not oppose the measure when approached by the Centro de Periodismo Investigativo (CPI) but acknowledged that few municipalities have energy transformation projects.

“What the legislative measure refers to are state projects because municipal governments don’t have others beyond small energy projects, like collaborative agreements to buy solar panels for traffic lights. The Mayor of San Juan is working on several proposals, but directly with the federal government for a microgrid in San Juan,” Hernández Rodríguez, also the mayor of Camuy, said.

Initiatives like microgrids, solar energy systems for critical facilities, backup batteries, or efficient public lighting are among the few proposals of this type from some municipalities, González Otero said. “Only a minimal fraction” of municipalities has technically viable energy projects, he explained, comparing them to the hundreds of pending reconstruction projects for roads, bridges, recreational facilities, water control facilities, and public buildings.

The municipalities’ inventory of damages from Hurricane Maria totals 12,670 projects, according to COR3 data until the end of June. Of these, 2,731 projects were completed.

Funds for LUMA Energy, Genera, AES, or Another Entity?

Although the Governor’s measure did not reach a Senate vote, La Fortaleza expects it to be one of the first approved in the next legislative session, Rivera Justiniano indicated.

“The Governor asked me to convey [her intention for the money to be used for energy transformation projects] to the Senate President, and we did so in the last days of the session in June. There may be amendments the Senate wants to introduce, but I don’t have that text,” said the Legislative and Regulatory Affairs Advisor at La Fortaleza.

The Governor’s priority is to have state funds available, he added, so that the public corporation, understood as the Puerto Rico Electric Power Authority, or any private entity, has the resources to build the energy infrastructure. The Governor is “very concerned” that LUMA and Genera, the two private companies providing transmission and generation for the electrical grid, are not using federal funds, he said.

The measure was approved in the House of Representatives with opposition from the delegations of the Popular Democratic Party (PPD, in Spanish), the Puerto Rican Independence Party (PIP, in Spanish), and Proyecto Dignidad.

“We would like to know if where it says, ‘other eligible entities,’ it is opening the door to advance funds from the Revolving Fund to LUMA Energy, Genera, AES, or another entity,” asked Representative Héctor Ferrer and the PPD delegation in their explanatory vote against, mentioning the private companies operating Puerto Rico’s electrical grid. They also questioned why there were no public hearings to discuss the implications of the Governor’s proposed changes in the measure.

Representative Adriana Gutiérrez Colón told the CPI that the PIP delegation voted against because the measure does not specify which energy transformation projects would qualify.

“This could become a blank check for the administration or the Government to establish energy projects that are contrary to what we believe [for renewable energy sources],” she said, noting that the Governor extended the life of the private AES coal plant and that “more is being bet on gasification.”

The Chairman of the House Finance Committee, Eddie Charbonier Chinea, accepted the measure’s amendments in May without public hearings, considering the observations of Francisco Domenech as AAFAF’s executive director, and the Governor’s Chief of Staff.

Meanwhile, Senator José A. Santiago Rivera, who chairs the Senate Municipal Affairs Committee, was surprised that it was limited only to energy projects and is concerned that “other eligible entities” could receive advances.

“Here, the only ones working with that [energy projects] are LUMA and Genera. We would have to see if now they want to limit those private companies’ use of those funds when they are two multimillion-dollar companies,” warned Santiago Rivera, who was the mayor of Comerío. He added that he would recommend the PPD delegation in the Senate vote against it.

The measure received a positive report in the Senate Finance, Budget, and Promesa Committee, chaired by Senator Migdalia Padilla Alvelo, but did not reach the final vote.

For the president of the Mayors Association, the Revolving Fund should remain a versatile additional tool, not tied solely to energy-related projects. To achieve its agility, he recommended removing bureaucracy from the process, allowing municipal access without disproportionate technical hurdles, and not imposing a thematic straitjacket that benefits only those with ready or pre-approved energy projects.

Once the Revolving Fund and the authorization to grant advances expire, the money must be deposited in the central government’s main bank account, as established by Joint Resolution 85.

“To spend that money, a joint resolution and a budget authorization would be needed to make any fund disbursement,” Treasury Secretary Ángel Pantoja Rodríguez told the CPI.

According to the Fiscal Plan, the $750 million is expected to be released starting in 2029 to pay Puerto Rico’s bondholders as part of the central government’s Debt Adjustment Plan approved by the federal court in 2022. Under the agreement, the government must allocate the fund’s money to repay capital appreciation bonds (CABs), at a rate of $150 million annually until 2033.

Advances with Federal Funds That Generate Interest

Given the ineffectiveness of the Revolving Fund, municipalities and agencies have preferred to use the Working Capital Advance program, which is federally funded. Under this program, COR3 and FEMA authorize advances up to a maximum of 75% of the federal funds obligated by FEMA for reconstruction projects.

The president of the Mayors Federation recommends that municipal governments use the Working Capital Advance. “It is much more manageable and transparent,” he said about the program that began in June 2022.

The same day the Revolving Fund expired, COR3 announced new requirements to access the Working Capital Advance program. Now, when managing an advance request, the applicant (municipality or agency) must submit a 90-day spending plan. They must justify expenses within 180 days through the reconciliation process, with the presentation of invoices, contracts, and payments.

“Once that process is completed, the subrecipient can request a second advance, as long as they present a new spending plan along with the corresponding request,” explained COR3.

Another source of financing is the regular advance (RFA). To request it, an immediate cash need must be demonstrated, and a 90-day spending plan, acquisition process documents, and related project contracts must be submitted.

Funds granted through the Working Capital Advance and the RFA must be deposited in an interest-bearing bank account. Any interest exceeding $500 that these accounts earn must be turned over to FEMA. A total of $64.4 million was disbursed to FEMA for the interest earned between 2023 and 2024 by the Working Capital Advance advances, COR3 told the CPI.

This translation was generated with the assistance of AI and reviewed by our editorial team to ensure accuracy and clarity.