When the Financial Oversight and Management Board (FOMB) approved the “New Fiscal Plan for Puerto Rico” on Oct. 23, 2018, the program included -among other steps and initiatives- three measures to increase the island’s labor force participation and employment rate.
Labor force participation rate in Puerto Rico averages 40 percent, far from the U.S. mainland average of 63 percent and even below West Virginia, the lowest-ranked state with a 53 percent employment rate. According to World Bank data cited by the FOMB, the commonwealth’s formal labor force participation rate stands as the 7th lowest in the world and has never ranked higher than the bottom 20.
To address the low employment rate, the FOMB proposed what it called a human capital and welfare reform that required the reestablishment of a work incentive through an Earned Income Tax Credit (EITC) that was eliminated in 2014, a reformulation of the Nutritional Assistance Program (NAP) to include a work requirement, and an ambitious workforce development program to retrain, mentor and guide underserved populations as well as to ensure that employees have the skills and knowledge to support current and future businesses and industries.
“EITC and NAP reform are projected to increase economic growth by 0.15 percent by FY2021, and education and workforce development opportunities are projected to add an additional 0.26 percent from FY2033-2058,” indicated the Board on page 8 of the revised fiscal plan.
However, eleven months later, in the midst of the bankruptcy’s legal proceedings, the federal entity requested a risk report addressing the restoration of fiscal and financial help from the government of Puerto Rico and once again blamed the government for its “limited political will to make radical improvements in the private sector labor environment,” thus affecting the fiscal plan’s projections.
Government officials interviewed by THE WEEKLY JOURNAL rejected this assertion while recognizing the vast challenges the island faces as it tries to emerge from a decade long economic depression; recovers from the damages caused by Hurricane Maria, which are estimated at over $100 billion; handles the restructuring process of its $70-billion plus debt load; and recoups from government instability.
“I disagree with that statement... We’ve had challenges, but we’ve made progress in certain areas. We’ve only been at the helm of the government for three years and we’ve managed to formulate and approve legislation to tackle different issues,” indicated Omar J. Marrero, executive director of the Puerto Rico Fiscal Agency and Financial Advisory Authority (Aafaf, by its Spanish acronym).
A Work Credit
Seven months before his resignation amidst the scandal caused by a leaked chat and allegations of malfeasance, former governor Ricardo Rosselló Nevares enacted a Tax Reform that included a work tax credit.
“The EITC was approved as part of the Tax Reform on Dec. 2018. It will take effect during the next tax filing period, ending April 15, 2020. Soon, the Treasury Department will publish the guidelines and eligibility requirements,” said Marrero, who is also the Chief Financial Officer of the Government of Puerto Rico.
The Earned Income Tax Credit is a tax credit for low and moderate-income working people designed to encourage and reward work as well as offset payroll and income taxes. Twenty-nine states, plus the District of Columbia, have established their own EITCs to supplement the federal version of the credit.
Puerto Rico’s EITC provides a maximum credit of between $300 and $2,000, depending on family size and configuration. According to the FOMB, the program is projected to cost approximately $200 million per year, but the initiative “will increase formal labor force participation significantly, providing a positive return on the investment.”
For instance, a single mother with two children working at minimum wage for 35 hours per week earns approximately $12,180 annually. With EITC, highlighted the FOMB, the woman can qualify for up to $1,500 in additional take-home pay per year, effectively raising the minimum wage by more than 12 percent.
The island’s tax regime contemplated an EITC from 2007 to 2013, but the past administration ditched it when it approved its Tax Reform in 2014 amidst a heated debate on tax exemptions.
Marrero didn’t know the exact number of families that would benefit from this initiative, but the nonprofit organization Espacios Abiertos that promotes democratic practices in Puerto Rico estimated that about 412,000 families could claim the work credit. It also pointed out that for every $1 invested in the credit there is an economic return of $1.50 to $2.
“We’ve had some differences with the Board because we have worked responsibly and on this particular matter are about to unveil the guidelines and eligibility requirements,” insisted Marrero.
Government aims to foster job creation in key industries
Secretary of Economic Development Manuel A. Laboy recognized that due to the ongoing concerns expressed by the Financial Board, staff from the Department of Economic Development and Commerce (DDEC, by its Spanish initials) meets regularly with members of the entity.
“We are in constant communication with the FOMB team. In fact, a few weeks ago, the Board summoned us to a meeting and the team in charge of the workforce development program presented an overview of the status of the work outlined in the Fiscal Plan,” Laboy said.
As part of the roadmap that the agency is elaborating, he mentioned three initiatives: training programs promoted and funded by the Workforce Innovation and Opportunity Act (WIOA), the apprenticeship program and the Memorandums of Understanding (MOU) with other agencies.
Laboy explained that the $120 million WIOA grant supports the training programs for dislocated workers at the 15 workforce consortiums across the island.
Following WIOA requirements, a 32-member State Board for Workforce Development was finally instituted last May, approving over $6 million for training in the technology, aerospace, medical and construction sectors.
Short-term rentals have increased their share of the lodging industry from 15 percent in 2017 to 26 percent in 2019
“In an effort to maximize resources we are establishing job centers or one-stop centers in the different regions so a person that is looking for employment can acquire the skills needed or the certifications required to re-enter the labor market, all in one place,” Laboy indicated.
Laboy also dismissed the FOMB’s claim that the government had not reported MOUs for training or certification programs for adults or youth development.
A couple months ago, he said, the DDEC, the Department of Family Affairs and the Administration of Socioeconomic and Family Development (Adsef, its Spanish initials) signed an agreement to give service priority to the Nutrition Assistance Program (NAP) and Temporary Assistance for Needy Families (TANF) beneficiaries at job centers around the island.
Other MOUs are in the works to integrate unemployment services at the job centers and to support the work of the Institute of Statistics, as well as other initiatives with the University of Puerto Rico and the Labor Department.
In a September report, the Financial Board stated that no apprenticeship programs were signed on June 2019, but Laboy indicated that seven are registered and another one is in process. The registered programs are in the aerospace, construction, manufacturing, leisure and hospitality sectors.
Now that the “heavy lifting” associated with the Financial Oversight and Management Board’s …
An apprenticeship is a program that trains a worker to become skilled in a particular trade. Most of the training is done while working for an employer who helps the apprentices learn their trade or profession, in exchange for their continued labor for an agreed period after they have achieved measurable competencies.
“Parallel to that, we continue working with a series of grants from the Federal Department of Labor, in addition to the WIOA funds that are already allocated for Puerto Rico,”, Laboy insisted.
At the time of this interview, he could not provide the number of people participating in these programs and initiatives.
NAP Job Requirement
While the fiscal plan explicitly requested for the job to begin during the current fiscal year, the Family Affairs Department and the federal Food Nutrition Service (FNS) are working on a four-year program similar to the ones adopted in other states.
The Financial Board specifically called for NAP beneficiaries to begin working 80 hours per month after three months of benefit collection. This work requirement applies to able-bodied individuals ages 18-59 and can be satisfied with paid work, voluntary work, training, education or job searching.
“A delay in the implementation as required by the Fiscal Plan, will likely result in a delay or no-uptick in economic growth, given that the Fiscal Plan projects an increase in economic growth by Fiscal Year 2021 as a result of the successful implementation of the work requirement and the EITC,” insisted the FOMB’s executive director Natalie Jaresko in a letter to the Family Affairs Secretary Glorimar Andújar on Dec. 17, 2018.
The following day, Christian Sobrino Vega, former ex officio representative of Puerto Rico before the Board, responded by accusing the board of undue interference in policy making issues and arguing that the implementation of the work requirement as proposed “could lead to an increase in immigration.”
Surima Quiñones, head of Adsef, the agency within the Family Affairs Department that administers the program, confirmed to THE WEEKLY JOURNAL that to this day the FOMB hasn’t approved the Family Affairs Department’s proposal to adopt a 4-year transition process.
“We are trying to reach a happy medium between the FOMB and the FNS. We are working on a proposal that follows the guidelines established in the Code of Federal Regulation,” insisted Quiñones.
She also indicated that the proposal is in the final stages of the federal approval process. In the meantime, the first stage of orientation and information gathering began last month. After the second year, the NAP recipient that doesn’t comply with the new requirement will see his benefit reduced slowly until it phases out on the fourth year.
Beneficiaries that comply, on the other hand, will continue to receive the supplemental help.
“We want to encourage autonomy and self-management so people don’t have to depend on the NAP. We are aiming for it to become additional support to work,” said Quiñones.
Under this proposal, the new work requirement applies to able-bodied individuals ages 18-50, but it excludes mothers with children 5 years and younger, homeless and disabled people, as well as caregivers of elderly parents and family members.
According to the Adsef, 1.2 million people on the island receive NAP benefits and 172,000 already work. While the number fluctuates month to month, close to 130,000 NAP beneficiaries would need to fulfill the job requirement.