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A Problem Like Maria: Analyzing Disaster Aid to Puerto Rico

December 05, 2017

Since Hurricane Maria struck Puerto Rico, the island’s leaders have been asking the federal government for more emergency aid and long-term recovery funds.[1] Resident Commissioner for Puerto Rico Jenniffer Gonzalez-Colon requested, “Congress [approve] an aid package that is commensurate with the level of devastation,” while Congresswoman Madeleine Bordallo of Guam said she will, “Seek a firm commitment that the House provide fair and robust emergency assistance to U.S. territories devastated by natural disasters in any bills considered for the remainder of the Congress.” [2] The federal government must determine how much assistance is required to adequately respond to a natural disaster of this scale and how to balance the need for short-term relief and long-term recovery.

The Federal Emergency Management Agency has already provided $28 million to local municipalities for debris removal and other services;  the Oversight Board of Puerto Rico has approved the Puerto Rican government to spend an additional $1 billion on disaster relief [3]; and Congress recently approved $4.9 billion of low-interest Treasury loans for Puerto Rico to repay its debts and begin rebuilding critical infrastructure. [4] This article intends to identify the costs of improving the island’s ailing infrastructure, analyze the viability of the funds by properly addressing pre-existing economic trends, and propose long-term relief initiatives.

Moody’s Analytics estimates that Maria could cost Puerto Rico $45 billion to $95 billion in damage (the combined costs of Hurricanes Harvey and Irma are estimated to be between $150 billion and $200 billion) [5], while a more conservative estimate by Enki Research puts this number at $30 billiEven the conservative latter estimate is equivalent to 600% of Congressionally approved Treasury loans and almost a third of Puerto Rico’s GDP. [7] Private insurers are expected to suffer loses between $30 and $50 billion because of claims related to Maria from Puerto Rico alone according to AIR Worldwide. [8] However, only 50% of households in Puerto Rico have homeowners’ insurance policies that cover wind damage and even fewer have policies that cover flood insurance. FEMA has previously tried to address this shortcoming with the National Flood Insurance Program but only 1% of Puerto Rican households have enrolled in the program. [9] This means that private insurance and government aid will need to be supplemented with private donations from corporations and NGOs .

Typically, when a natural disaster strikes, firms from different sectors and NGO’s offer help all at once. In this scenario, a key policy concern is effectively coordinating aid to avoid providing unnecessary goods. [10] However, in Puerto Rico’s case, private sector donations have been unusually low. As of October 2017, corporate donations totaled $32.9 million for recovery efforts. By comparison, corporations donated about nine times more to Harvey and Irma relief efforts, even though estimates suggest these hurricanes only caused three to six times more damage than Maria. According to the U.S. Chamber of Commerce Foundation, forty-six firms have provided money or services to Puerto Rico, whereas three hundred contributed to Harvey assistance. [11] Usually, firms are quick to donate money to disaster efforts when they fear a slow recovery will interrupt business flows. But due to Puerto Rico’s decade-long debt crisis, fewer companies have a vested interest in its recovery.

While there is still a chance that donations will increase, the current amount is insufficient when compared to the cost of reconstruction. This implies that the federal government will likely have to take on a substantial portion of the costs of the crisis in order to ensure that Puerto Ricans are provided with the resources they need. On October 24th, Congress approved a $36.5 billion aid package to Puerto Rico and other states affected by natural disasters, which President Trump signed three days later. [12] This measure will allow FEMA to allocate $4.9 billion to the Puerto Rican central government and some of its municipalities.

One key challenge is restoring the island’s electrical power given that, as of October 26th, seventy-five percent of the island still lacked electricity [13]. Another central concern is providing adequate health services and access to clean water. These two issues are highly entangled, as highlighted by the recent outbreaks of waterborne disease which have resulted in the deaths of two residents. [14] Additionally, given Puerto Rico’s dire long-term economic outlook, Maria may also exacerbate existing fiscal and demographic challenges.

Research on natural disaster risk and recovery shows that they tend to accelerate existing economic and demographic trends. [15] This is best illustrated by New Orleans’ decline following Hurricane Katrina where the population was just 60% of pre-Katrina levels three years after the storm. [16] In the case of Puerto Rico, this would mean an acceleration in the territory’s recent decline in population, which would make long-term recovery more challenging.  The US Census shows that between April  2010 and July 2016 the population of Puerto Rico declined by 8.4%. [17] This trend has shrunk the commonwealth’s tax base and dramatically reduced revenues, especially because a third of those migrating to the US mainland are between the age of sixteen and thirty–in the prime of their careers. [18]

(Image: Population, Total for Puerto Rico. Source: Federal Reserve Bank of St. Louis)(Image: Population, Total for Puerto Rico. Source: Federal Reserve Bank of St. Louis)

Even before Maria, Puerto Rico’s government revenue was projected to shrink by 18.2% between 2017 and 2022. [19] This reduction will significantly slow the rebuilding of the island’s physical infrastructure since the government of Puerto Rico is already forced to give priority to a debt crisis which requires that it close a $7 billion fiscal gap through government austerity and pay off $74 billion of outstanding debt. [20]

Disaster relief research notes that in some cases disaster relief aid can be generous enough to foster development, but federal aid to Puerto Rico has so far been limited to short-term relief instead of long-term improvements to the island’s infrastructure. Economic trends can also be reversed if high economic growth and rising real estate prices in the surrounding area make it cost effective for companies to move to and help rebuild nearby municipalities recovering from natural disaster. [21] However, Puerto Rico’s declining population and poor schools, hospitals, and social services, relative to the US mainland, mean it is unlikely businesses will move to Puerto Rico in the short-term. Sometimes, when the disaster and the resulting response bring about drastic social and political change, it can foster growth. For example, the government of Nicaragua’s inept response to the 1972 Managua earthquake served as a catalyst for a change in leadership in the country. [22] If Hurricane Maria results in reform to Puerto Rico’s tax and public services system then the island may break with the economic trends of past decade and return to growth. For Puerto Rico to fully recover from Hurricane Maria, short-term relief must be coupled with long-term strategies to rebuild the economy and properly prepare for future natural disasters.

The administration’s late response caused economic and political barriers to relief, including a lack of financial relief and delayed supply deliveries [23]. For instance, critics of Trump’s Puerto Rico relief efforts point to underutilization of the military as the primary reason for slow supply distribution and removal of debris. Meanwhile, supporters of Trump’s efforts argue that too many troops could deplete resources intended for Puerto Rican citizens [24]. Once the island has overcome these institutional blocks, the government may begin exploring alternative avenues for disaster preparedness.

Solutions for Puerto Rico:

One low-cost option for improving long-term disaster preparedness is to implement an online disaster relief training program for first responders. Ideally, a web-based training program to provide standardized competency-based education. Meaning, first responders would be trained to implement effective medical procedures, consistent throughout the commonwealth. These online training programs could be implemented at universities and medical care centers, as such locations are generally equipped with computers and internet access.

Currently, the UK, France, and Germany require medical responders to receive online disaster preparedness training. According to a study conducted by the National Center for Biotechnology Information, required online training programs have yielded a positive effect on disaster preparedness in those countries [25]. The positive effect observed included maintaining a universal standard of care and education amongst the disaster and crisis workforce [26].

(Image: Broadband Availability by Platform in the US and Puerto Rico. Source: Federal Communications Commission)

(Image: Broadband Availability by Platform in the US and Puerto Rico. Source: Federal Communications Commission)

In addition to, or instead of, providing medical first responders with online disaster training, the Puerto Rican government could make disaster response training available to the general public. Should Puerto Rico’s representatives deem online training programs beneficial to residents other than first responders, enabling residents to receive this type of education would be feasible. Disaster training programs provide information and skills that save the lives of children and young people in particular during and after natural disasters [27].

Currently, Puerto Rico relies heavily on imported fossil fuels to meet its energy demands. In fact, its percentage share of energy usage by fossil fuels is more than double than that of the US [28]. Petroleum products supply approximately 75% of the energy consumed in Puerto Rico, fueling transportation, electricity generation, and industry. Hurricane Maria completely destroyed Puerto Rico’s power grid and road system[SB1] . In fact, the Puerto Rico Electric Power Authority cited more than $4 billion in damages, and noted the necessity to overhaul its outdated power plants and reduce its heavy reliance on imported oil [29]. However, this is an opportunity for reliable energy investment within the scope of long-term relief.

(Image: Share of total energy consumption in the US and Puerto Rico. Source: US Energy Information Administration)

(Image: Share of total energy consumption in the US and Puerto Rico. Source: US Energy Information Administration)

 

A microgrid system will solve many of the energy problems in Puerto Rico, providing low-cost reliable energy to local communities. A microgrid involves a small network of energy users that functions independently, even if the central grid is down. This strengthens the main grid’s overall resilience. In the rare case of the microgrid’s malfunction, it may connect to the centralized national grid until proper repairs are made. Microgrids improve the energy efficiency of buildings due to their ability to integrate renewable energy sources . Existing microgrid systems in Germany have shown that the volatility of renewable energy sources can be managed at the level of a microgrid. Germany’s microgrid system operates efficiently both in terms of cost and effect on the environment, showing the benefits of autonomous operation [30]. The benefits of a microgrid are not only ecological, but also practical in the case of a future natural disaster.

While emergency aid has been provided by federal government and private firms, many urgent issues remain unsolved. Much of Puerto Rico still lacks electricity and clean water. Additional funds and organizational resources are required to address these pressing issues in the next few months. Nonetheless, the federal government must also recognize that many of Puerto Rico’s problems require long-term sustainable solutions, which address the territory’s pre-existing economic conditions and improve the island’s preparedness for future disasters. Maria isn’t responsible for all of Puerto Rico’s challenges: policy solutions must address both the short-term consequences of the storm and long-term economic trends to ensure Puerto Rico has a more prosperous and secure future.

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  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

Reference

  [1] http://fortune.com/2017/09/26/hurricane-maria-puerto-rico-loses/

  [2] http://www.talanei.com/2017/09/28/territorial-delegates-seek-urgent-us-help-for-puerto-rico/

  [3] https://www.nytimes.com/2017/10/03/us/puerto-rico-aid-fema-maria.html

  [4] https://www.bloomberg.com/news/articles/2017-10-24/senate-passes-hurricane-relief-bill-granting-puerto-rico-loans

  [5] https://www.moodysanalytics.com/webinars-on-demand/2017/the-economic-impact-of-hurricane-irma

  [6] http://money.cnn.com/2017/09/28/news/economy/puerto-rico-hurricane-maria-damage-estimate/index.html

  [7] https://www.moodysanalytics.com/webinars-on-demand/2017/the-economic-impact-of-hurricane-harvey

  [8] http://www.air-worldwide.com/Press-Releases/AIR-Worldwide-Estimates-Industry-Insured-Losses-for-Hurricane-Maria-in-the-Caribbean/

  [9] Ibid

  [10] https://hbr.org/2006/11/disaster-relief-inc

  [11] https://www.uschamberfoundation.org/aid-event/hurricane-maria

  [12] http://www.latimes.com/politics/washington/la-na-pol-essential-washington-updates-congress-approves-36-5-billion-1508860506-htmlstory.html

  [13] https://www.nytimes.com/2017/10/26/opinion/power-puerto-rico-whitefish.html

  [14] https://www.nbcnews.com/storyline/puerto-rico-crisis/puerto-ricans-risk-waterborne-disease-outbreaks-wake-hurricane-maria-n814461

  [15] http://www.pnas.org/content/103/40/14653.full

  [16] Ibid

  [17] https://www.census.gov/quickfacts/PR

  [18] https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci20-4.pdf

  [19] https://www.quandl.com/data/ODA/PRI_GGR-Puerto-Rico-General-Government-Revenue-USD-Billions

  [20] https://www.cfr.org/blog/puerto-ricos-daunting-fiscal-math-my-view

  [21] http://www.pnas.org/content/103/40/14653.full

  [22] Ibid

  [23] https://www.nytimes.com/2017/10/03/us/puerto-rico-aid-fema-maria.html

  [24] https://www.washingtonpost.com/investigations/us-responded-to-haiti-quake-more-forcefully-than-to-puerto-rico-disaster/2017/09/28/74fe9c02-a465-11e7-8cfe-d5b912fabc99_story.html?utm_term=.089f474c1583

  [25] https://www.ncbi.nlm.nih.gov/pubmed/24642198

  [26] Ibid.

  [27] http://www.unesco.org/archives/multimedia/?pg=33&s=films_details&id=2795

  [28] https://www.eia.gov/todayinenergy/detail.php?id=17611

  [29] https://www.washingtonpost.com/news/energy-environment/wp/2017/09/20/puerto-ricos-power-company-was-already-bankrupt-then-hurricane-maria-hit/?utm_term=.7a3416c44b51

  [30] https://link.springer.com/content/pdf/10.1007%2F978-3-658-12415-1.pdf

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