Why Puerto Rico Faces Worse Perils Than Texas and Florida

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Penn's Billy Fleming, Wharton's Carolyn Kousky and Baruch College's Hector Cordero-Guzman discuss Puerto Rico's recovery from Hurricane Maria.

Already reeling from fiscal woes, Puerto Rico is suffering from a humanitarian crisis as well in the aftermath of Hurricane Maria, the strongest storm ever to cross that U.S. territory since 1928. Large swaths of homes have been destroyed, many roads are impassable, electricity remains non-existent on much of the island, communication lines are down and there is the fear that a damaged dam could fail and cause even more havoc.

The immediate future looks bleak. “Those next six months are going to be … apocalyptic,” said Billy Fleming, research coordinator at the University of Pennsylvania School of Design’s Ian L. McHarg Center. He and other guests recently discussed the Puerto Rico disaster on the Knowledge@Wharton show on SiriusXM channel 111 (Listen to the full podcast using the player at the top of the page). Baruch College professor Hector Cordero-Guzman agreed. “Puerto Rico is going into a downward spiral. First, there was the physical damage caused by the hurricane, and now it’s going through all the ripple effects and the impact on infrastructure…. Puerto Rico needs a lot of help.”

Puerto Rico is in worse straits than Texas, Louisiana and Florida, which were ravaged by Hurricanes Harvey and Irma recently, experts said. “This was an island-wide event. [The damage wasn’t just in one] part of the city, as it was in Houston. It wasn’t part of the coast, as it was in Florida,” said Fleming, an urban design expert. “Also, the poverty rate in Puerto Rico is so much higher. There’s very little capacity there for most households to mitigate their own risks, the way that people in Houston or other parts of the country might have been able to do.”

Indeed, while FEMA will pay for the rebuilding of public buildings, infrastructure and the like — Congress has approved $15 billion in Hurricane Harvey disaster relief with more to follow — aid to victims is limited. Grants to households top out at $30,000 with the average aid around $5,000, said Carolyn Kousky, director of policy research and engagement at the Wharton Risk Management and Decision Processes Center. “It’s not a lot of money if you’ve been completely wiped out.”

Moreover, fewer than 1% of Puerto Rican households have flood insurance and only about half are insured against wind damage, Kousky said. People dropped coverage during the island’s financial crisis — the number of insured for flood damage fell by half just in the last two years. It doesn’t help that many of its residents still live in wood homes, Cordero-Guzman said.

“Those next six months are going to be … apocalyptic.” –Billy Fleming

And beyond the short-term problems faced by Puerto Rico is a longer-term concern: how to pay for and go about rebuilding systems and infrastructure to better withstand natural disasters in the future. “They see it as a humanitarian crisis, and it is that, but it’s also a crisis of infrastructure. This is not a new problem created by Maria or Irma. It is a generational problem for an island that is $73 billion in debt and trying to figure out how to restructure that,” Fleming said. Added Cordero-Guzman: “Puerto Rico wasn’t in a good place … even before Maria ravaged it.”

Currently, there are proposals in Congress to subsidize flood insurance premiums for families in need, Kousky said. Other ideas that have been discussed include dealing with things like “recurrent losses,” or when a handful of properties get damaged repeatedly by various disasters, Fleming said. “There was a property in Florida that’s had a FEMA claim 22 times … over the life of the property,” he said. “Finding ways to build in a buyout program that takes that kind of repetitive loss into account is one of the only ways we’re going to be able to solve this.”

Puerto Rico’s Preparations

If only Puerto Rico had been better prepared, since it knew Maria was coming. “I am dumbfounded as to why there wasn’t broader thinking” about contingency plans, Cordero-Guzman said. “It’s unbelievable that for five days, the central government reported that they didn’t have contact with 20 town mayors out of the 78 in Puerto Rico.… From a disaster planning perspective, I think there’s a huge lesson to learn here about what kinds of resources we need to put in place before something happens, and how they need to be deployed once something occurs.”

Fleming noted that such shortcomings are not uncommon in most U.S. cities. “I don’t think Puerto Rico is unique in that regard,” he said. “The bigger challenge in Puerto Rico, I think, and why this situation has been worse there than in other places, is that the island gets treated like it’s a second-class group of citizens. Puerto Rico [has] 3.5 million people. They’re all Americans, and the fact that we’ve let the island’s infrastructure deteriorate to this point is appalling.”

Fewer than 1% of Puerto Rican households have flood insurance and only about half are insured against wind damage.

If there is a silver lining in this devastation, it’s the opportunity to build something better going forward. Kousky said 90% of federal relief funding for floods come after the fact. “We’re not doing the necessary work ahead of time in order to prevent damage, but it does give us a little bit of a window of opportunity” to rebuild in a way that takes into account risk reduction, she said.

It is possible to plan for certain disasters, especially flooding, since there are advance warnings. “We know where these places are that are vulnerable to storms like Maria and Irma. We know places that are vulnerable to 100- and 500-year flood events that aren’t hurricane-driven. We don’t have a very robust land use control system in this country, and that’s why we find a lot of our cities in the position they’re in,” Fleming said. “I don’t think anything would have done a whole lot to mitigate a Category 4 storm on an island like Puerto Rico, but the impact certainly could have been lessened if we’d thought about this beforehand.”

Since the damage is widespread, the rebuilding will be top-to-bottom. “They’re actually probably going to have an opportunity to do that faster and better than any other U.S. city because they are at such a point of crisis that they’re going to have to rebuild the entire telecommunications, roads, airport, all other forms of infrastructure, most of their housing,” Fleming said.

How Maria could hurt the turnaround

There is a concern, though, that Maria could derail the island’s 10-year plan to return to financial health. In May, the territory filed for bankruptcy to get relief from heavy debt — the largest ever filing from a municipality. “How is this going to impact the viability of Puerto Rico’s fiscal plan that’s now in place, especially if a large part of the population leaves and doesn’t come back? We saw that [after Hurricane] Katrina. That could really impact viability,” said Vincent Buccola, Wharton professor of legal studies and business ethics, on a follow-up radio segment on Puerto Rico.

“How is this going to impact the viability of Puerto Rico’s fiscal plan that’s now in place?” — Vincent Buccola

The turnaround plan calls for cost cuts as well as increased investments and revenue. “Obviously, you’re going to need new capital investment here. It remains to be seen how plans are going to change — it will have to,” Buccola said. However, he doesn’t want the U.S. government to help in the bankruptcy. Rather, he prefers that Puerto Rico’s lenders assume all the risk, even if it means not recovering any money they are owed.

Puerto Rico landed in fiscal trouble after the phasing out of a big tax benefit it was receiving in 2006. The territory began financing its operations with debt instead of cutting back on spending, which eventually led to its bankruptcy filing. However, after the hurricane, the municipalities that had been most vulnerable to cost cuts are the ones on the frontlines serving the people, said Carlos Suarez Carrasquillo, a political science lecturer at the University of Florida. As such, he asked, “will policies change?”

Suarez also pointed to the case of the Puerto Rico Electric Power Authority, the island’s only electric utility. It has been restructuring its debt and there’s talk of privatizing it, which worries the union. Now, “some people are arguing that the power company is doing a better job” of handling the crisis than private companies, despite the territory still suffering blackouts. He questioned whether the interest in privatization would continue given the politics of the situation and the public response.

However, one quick way to ease Puerto Rico’s fiscal crisis is to repeal the Jones Act, Suarez said. Under this law, only American ships can ferry goods between the mainland and non-contiguous parts of the U.S., such as Puerto Rico. Thus, foreign ships have to pay taxes and fees to enter the island. They can avoid these tariffs if they unload instead at a U.S. port. The goods are then transferred to a U.S. ship and sent to Puerto Rico, according to The New York Times. The result of this meandering is that Puerto Ricans pay a much higher price for goods. (This week, the Trump administration waived the Jones Act for 10 days.)

But jettisoning the Jones Act will take political will because of the potential impact on American union jobs, Suarez said. Buccola pointed out, too, that Puerto Rico suffers from the same troubling trends that beset smaller U.S. towns — when companies leave, younger workers relocate, leaving behind an aging population. “There are some deep economic forces at work here that are not just specific to Puerto Rico,” Buccola said. “I don’t know if we have great solutions for them right now.”

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