PUERTO RICO  DISASTER RECOVERY ACTION PLAN

The Action Plan

The first Action Plan outlined the uses for the approximately $1.5 billion in CDBG-DR made available by Congress on February 1, 2018. Subsequent amendments encompassed in this iteration of the Action Plan have further allocated an additional $8.2 billion anticipated in a second allocation for the Island, and now include the additional $277 million in unmet infrastructure need. While the recovery funds are clearly being allocated to repair billions of dollars in damages created by the recent hurricanes, repair without true economic recovery will ultimately continue a long standing dependence on federal payments.  While the plan addresses many of the needs of Puerto Rico, it fails to address how Puerto Rico can help make America safe again in light of the recent and devasting Covid-19 pandemic. The Covid-19 pandemic has revealed an urgent need to secure medical and pharmaceutical supplies manufactured in the United States and avoid their shortage and dependence on foreign jurisdictions.  For decades, Puerto Rico provided the United States (and the world) with a reliable and cost efficient source of critical manufacturing. It is time to bring critical manufacturing back home.

US Manufacturing

Puerto Rico has been a historical hub for US manufacturing of pharmaceutical goods for more than 50 years. Total exports for Puerto Rico amounted to $20.5 billion in 2019. That was a 13.3‐percent increase from 2018 when exports totaled $18.1 billion. Puerto Rico is home to major US and European companies such as Bayer, Bristol-Myers Squibb, Baxter, Pfizer, and Johnson & Johnson to name a few. Puerto Rico leads all states in the field of pharmaceutical manufacturing  and trade dollar value in 2019 was higher than both California and Indiana combined. Puerto Rico led U.S. exports of pharmaceutical and medicine manufacturing in 2019, accounting for 24.6% of total U.S. exports.

In Puerto Rico, there are 49 pharmaceutical plants,  70 for medical devices. Seven out of the 10 top-selling medications are currently being manufactured in Puerto Rico.  Both sectors make up 33% of gross domestic product, which create 142,500 direct and indirect jobs, with an average salary of $42,000. Thousands of small and medium-sized companies supply goods and services to this industry.

COVID 19

A rapid ramp-up of hundreds of millions of units will likely be needed in the short term, which will require three key elements — readily available facilities, a quickly scalable skilled workforce, and rapid access to key materials.  Puerto Rico is uniquely positioned in all three elements. First, the ten year decline in manufacturing volume on the Island has left idle or seriously underutilized large-scale, state of- the-art facilities. There are several large-scale API (active product ingredient sites/chemical) sites mostly idle and available to accommodate high volume production. Similarly, on the finished product side, there are also a handful of largely underutilized drug product sites (available to produce capsules, tablets, etc.), as well as the excess capacity of many other manufacturing sites that typically operate with a 25-40% capacity cushion.

Puerto Rico can make quick gains in substituting a considerable amount of the production lines currently hosted internationally.  Although close to 30,000 people are currently employed by the industry, this number is less than 50% of the peak employment experienced just over a decade ago.

The Reduction of  Manufacturing

The United States – Puerto Rico’s dominance in critical manufacturing was significantly reduced by a confluence of globalization and other political-economic events in the 1990’s.  This also included one self-induced action, the elimination of US Federal Section 936 tax incentives.  The elimination of Section 936, was sadly intended to bring manufacturing back to the mainland,  but actually sent our critical industries to China, Mexico, Ireland.  The expiration of 936 prompted the number of manufacturing jobs to fall in Puerto Rico by almost half and is usually cited as one of the principal triggers of Puerto Rico’s long economy descent.

In  2017, Puerto Rico effectively filed the largest-ever federal bankruptcy proceeding by a local government with $74 billion in public debt.  To make matters worse, the passage of the recent Tax Cuts and Jobs Act made has made it more expensive for U.S. corporations to operate in Puerto Rico.  The GILTI & BEAT provisions in particularly has led to a further deterioration of the island’s  pharmaceutical and medical industry, whose business model is heavily-dependent on intellectual property.

Current legislation

The US dependence on foreign manufacturing has recently caused direct action by Congress to secure the lines of medical and pharmaceutical supplies manufactured in the United States and avoid their shortage and dependence on foreign jurisdictions. Two such bipartisan resolutions are HR 6443 by Jennifer Gonzalez of Puerto Rico and HR 6448 by Stacey Plasket of the US Virgin Islands.

Economic Recovery Through Critical Manufacturing

As legislation is passed to make America safer, CDBG-DR can play a vital role in expediting this very important task. One of the goals of the CDBG-DR Economic Recovery program is to create an economic environment where residents will want to come back to the Island. By improving economic conditions and increasing the number of available jobs, Puerto Rico can minimize the displacement of Puerto Rican residents who have out-migrated and are at risk of permanent resettlement off the Island.

Conclusion

The time to secure America’s critical manufacturing is now. Puerto Rico has been a leader in this sector for the last 50+ years and is ideally suited to lead the way. While CDBR-DR is primarily aimed at making the island whole again, especially in housing and electrical infrastructure, the Covid19 pandemic has provided an opportunity to create both safety for Americans and a solid economy for the island of Puerto Rico.