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Este informe no está disponible en español. CARIBBEAN BUSINESS Good GovernmentWhile the central government has been virtually paralyzed, the mayors of some of Puerto Rico’s most successful cities have been busy delivering improved services to residents. What’s their secret? By MARIALBA MARTINEZ, JOSE CARMONA & EVELYN GUADALUPE-FAJARDO October 23, 2003 Money talks: Autonomous municipalities like Bayamon, Caguas, Carolina, Fajardo, Guaynabo, and Ponce are run efficiently and with vision, two assets lacking in the central government. Whether affiliated with the Popular Democratic Party (PDP) or the New Progressive Party (NPP), some of the island’s most successful mayors have a lot in common. For one, they enjoy the overwhelming approval of their constituents. Despite the deep partisan divide that generally affects life in Puerto Rico, the residents of Bayamon, Caguas, Carolina, Fajardo, Guaynabo, and Ponce consistently cross party lines to re-elect their respective mayors. And as long as the mayors keep delivering the goods, there is every indication that they will continue to enjoy their constituents’ support. Call it a vote of confidence for a job well done. Bayamon Mayor Ramon Luis Rivera (NPP), Caguas Mayor Willie Miranda Marin (PDP), Carolina Mayor Jose Aponte de la Torre (PDP), Fajardo Mayor Anibal Melendez Rivera (NPP), Guaynabo Mayor Hector O’Neill (NPP), and Ponce Mayor Rafael "Churumba" Cordero (PDP) govern a combined population of close to 900,000 and manage municipal budgets totaling some $400 million. The mayors know where the pulse of their cities lies. They must, since their election to continuous terms depends on this knowledge. In exclusive CARIBBEAN BUSINESS interviews, each of the six mayors described how his city does business; what the central government can do and when it should step away; and the municipality’s near-term plans. The mayors’ stories reveal common denominators. For one, the business of business is taken very seriously. In fact, most of the mayors have established an office of economic development whose staff takes care of prospective investors from the moment they show an interest in the municipality until their project has become reality. Second, all of the mayors believe the Municipal Autonomy Law has empowered them in relation to the central government, giving them more direct control in managing municipal affairs and providing services to constituents. Third, these cities are managed as if they were corporations (and in large part they are). There is no micromanagement on the part of the mayor (the CEO), and the municipal staff and residents (the company’s employees) share all benefits. All six mayors also believe in some kind of consolidation to enhance the municipalities’ cost-efficiency. The municipalities could join regional groups, counties, or legal consortia to provide joint services such as health, security, and administration. Finally, despite their vast ideological differences, these six successful mayors believe that for Puerto Rico to be competitive, the way the bloated central government delivers services to the people must be totally revamped—and there is no time to waste. In fact, they all say their municipal structures are better able to provide services and resources than the central government. As most of the mayors noted, to be elected they must learn what their communities’ problems are, how best to solve those problems, and how to deliver results. And, indeed, these six have delivered. What makes these six municipalities different? Why are some municipalities more successful at providing services and maintaining fiscal health? Why is the central government, which has considerably more resources, struggling to fulfill its responsibility to serve the people in such areas as education, health, justice, housing, and public safety? Here is what the mayors told CARIBBEAN BUSINESS. Bayamon "The secret to managing the economy of Bayamon, or of any other municipality, is work, work, work," said Bayamon Mayor Ramon Luis Rivera. "To produce, one has to be creative and imaginative, even in the most difficult economic times." In fiscal year (FY) 2003 (July 1, 2002 to June 30, 2003), Bayamon’s budget was $177 million; of that, $47.7 million came from the Municipal Revenue Collections Center (CRIM by its Spanish acronym). CRIM, which collects property and nonproperty taxes, has been accused over the years of not keeping property-tax assessments up-to-date, which prevents the municipal governments from getting their fair share of the taxes. According to Rivera, the most challenging time of his administration was the first half of 2001, when the recession hit not only Puerto Rico but the whole world. Fortunately, the municipal government saw an increase in the number of bidders for its public works projects. "During fiscal year 2002, we broke the record for the number of bids put out by the municipality," said Rivera. "It was clear that if the city kept putting out bids, we would help the economy by creating jobs in construction and indirectly with more demand for the products and services of hardware stores and cafeterias, for example." Bayamon also benefited because more bidders meant lower-priced bids. "Our first asphalt project put out to bid was expected to cost approximately $2 million, but it ended up getting done for $900,000. We used the difference for other projects," said Rivera. "My orders were to put out to bid every project that was possible and to take advantage of the competition. I also offered bidders prompt payment if they gave me rock-bottom prices. The strategy has worked." Through Bayamon’s Economic Development Office, a component of most advanced city halls in Puerto Rico, every project has staffers to take care of investors’ needs. From the time a private investor shows interest in developing a project in Bayamon, the municipality becomes a facilitator by providing office space, scouting for employees, dealing with permits, and educating investors about how to accelerate the construction process. "There are projects for which, instead of using municipal funds, one can invest in bond issues or borrow from the Puerto Rico Government Development Bank’s Special Contributions Fund," said Rivera. "Most municipalities don’t know about this, but we can borrow against this fund and increase the municipality’s production capability." The mayor has also encouraged private companies and nonprofit community organizations to partner with the city in addressing some of its most pressing problems, such as the need to educate pregnant teens and to provide care to the elderly. In return, the city offers tax credits. Private companies and nonprofit institutions can request and process federal funds much quicker than municipal governments can. They can also set up their operations faster and work more intensively with lower overhead. "I had barely 35 amas de llave [elderly assistants] participating in a municipal program that helps the elderly who can’t leave their home or are incapacitated in some way," said Rivera. "We brought together a number of churches of various denominations, and now we have volunteers who visit the elderly and cook them meals, help them bathe, and otherwise improve their quality of life. The government can’t do everything. We have to allow private groups to help." In return for increasing the work output of municipal employees, Rivera offered work bonuses, wage increases, funding for continuing education, and a health plan for which the municipality pays $170. "This was all done without increasing municipal taxes [patentes] or property taxes," said Rivera. "The last time taxes were increased was six years ago, and I don’t intend to raise them again. You can’t increase taxes in bad times; you have to let the money flow." Soon, Bayamon will remodel the area near Ruben Rodriguez Coliseum, where there is an Urban Train stop. The sports complex will get more office space, more parking areas, and additional recreational activities. A $6 million amphitheater will be built next to Bayamon’s Central Park, and a volleyball-court center will be added to the Pepin Cestero Sport Complex. Rivera also said the city’s urban center would be renovated. Two housing developments will add 300 units; the mayor said private companies will build the homes and sell them at market value. The city will extend its trolley routes to Bayamon’s health centers, schools, shopping centers, sports & recreational centers, and the Urban Train stop. Bayamon At A Glance Population: 224,670 Employment: 86,200 Unemployment: 6,800 Average Annual Salary: $16,578 Municipal Budget: $88,502,231 Income from Patentes: $24,917,497 Property Tax Income: $47,695,212 Other Income: $21,858,479 Total Income: $94,471,188 Municipal Debt: $137,950,000 Caguas When Caguas Mayor Willie Miranda Marin arrived in Caguas City Hall in 1997, he found the city had practically exhausted its borrowing capacity and barely had any income. "I had to create a new structure to increase revenue in order to increase the city’s borrowing capacity, which would allow me to build public works. It isn’t magic," Miranda Marin told CB. "We did it through a strategic plan called ‘Caguas 2020.’" Seven years later, the municipality of Caguas was able to close FY 2003 with a record $6.6 million surplus, thus becoming one of the most financially sound cities in Puerto Rico. In fact, this was the seventh consecutive fiscal year Caguas closed with a surplus, all of them under the leadership of Miranda Marin. The city’s operational income at the close of FY 2003 was $85.9 million and expenditures were $79.3 million, resulting in the $6.6 million surplus. According to Miranda Marin, Caguas’ success has to do with having a vision, a plan, and the support of the entire community. "You’ve got to have a vision of where you want to take your city. Each city’s vision is different," he said. "You must also involve the movers and shakers of the city—professionals, businesspeople, colleges, and the communities—in fulfilling that vision," added Miranda Marin. "Then you mold that vision into a strategic plan, which isn’t yours but that of the entire community, because it compiles the thoughts and efforts of everyone in the city." One major reason Caguas has been able to fulfill its vision (and spearhead economic development), according to Miranda Marin, is that it is autonomous, meaning it has crafted a master development plan and doesn’t depend financially on the central government for operational expenses. Out of 78 municipalities, 14 are autonomous. "Being an autonomous municipality is extremely important, not only on paper but in terms of the city’s revenue," said Miranda Marin. "If you don’t have the financial resources to do what is needed, then you must request these of the Legislature or look for other sources. People do need to see that you are investing in the city." In FY 2003, Caguas invested more than $80 million in 111 infrastructure projects. These have been completed or are in process. Miranda Marin believes his success as Caguas mayor can be attributed in part to his managing the city as if it were a service company. "I have to keep this business running and make the city more attractive each day so that more people come to shop, work, invest, enjoy shows, eat at our restaurants, and study in our educational institutions, which are recruiting centers for local employers," he said. Miranda Marin believes Caguas has proved that municipalities can survive and prosper on their own, without the central government, though small and midsize cities should consider consolidating with larger ones. Caguas, he noted, has joined efforts with other municipalities in areas such as tourism, cultural affairs, economic development, and education. The central government’s size and problems with corruption have become major obstacles to creating opportunities for economic development, said Miranda Marin. "There are local entrepreneurs, small and midsize businesses, that do business with the central government," he said. "The vast majority of them subsist thanks to that business, but they are about to become extinct because the government takes too long to pay them. Without a local business base, Puerto Rico will disappear." Regarding corruption, Miranda Marin said the subject has become an obsession, paralyzing the island both socially and economically. "Requirements for government permits are so tough that the system encourages corruption," he said. "We must reinvent all government processes from scratch. We must create a more agile, smaller government and provide more autonomy to the municipalities. We must also change our entire educational system, because we are investing $2.7 billion a year but five of every 10 students drop out." Caguas At A Glance Population: 141,693 Employment: 54,900 Unemployment: 6,700 Average Annual Salary: $17,541 Municipal Budget: $76,747,552 Income from Patentes: $21,600,000 Property Tax Income: $33,900,000 Other Income: $30,400,000 Total Income: $85,900,000 Municipal Debt: $100,302,251 Carolina Carolina Mayor Jose Aponte de la Torre recalls that after winning the election in 1985, he found a municipal government with no financial base. He had to assimilate the situation and act quickly to prevent the city from going bankrupt. "We knew we had to reduce the work force. Studies determined the human resources that were needed in City Hall to provide services efficiently," said Aponte. "In addition, we considered which municipal services could be outsourced to improve cost-effectiveness." According to the mayor, Carolina saved 30% by outsourcing the garbage collection service. The municipal garbage dump’s operation was also outsourced, encouraging the development of the only recycling plant on the island. The municipality’s Health Department had been privatized by the time the central government’s Health Reform came along in the late 1990s. "We began construction of large projects without needing to invest a lot of capital," said Aponte. "One example is the central government’s building in what was Carolina’s underused baseball park. Central-government agencies pay rent, and this has helped us with the cost of the project. The same strategy was used to build the new Diagnostic & Treatment Center." Aponte is proud that these developments have attracted businesses to provide products and services in banking, food & beverages, shopping, laundry, parking, and transportation. As sales have increased, so has income from patentes. Carolina is the site of many manufacturing and industrial-type companies. To keep them in town and promote expansion, the city’s Economic Development Office has negotiated special breaks on patentes and property taxes. It has also networked to find investors for struggling businesses. In the case of Eli Lilly & Co., the city government found local pharmaceutical manufacturer Mova Inc. to take over production of a drug that had lost its patent and become too costly to make. "We are now working on revitalizing Carolina’s urban center, studying the various possibilities," said Aponte. "We must add life to the town’s center to avoid empty streets when night falls. We need small businesses to serve families’ needs, such as pharmacies and colmados [small grocery stores]." Aponte also spoke about programs for elderly care and childcare centers that are within walking distance of new housing. The mayor said older children should have places to go for tutoring and to engage in other positive pursuits. Services must also be rendered to groups that refuse to travel in vehicles because of inadequate parking. This means shopping centers, Laundromats, and other businesses must offer delivery services. Transportation routes should enable citizens to reach various points in the city, including government offices, medical buildings, shopping malls, schools, and entertainment venues. Carolina is also aggressively pursuing its portion of property taxes collected by CRIM. The municipal government has access to a satellite system that identifies houses and streets and uses this information to determine how much homeowners owe in back taxes. Carolina will collect $246 million in FY 2004, up from $38 million in 1985, making it second only to San Juan in income from property taxes. "Our municipality has short-, medium-, and long-term economic development plans," said Aponte. "Our information technology systems are extraordinary, allowing us to be completely computerized and overcome problems faster. This year we will have a $1.2 million budgetary surplus. I truly believe this is a dynamic municipality because of our excellent human resources and our plans for today and tomorrow." Carolina At A Glance Population: 187,468 Employment: 79,900 Unemployment: 7,100 Average Annual Salary: $20,653 Municipal Budget: $78,858,018 Income from Patentes: $26,282,649 Property Tax Income: $49,401,839 Other Income: $2,471,128 Total Income: $78,155,616 Municipal Debt: $216,278,839 Fajardo Budget crunches may seem endless for some municipalities, but not for Fajardo. Its mayor, Anibal Melendez Rivera, said his municipality found a way to reduce operational costs. "We balanced our budget by reducing the number of municipal employees," said Melendez. "I believe municipalities shouldn’t be sources of employment. They should be facilitators for the private sector. The municipality’s budget should be used to provide services to the community and to develop projects." According to Melendez, the municipality of Fajardo had a 1989 budget of $8 million, most of the funds coming from the federal government, and 700 employees. Today, it enjoys a fiscal foundation of $34 million and has a staff of fewer than 600. The municipality has also stayed afloat and carried out much-needed community improvement projects by significantly increasing its income from patentes and property taxes. This was possible in part because of increased demand for housing in Fajardo. "The real-estate market in Fajardo jump-started in the 1990s because of the development of hotels in the Rio Grande-Fajardo area," Melendez said. "Now, we have other hotel projects in the pipeline, such as Cayo Largo Resort, J.W. Marriott, Four Seasons, and Paradisus Puerto Rico, which will produce jobs and, as a result, increase housing demand. The forthcoming influx of tourists will also generate a need for more shopping centers and restaurants." In 2000, the municipality had $12 million in the bank and had already initiated the permitting process for some projects. "When the New Progressive Party lost the elections in 2000, I had some projects that needed to go out to bid and others that were beginning the construction process," Melendez said. "I have continued my improvements program, but I have found some difficulties in developing a couple of them." Some troubled projects are the extension of Marcelito Gotay Avenue, which would run in front of the new court building in Fajardo, and the acquisition of 2.2 acres owned by the Land Administration. "We just paid $2.2 million for the land to construct the extension of Marcelito Gotay Avenue, and now we are in the process of putting the project out to bid," Melendez said. "I have informed La Fortaleza of my difficulties in buying the 2.2 acres to build a performing arts center and a parking lot for 600 vehicles. [The lack of a response] is surprising to me because it contradicts the governor’s policy of developing the urban centers." Projects completed in Fajardo include improvements to the parking at Las Croabas park; the acquisition of an electronic scoreboard and the renovation of the floor in the Fito Ramos Sporting Complex; the renovation of 11 enclosed basketball courts and the installation of an air-conditioning system at Tomas Dones Coliseum; the restoration of the Hope Center for the elderly; the rehabilitation of the equestrian center; and the restoration of sidewalks and asphalt throughout the municipality. "The Calderon administration hasn’t contributed much to the development of Fajardo," Melendez said. "The major projects in progress are continued from the previous administration, such as the reconstruction of a bridge on PR-194 to connect four lanes into PR-3, the Northeast Aqueduct, and the regional water-treatment plant. Enclosing the basketball court in Barrio Martenillo is the only project I can truly say was initiated by the Calderon administration, as part of her special communities project." Fajardo At A Glance Population: 41,377 Employment: 13,500 Unemployment: 2,700 Average Annual Salary: $16,823 Municipal Budget: $18,973,481 Income from Patentes: $4,022,753 Property Tax Income: $1,414,957 Other Income: $16,558,074 Total Income: $21,995,784 Municipal Debt: $12,940,461 Guaynabo Since Hector O’Neill became mayor of Guaynabo in 1993, the city under his leadership has finished each fiscal year with a budget surplus. For FY 2003, the city reported a budget surplus of over $3 million, yet it still managed to invest quite a bit in infrastructure improvements. According to O’Neill, the key to Guaynabo’s success is that, like 14 other municipalities, it is autonomous. "Municipal autonomy is a very important ingredient, because you begin to identify the available land for development and classify it for the kinds of development you want," he said. "Municipal autonomy gives you the opportunity to develop the city based on its financial needs and job requirements. "Municipalities work on a local level, with local investors," he added. "They come to me, I sit down with them, and we do everything to make it happen. We provoke development, something the central government doesn’t do." The sheer size of the central government doesn’t allow it to have such close interaction with investors, or even with the communities, O’Neill said. The unfair competition between development groups that belong to the governing party and those that don’t has also hindered economic development at the central-government level; that situation doesn’t exist at the municipal level, according to O’Neill. "That’s because the mayor is the government official closest to the people. The mayor is the public official whose services affect all households on a daily basis," he said. "It is the mayor’s close contact and constant communication with the people that make the difference." Since Guaynabo is known as a residential area rather than as an industrial or commercial city, its strategic plan called for the development of more housing projects to increase its property tax base. "That way," said O’Neill, "you help the central government, the local government, and municipal finances through the collection of property taxes. A resident can move out of Guaynabo, but the property will always pay property taxes, whereas a factory can close and take away your revenue." Municipal governments as a whole are much bigger than the central government, added O’Neill. His suggestions for reducing the size of government are to eliminate the duplication of efforts between the central and municipal governments and to consolidate municipalities. "There are things that the central government does that can be done by the municipal government for a fraction of the cost, plus the municipal government will do it more efficiently," said O’Neill. "Take the police force, for example. I have 350 guards to the central government’s 60 police officers in Guaynabo. Our crime rate is the lowest in all of Puerto Rico." He also believes the municipalities that are too small to become autonomous must consolidate with others. This will create a new geographic order in Puerto Rico and enable the complete decentralization of the government. What’s killing the government is the political movement, added O’Neill. There are legislators who don’t have an understanding of what a municipal government is or how it works, and there are others who don’t even know the Municipal Autonomy Law. "You can achieve certain things through legislation, but we don’t have adequate legislation because legislators don’t have the vision of what government management is," said O’Neill. He said although he enjoys municipal autonomy, legislators want to put a stop to the city’s progress for political reasons. For example, there is a Senate resolution pending that would prohibit the issue of construction permits in Guaynabo’s western and southern regions. He said the Legislature is also trying to curtail development in San Juan by creating the San Juan Ecological Corridor. "Legislators don’t take away our municipal autonomy, but they are submitting legislation to prohibit municipalities from undertaking more developments projects," said O’Neill. "We are facing an aggravating situation only because the municipal government has been more efficient than the central government." Guaynabo At A Glance Population: 101,280 Employment: 42,200 Unemployment: 2,100 Average Annual Salary: $22,450 Municipal Budget: $78,998,752 Income from Patentes: $35,299,784 Property Tax Income: $39,492,687 Other Income: $32,075,529 Total Income: $103,100,000 Municipal Debt: $178,940,000 Ponce Few island residents haven’t heard Mayor Rafael "Churumba" Cordero express his opinion that Puerto Rico’s economy is biased toward the San Juan metro area. The 2000 Census indicates Ponce has experienced a decrease in unemployment and an increase in employment, per capita income, and family income, but the mayor says these achievements haven’t come about with the help of the central government. "The main reason for our progress has been our land management plan, along with the sacrifices that had to be made to follow it," said Cordero. "When I became mayor, the city was in bankruptcy. ‘Ponce en Marcha’ [an infrastructure & public works program to which the central government, under then-Gov. Rafael Hernandez Colon, committed funds] set in motion a lot of the construction that led to an improvement of the town’s economy. "But I would say that what gave Ponce an economic push happened between 1995 and 2000, when the private sector began investing in the town," added Cordero. "Approximately 6,700 housing units were built, along with three shopping malls that attracted megaretailers such as Wal-Mart, Sam’s Club, and Rooms to Go. The land management plan was designed to avoid a failure like that in the San Juan metro area because of a lack of urban planning." Since the municipality of Ponce won a lawsuit to continue the "Ponce en Marcha" projects, the central government is investing $233 million for 22 public works projects. The municipality is contributing $42 million, while private industry is investing another $123 million. "We expect 3,000 to 4,000 jobs to be created with this solid investment plan," said Cordero. "In the next six to eight months, there will be another economic boom that will affect other sectors such as health, shopping centers, housing, tourism, and transportation." Cordero, who will run in 2004 for a fifth term as mayor, intends to turn the south into an economic pole. This pole will give Ponce the political power to force the central government to share its economic strength. "If we have a strong economic base, we know our young people will look for jobs with the private sector and not with the government," said Cordero. "This means the government’s role as an employer would be reduced and the people would be able to vote for whomever they want, without having to submit to political blackmail." Besides focusing on housing and infrastructure, Cordero is betting on the development in Ponce of the Port of the Americas, a joint public-private venture initiated by the Rossello administration in Guayanilla in 1999. Cordero believes the transshipment port’s added-value component could provide the greatest economic stimulus in Ponce and along the entire southern coast. "Once the port is established [at a cost of more than $500 million], Ponce’s Mercedita Airport would gain life, expanding its air cargo and passenger transportation industry," said the mayor. "I don’t agree Ponce must remain a domestic port while developing the transshipment port in Ceiba and leaving San Juan as a tourism port." According to Cordero, the island’s regulatory agencies won’t approve the depths to which Ceiba’s bay must be dredged or the means to accomplish the job. Ponce has the space to accommodate the giant cranes that post-Panamax ships need to unload and process containers and to develop added-value components, such as logistics, manufacturing, and warehousing. Much of Ponce’s investment base is the result of its work to evaluate CRIM’s tax collections. According to Cordero, in 1996 a private firm hired by Ponce found 1,300 residential units with invalid tax exemptions. "I have proof that Ponce is owed more than $50 million," he said. "We are recovering property-tax payments at the rate of approximately $200,000 a month, and we expect to increase this amount to $400,000 a month. Problems also exist with the inventory tax." "The island’s 78 municipalities must consolidate and demand their share of the central government’s resources," said Cordero. "By joining together, the municipalities can reduce costs and share services. Right now, out of Puerto Rico’s $23 billion budget, 60% is spent in the San Juan metro area. Why should we pay for services we don’t use, such as the Urban Train, the Superaqueduct, and the Metropolitan Bus Authority. Whoever uses it most should pay." Ponce At A Glance Population: 186,112 Employment: 49,400 Unemployment: 8,000 Average Annual Salary: $17,837 Municipal Budget: $80,815,773 Income from Patentes: $17,175,000 Property Tax Income: $31,443,237 Other Income: $29,993,032 Total Income: $78,611,269 Municipal Debt: $131,639,408 This Caribbean Business article appears courtesy of Casiano Communications.
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