Tragic Start to the New Year and Actions from the Federal Government

Tragic Start to the New Year and Actions from the Federal Government

Published on January 21, 2020

Rosanna close-up
Director, Washington D.C. Office

Puerto Rico received the new year with a series of earthquakes, aggravating its ability to recover from the 2017 hurricanes. In response to the significant damages suffered once again by the residents of Puerto Rico, and increasing public pressure, on January 16, 2020, the Federal Government took several actions related to Puerto Rico’s Disaster Recovery Process. A brief summary of these is found below.

Disaster Supplemental

The House Appropriations Committee released an emergency supplemental spending bill with $3.35 billion in federal dollars to assist Puerto Rico after being hit by a series of earthquakes.  Highlights for the bill include:

  • $100 million for the Department of Education to meet the educational needs of individuals affected by recent disasters and emergencies
  • $1.25 billion for the Federal Highway Administration for road damages and repairs
  • $2 billion in new CDBG funds for disaster relief, long-term recovery, restoration of infrastructure and housing, economic revitalization, and mitigation in the areas most impacted by recent disasters and emergencies
  • Specific provisions to accelerate the allocation and disbursement of funds

Approval of Major Disaster Declaration

President Trump approved a major disaster declaration for 6 municipalities in Puerto Rico (Guánica, Guayanilla, Peñuelas, Ponce, Utuado, and Yauco) affected by recent earthquakes.  Language from the Governor’s request estimates damages at $110 million for the six municipalities. As a whole, the US Geological Service’s preliminary report indicates that damages could add up to $838 million, or 1% of Puerto Rico’s GDP. It is likely these figures will be revised up as we continue to understand the full extent of the damages.


Formal Announcement of HUD Monitor

The Department of Housing and Urban Development (HUD) announced its appointment of Robert M. Couch as the Federal Financial Monitor to oversee the grant administration and disbursement process of disaster recovery funds to Puerto Rico and the U.S. Virgin Islands. In its announcement, HUD stated: 

“We are glad to have Robert re-join our Department to manage our financial oversight operations in Puerto Rico,” said Secretary Carson. “He has an extensive background with decades of private and public sector experience dealing with financial reporting, risk management, and executing the law. Robert will be an asset in supporting HUD’s mission to continue aiding recovery efforts in Puerto Rico while ensuring that appropriated funds are used in a responsible manner and for their intended purpose.”

“I greatly appreciate the Secretary’s confidence in me,” said Robert Couch. “I share his dedication to the recovery from Hurricanes Irma and Maria, and his determination to ensuring that the funds entrusted to HUD by Congress for the survivors are expended as quickly as possible while still safeguarding against waste, fraud and abuse. I look forward to working with the disaster recovery teams in both locales, and I thank Olga Castellón, the Acting FFM, for paving the way so I can hit the ground running.”

Mr. Couch will join HUD as a career member of the Senior Executive Service. He previously served as HUD’s General Counsel from December 2006 to November 2008 where he acted as the chief legal advisor to the Secretary, Deputy Secretary, and other principal staff, providing advice on federal laws, regulations, and policies affecting HUD programs. Mr. Couch also served as President of the Government National Mortgage Association (Ginnie Mae), Commissioner on the Bipartisan Policy Center’s Housing Commission, and as a member of President George W. Bush’s Task Force on the Status of Puerto Rico.

Prior to his government service, Mr. Couch was President and Chief Executive Officer of New South Federal Savings Bank in Birmingham, Alabama, and acted as General Counsel and Chief Financial Officer of First Commercial Bancshares. He is a former Chairman and Member of the Board of Directors of the Mortgage Bankers Association of America, former President of the Mortgage Bankers Association of Alabama, a Certified Public Accountant (inactive), and a Certified Mortgage Banker (Master Certificate).

In August, HUD announced its intention to appoint a Federal Financial Monitor in response to reports of financial mismanagement and corruption in Puerto Rico. Pending the arrival of Mr. Couch, Ms. Olga Castellón served as the Acting Federal Financial Monitor on all matters relating to overseeing HUD’s Community Development Block Grants-Disaster Recovery efforts in Puerto Rico. She was detailed to this position from the Executive Office for U.S Attorneys (EOUSA) in October 2019.

Grant Agreement for $8.3 billion in CDBG Mitigation Funds

HUD announced it will soon publish a notice allocating the long-awaited $8.3 billion in Community Development Block Grant funds for mitigation (referred to in the notice as CDBG-MIT) to Puerto Rico.  The notice comes nearly two years after Congress passed the Further Additional Supplemental Appropriations for Disaster Relief Requirements Act, 2018. Any funds received by Puerto Rico must be deposited into a Disaster Relief Account (“meaning a new, segregated, non-co-mingled, unencumbered account held in the name of the Commonwealth or of the Non-Federal entity”) for eligible activities.  Puerto Rico must submit an action plan no later than September 4, 2020, unless it requests, and HUD approves, an extension of the submission deadline as provided for in the CDBG-MIT Notice.

The Department is unabashedly forthcoming on its lack of trust in Puerto Rico to manage the funds. In its notice it justifies special grant conditions “based upon the risks posed by the grantee, including risks related to the grantee’s capacity to carry out the specific programs and projects proposed in its action plan.” These onerous requirements would be hard to meet even in the best of conditions, much less in a jurisdiction with limited resources.

Four of the limitations previously reported by the Washington Post are included in the draft document posted : 

  1. “the grantee is prohibited from using CDBG-MIT funds for mitigation activities to reduce the risk of disaster related damage to electric power systems until after HUD publishes the Federal Register notice governing the use of the $2 billion for enhanced or improved electrical power systems”
  2. “the grantee shall request and submit to HUD any certification, observations, and recommendations by the Financial Oversight and Management Board (FOMB) established by the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), that the action plan and any related program budgets are consistent with any reasonably related provisions of the applicable FOMB- certified budgets and fiscal plans. This condition shall not be interpreted to require a review and certification that is outside of the FOMB’s authority.” 
  3. “develop a uniform parcel registry and GIS [Geographic Information System] database that contains ownership and parcel registry data”
  4. “the grantee shall not take into account the minimum wage rate established by Executive Order 2018-033 [$15.00/hour] for construction contracts entered by the Commonwealth when determining whether a wage cost is reasonable”

Below are some other oversight mechanisms included in the draft notice:

  • Prior to the obligation of funds, Puerto Rico must submit a detailed plan with its proposed use of funds. Further, Puerto Rico will not be able to draw down funds until it submits to HUD final policies and procedures in place to implement activities laid out in its plan.
  • In order for HUD to monitor the grantee’s financial management capacity, Puerto Rico must provide support documentation for each voucher drawdown request made in in Disaster Recovery and Grants (DRGR) system for its CDBG-MIT grant.  It must also take additional steps to improve the DRGR prior to drawing over a certain percentage of funds.
  • Puerto Rico must include in its action plan a description of how it plans to fund long-term operation and maintenance of certain mitigation projects. This description of work and resources must be submitted annually after initial approval.
  • Puerto Rico will be required to notify it has adequate staffing to carry out duties by submitting evidence that it has secured or is in the process of securing staff and contractors necessary to effectively implement CDBG-MIT funded programs and projects. After HUD receives a Staffing Analysis, it reserves the right to require the grantee to hire specific staff it determines critical.
  • All obligations must be reviewed by HUD’s new Federal Financial Monitor for Puerto Rico. Special grant conditions are also stipulated for “covered projects”, defined as infrastructure projects with a total cost of $50M of more.
  • Grantee will be required to submit evaluation and monitoring criteria for subrecipients of CDBG-MIT funds.
  • Puerto Rico will be required to prepare indirect cost proposals prior to charging indirect costs to the subaward.
  • Each grantee will be required to attend fraud training hosted by the Office of Inspector General (OIG) of HUD within 90 days of grant agreement.
  • Within 90 days of the agreement, the grantee must have staff in place with community engagement experience, and as such, must update its citizen participation plan to ensure there is community input.
  • Puerto Rico will be required to submit all internal audit reports to HUD and the HUD OIG; final reports must be publicly accessible.
  • Each program will be required to have in place policies and procedures, including training plans to all grantees.
  • If working with other agencies on activities valued at over $500 million, the grantee must provide a detailed plan on how it intends to monitor the use of funds and its activities, as well as how it intends to oversee performance.
  • The grantee must ensure proper accountability and compliance over program requirements and take enforcement action against noncompliant subrecipients.