Doing Business in Puerto Rico Blog: Business Coaching, News & Developments

Social Protocol Consumes Legislators' time

Puerto Rico's legislature has become so discredited that many citizens are demanding that they downsize to one single branch; this because people figure they need to keep a  small bunch to enact laws. Criticism is widespread. One claim  is that legislators waste enormous time and resources on matters other than those for which they were elected. This became apparent to me again while I was looking for a particular law. During the search, I learned that between January 2005 and October 2006, between 5,000 to 10,000 people had been congratulated in 2,600 different resolutions passed by the House and the Senate.  It is great to acknowledge fellow citizens, but, doesn't the enormous amount of 'well-wishing' seem a bit of a distraction? Is that reasonable?

We are spending over 100 million dollars a year pay-rolling  legislators and their staff of aids and lawyers; and given the extremely precarious economic situation the Island is going through, it seems that less hobnob and more focused work would be wise.  Here is an example of  a typical resolution I came up with:

To extend a sincere congratulation and warranted recognition by the House of Representatives of the Commonwealth of Puerto Rico to the youngster (name omitted) of the first grade of (name omitted) School for being awarded 'Excellence' thanks to her high academic achievement.

(our emphasis)

When I was in first grade, I was more concerned with toys than anything else, so I cannot understand why would the House waste valuable government resources sucking up to a six year old who could care less.  Under our system of government,  the legislature is a continuous body that convenes in seven sessions during four-year mandate. There are two sessions per year; the first  lasting roughly six months and the second about three.  This means that in just 190 days about five thousand  citizens were commended in the twenty six hundred different measures.  Without counting the necessary background work leading to each bill,  that's  about  twenty six people and thirteen decrees per day. 

There is no slowing down on the public relations agenda; over 100 commendations so far this month. 

Study on Puerto Rico's Economy Making Headlines Elsewhere

A few days ago I commented on Puerto Rico's  precarious economic condition based on  a joint report published by  the Center for the New Economy in Puerto Rico and The Brookings Institution. The voluminous book has made its presence felt more heavily outside the Island. Yesterday, both, the New York Times and the International Herald Tribune (owned by the Times) published the same editorial comments on the economy of Puerto Rico.

Under the heading "Puerto Rico in Distress" the newspapers commented that "[a]fter decades of economic progress, Puerto Rico is struggling, and the mainland has both missed this horrific economic slide and contributed to it through benign neglect".

The Herald and Times concur with the conclusion that the U.S. has a lot to do with the current situation:

Much of the blame can be put on Washington, which has been tone deaf to the island's needs and has miscalculated where help was needed. Even a good idea, like the Section 936 program of tax incentives, was mismanaged. Before it was phased out last year, it had succeeded in bringing many pharmaceutical concerns to the island, but produced relatively few jobs and at so high a cost that a $40,000 position cost the government $70,000.

Political parties have tied the Island's economic woes to the political situation.  For the status quo -now in power- it's a matter of gaining additional autonomy;  for statehooders it's the lack of real congressional representation; and with the independentistas its all about  the 'evil empire'.  The non partisan report offers us an excellent opportunity to engage in candid debate and get going with what needs to be done; this without the usual ideological low-blows.

 

The Degetau Federal Building

THE SOMBER FEDERAL OFFICE BUILDING  AND COURTHOUSE AT CHARDON STREET IN SAN JUAN, PUERTO RICO,  WITH ITS STARK ARCHITECTURE, MULTIPLE FENCES, ALARMS, CHECKPOINTS AND SECURITY ZEALOTS SEEMS SO SEPARATE,  ALOOF AND JUST PLAIN DIFFERENT FROM THE ISLAND'S INFORMAL  CULTURE....IT SEEMS TO SAY TO THE PASSERBY......  PRETEND WE ARE NOT HERE AND DON'T GET TOO NEAR.

The building's name comes from Federico Degetau, born in 1862  in Ponce,  Puerto Rico (and of German descent). 

Besides being the first Resident Commissioner in the U.S. (hence the relationship with the Federal Government) Degetau was also a Spanish licensed lawyer educated in Barcelona and Madrid;  distinguished poet and writer.  He was an active member of the PR Autonomist party; and on behalf of Puerto Rico,  he vigorously worked  to secure more independence from Spain; being one of the commissioners sent to Spain by Luis Muñoz Rivera to seek independence. That's where he wasd when the U.S. invaded Puerto Rico duing the war. His attention focused on the U.S when  the Island became a U.S. Territory.

He became mayor or San Juan  and later deputy  to the General Courts in Spain; where he  happened to be during the U.S. invasion of Puerto Rico.

Despite the dramatic changes  in the Island, Degetau continued immersed in public service.  He was appointed by the U.S.  as  Puerto Rico's Secretary of Interior.   In 1900 he was elected Resident Commissioner and re-elected in 1902. He  served in the Fifty-sixth  and Fifty-eight Congress; from 1901 to 1905.  Degetau died in 1914  at the age of 52. 

Ironically, while he participated in the quest to obtain autonomy from Spain, as a member of Congress, Degetau attempted to procure U.S. citizenship for Puerto Ricans.   

While the  the grey federal  building may look unsympathetic,  it nevertheless  stands in honor of a Puerto Rican committed to  justice and  diversity  of the human race.

Jumpstarting Puerto Rico's Economy

A joint project between The Center for the New Economy in San Juan and The Brookings Institution in Washington recently  released a study on the Island's  economy.  Under the title The Economy of Puerto Rico: Restoring Growth, the publishers claim that it is "[t]he most exhaustive study of the Puerto Rican economy done in the past 75 years. . . . " 

According to the Brookings Institution:

Restoring Growth in Puerto Rico examines the island's economy and presents policy options for sustainable growth. A number of overlapping issues are at the heart of Puerto Rico's economic difficulties: labor supply and demand, entrepreneurship, the fiscal situation, financial markets, and trade. Here, economists from Puerto Rico and the United States propose a set of policy recommendations to increase employment, encourage private sector development, improve education, upgrade infrastructure, and fix governmental finances.

The study reveals many  troubling facts about our current economic situation:

• Our current living standards have  fallen back.  They are farther away from the U.S.  than 30 years ago.
• Official statistics overstate local production of goods and services  by 20% .
• Less than 1/4 of all able workers are employed in the private industry; the rest are government workers, employed by government subsidized companies or unemployed.
  
• Government handouts undermine the incentive to work (we knew that!).
  
• U.S. tax policy has hurt Puerto Rico by providing U.S. Corporations  investment incentives without linking them to local  jobs.
• Labor productivity here is 2/3 of the U.S. level.
• Per capita income is 1/3 of the  U.S.
• Puerto Rico males have a exceptionally low involvement in the labor market.
  
• Females are taking over- in 2002-03 only 39% of college students were males.
• Minimum wage laws discourage hiring of less skilled workers
• Puerto Rico's Tax Code is filled with breaks for special interests at the expense of the rest.
• Puerto Rico's regulatory environment  and permitting process retards progress and blocks private investment and growth.
  

Incorporation Forms

The other day I rushed to file an LLC and was surprised to learn that If I wanted it effective  the same day, I had to pay $100.00 above the regular $50.00 filing fee. Otherwise  there was an approximate two-week delay.   It made no sense because anyone can file and activate  a  regular or closed corporation  the same day for the regular $110.00 fee. Anyway, if you are planning to open an LLC be aware of this administrative detail.   Also, as of now there is no online filing so  filing is done  by mail or in person. 

If you are planning to open a Stock Corporation in Puerto Rico, here is the form you need to complete and file  in the   Puerto Rico's State Department: Download Cert_Incorp_Acciones.pdf . If it's a closed corporation the form is this one:  Download Cert_Incorp_Intima.pdf . Limited Liability Corporations use a different form:   Download crl_certificado_organizacion.pdf.  If on the other hand you are foreign corporation and want file for authorization to do business in Puerto Rico, here is  the Certificate of Authorization to Do Business in Puerto Rico: Download Cert_Foranea.pdf.  Annual reports are completed in this form: Download informe_anual_de_corporaciones.pdf.   Additional forms can be found in the  Corporations Division of the State Department .

In all cases fees apply; check the appropriate form.

FCC Fines Puerto Rico Radio Station $16,000

The FCC levied a $16,000 fine to Radio X Broadcasting Corp when it determined that " Radio X' s antenna stucture "had extremely faded and chipped aviation orange and white paint which obscured the structure's visibility."  It was a reduction of  the original $20,000 asessment  imposed back in 2002. Radio X  Broadcasting Corporation  is the licensee of Station WXLX, Lajas, Puerto Rico.

Here is an excerpt of the official Memorandum Opinion and Order adopted by the Commission on October 10, 2006:

By this Memorandum Opinion and Order (“Order”), we deny the Application for Review, filed on October 26, 2004 by Radio X Broadcasting Corporation (“Radio X”), licensee of FM Broadcast Station WXLX, Lajas, Puerto Rico, and owner of antenna structure number 1043256, Cabo Rojo, Puerto Rico, of the Enforcement Bureau’s (“Bureau”) Memorandum Opinion and Order (“Bureau Order”), released September 28, 2004. In affirming willful violations of Sections 17.50 and 73.3526(b) of the Commission’s Rules (“Rules”), the Bureau Order granted in part and denied in part Radio X’s Petition for Reconsideration of a Bureau Forfeiture Order, and reduced the monetary forfeiture from twenty thousand dollars ($20,000) to sixteen thousand dollars ($16,000). The noted violations involved Radio X’s failure to clean or repaint its antenna structure to maintain good visibility and its failure to maintain Station WXLX’s public inspection file at the main studio.

WAPA TV Sold for 130 Million

San Juan, Puerto Rico based Channel 4 WAPA-TV is being sold to InterMedia Partners LP, a private equity firm for $130 million in cash. Channel 4 has been owned by Lin TV Corp since October 1999.

According to the press release: "The stations being sold include WAPA-TV, a full-power independent station, and WJPX-TV, an independent station branded as MTV Puerto Rico, as well as WAPA-America, a U.S. Spanish-language cable channel that utilizes the news and entertainment programming produced by the Puerto Rico stations."

Lawyer Fees

Before turning irritable at the sight of your next  attorney's  bill, I thought it would  confort you to learn  what other are paying in the U.S. for lawyer fees.  One survey  found many  firms in New York, Washington and Chicago  charge  $800 per hour.  In South Florida, the low end for large firms brings $400 an hour while rates for senior partners range between $500-$600 per hour.

My informal survey shows that the average rate  charged by  Puerto Rico's top firms  is well below the national average.

Redrawing the Framework of Construction Permits in Puerto Rico

The government has repeatedly announced  it is taking steps to streamline the process in which construction permits are awarded. Over 34 agencies regulate more than 100 different permit related issues.  Ecological and left wing groups are suspicious and not receptive to the idea. Let’s explore why.

The administration is cognizant that its bloated bureaucracy of paper-pushing dependents neither creates nor promotes economic development. Worse that failing miserably at promoting new investments during past years,  the government's  operations (executive and legislative) obstruct private business initiatives. So, perhaps in an effort to get out of the way, the government is apparently considering fresh new ideas that may ultimately save businesses time and money.

The level of construction activity is considered by many a measurement of progress but in Puerto Rico that premise may not  necessarily be true.  For decades, our little Island has been the object of relentless and senseless development. Fueled by profit and speculation, mountains are leveled, forests are depleted, species threatened, creeks are filled, beaches are constructed and then closed to the public. Concrete and asphalt crisscross the Island in a hurry as if nature was a nuisance to everyone. In this once lush tropical Island, cement is now the common denominator. The stunning beauty of a valley is seen by many developers as a big dollar sign.  Too often they build upon a collective disregard for our social and historical fabric.  Not surprisingly, we continually see massively dull and intrusive  projects placed anywhere a profit can be made. Furthermore, continually spiraling  prices keep the majority of the population off limits from attractive coastal and beach developments. Middle class see these projects as an assault to their way of life by foreigners and the wealthy. No wonder new tourist developments  raise so much anger and distrust.

I cannot help but compare Puerto Rico with other developed countries- and notice that their forests, beaches, greenery have all  survived hudreds of years of development; nature, tradition and history are universally respected. In contrast, here we learn of what latest development caused what.  Just recently, the media reported that access to the historical San Geronimo Fort was being encroached by another private development.  Some scientists estimate that if the current construction trend continues, 90% of the Island  will be covered in cement and stripped of its remaining natural beauty.

Beaches and coastal areas are becoming  frontlines for ecological disputes.  Interests groups, some armed with scientists, lawyers and well-documented studies  are battling developers and enjoying some success.  They are also gaining widespread support. Those who favor them realize that unchecked development deeply affects everyone’s  quality of life; and  the less land we have, the more selective the government need to become when awarding permits.   Ironically, the quarrels raised by environmental groups are becoming a unifying  force among a population historically polarized over political options. 

A faster permitting process is a great idea but it should not operate in a vacuum. It's not how fast the permit can be obtained but also whether the project involved fits into the grander scheme of things. The government-through irresponsible or corrupt officials- has been a full conspirator to the  chaotic development. It must now act responsibly on this issue. Speeding the process without evaluating past shortcomings can greatly accelerate the urban assault. This requires a thorough and honest evaluation of past failures; it needs to re-examine proper use of our remaining land; be open to critics on the Plan de Uso de Terrenos  (the Island Master Plan for land use); it needs take into consideration scientific evidence and the will of the people; and create changes that will ensure a consistent and uniform policy.

A true commitment to  protect the Island demands socially responsible development.   Ultimately, real progress is measured by the quality of our lives not by the amount of dollars to be made.

More Free Credit Reports

Puerto Rico’s lawmakers enacted Act 47 of January 30,  2006 requiring credit agencies operating in Puerto Rico to provide citizens with a free copy of their credit report, at their request, once every 12 month. The law further requires credit agencies to post a notice of this obligation in two places; one printed in a placard located in the area of the company where the reports are distributed.  The the other notice must be located in the top portion of the first page of each report issued.

The law boasts that it seeks to improve federal legislation which -supposedly-only provided the right to a free report upon an adverse credit decision. This is wrong information. Ironically the law aims to provide citizens with accurate credit data but actually includes misleading information.

For many years federal law entitled consumers to request a free report if a company took adverse action against the consumer such as denying an application for credit. However, The Fair and Accurate Credit Transactions Act (FACTA) was signed into Federal law December 2003 amending  and adding new sections to the The Fair Credit Reporting Act. This law requires  each of the three nationwide consumer reporting companies  to provide consumers with a free copy of their credit report, at their request, once every 12 months.  The Federal Trade Commision gradually phased-in  the free report benefit throughout the U.S. over a period of nine months. In the case of Puerto Rico consumers became eligible for the free report  on September 1, 2005.  FACTA also enacted regulations to fight identity theft, increase accuracy, privacy and limits on information sharing in reports. 

By the way, the free requirement may help explain all the credit reports being offered on the Web.  Be careful.  Looking for free reports might cost you in other ways. Many of these so-called free reports sites are marketing  boiler rooms to get you  signing up for and paying monthly subscription services for information you may not really need.  Perhaps more serious is the fact that there are hundreds of impostor sites ready to take your private information. Free reports from the three credit agencies in the U.S. can be requested on line in a centralized location  at annualcreditreport.com.   For more information on consumer credit check the Federal Trade Commission.