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Economic Bombshell

U.S. Military Base Closures Could Cost Puerto Rico’s Economy More Than $1 Billion A Year


October 3, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

Closing down, cutting back: Civilian employees, contractors of every sort, small & midsize businesses around the installations, and the government of Puerto Rico stand to lose hundreds of millions of dollars from the departure of U.S. Army South, the closing of Sabana Seca, and the possible closing of Fort Buchanan and Roosevelt Roads

Puerto Rico’s economy will take a hit to the tune of about $200 million a year because of U.S. military base closures and downsizing on the island.

The immediate negative impact pales in comparison, though, to what looms on the horizon.

The loss of an additional $1 billion a year to the local economy is a real possibility if the U.S. Navy and U.S. Army shut down Naval Station Roosevelt Roads and Fort Buchanan, respectively.

Moving out

This month, the more than 600-person military and civilian contingent that constitutes U.S. Army South (Usarso) begins its departure from Fort Buchanan. The $45 million move is to be completed next year.

According to U.S. Army figures provided to CARIBBEAN BUSINESS, Usarso has contributed more than $160 million annually to the local economy during its three years here. In the first three quarters of fiscal year 2002 alone (October 2001 through June 2002), Usarso’s economic impact on Puerto Rico exceeded $128 million.

With the Usarso move expected to result in the loss of approximately 621 active military personnel and civilian employees, the total number of personnel at Fort Buchanan will shrink from 3,273 to 2,652.

If, as Army figures indicate, Usarso represented 20% of Fort Buchanan’s impact on the local economy, then the annual economic impact of what remains for now at the fort is $640 million.

Simultaneous shutdowns, cutbacks

This month will also see the official closure of the 2,200-acre U.S. Navy communications base at Sabana Seca, in Toa Baja, 11 miles west of San Juan.

According to Sabana Seca’s commander, Stephen Carder, by month’s end most of the base’s current deployment of 70 Navy personnel will be transferred, and most of its 90 civilian employees will lose their jobs. The base once had a mix of 150 Navy personnel and 150 civilian employees.

Carder said Sabana Seca’s last annual budget exceeded $10 million, about half of which went to the salaries of civilian personnel. "We were also a big customer of the Puerto Rico Electric Power Authority (Prepa)," Carder added.

Such cutbacks in local spending extend to other U.S. military branches. Statistics from the U.S. Department of Defense (DOD) show that overall procurement spending in Puerto Rico by agencies such as the U.S. Army, Air Force, Navy, and Corps of Engineers has fallen dramatically during the first nine months of 2002.

According to a DOD report obtained by CARIBBEAN BUSINESS, U.S. defense agencies in Puerto Rico will have spent $133.8 million on procurement contracts greater than $25,000 during that period. The same agencies spent $297.5 million on such procurement contracts in all of calendar year 2001 and $294 million in 2000.

Bulk of immediate impact

Spending by the Usarso command and its personnel in Puerto Rico (for such basic expenses as housing, utilities, and taxes) accounted for the bulk of its impact on the local economy.

For example, like the rest of the island’s more than 14,000 federal employees, Usarso’s military and civilian personnel must pay income taxes to the Puerto Rico Treasury Department. Last year their contribution totaled more than $8 million.

The Usarso command and its workers also spent over $6 million a year on utilities (i.e., Prepa, the Puerto Rico Aqueduct & Sewer Authority, and Puerto Rico Telephone).

During the period in fiscal year 2001-02 for which figures were provided, Usarso spent more than $14 million on local purchases, more than $7 million on equipment leasing, and more than $12 million on both island-based and off-island contractors.

As for Usarso’s indirect impact on the economy, the Army indicated that a conservative 8% multiplier factor on its total direct annual government & personnel expenditures on the island yields an additional affect of $12.5 million.

The economic repercussions of Usarso’s move to Fort Sam Houston in Texas is greater than its annual operational expenditures and their indirect impact, however.

The move also means that Usarso won’t proceed with the $25 million housing renovation project it had slated for Fort Buchanan. That project had been held up since October 2000, when Congress placed a moratorium on new construction projects at Fort Buchanan because of the Vieques controversy.

The same congressional moratorium also prevented Usarso from building a $3.7 million child development center at Fort Buchanan. Usarso also had plans to construct a new $27 million headquarters in 2005.

Fort Buchanan’s future

Usarso’s arrival at Fort Buchanan in August 1999 had been seen as a godsend for the fort–assuring its survival in future rounds of the base realignment & closure (known as BRAC) reviews which Congress has periodically mandated since the late 1980s.

Fort Buchanan had barely survived two rounds of BRAC reviews in the ’90s. In fact, the 1995 BRAC forced the closing of a 25-year-old housing unit on the base.

With the exit of Usarso–and thus the absence of a major command on the base–Fort Buchanan is expected to again become a prime target for closure when the BRAC process resumes in 2005.

Of the fort’s remaining personnel, 825 are assigned to its garrison, whereas the number of other tenants (including the U.S. Army Reserve’s 65th Regional Support Command and the Antilles Consolidated School System) stands at 1,827.

Fort Buchanan also has a Commissary/Post Exchange complex that serves a local population of nearly 10,000 active members of the National Guard, 5,000 reservists, and nearly 30,000 military retirees.

Pedro Silva, the U.S. Army Reserve 65th Regional Support Command’s public affairs officer, said construction of the new $12.5 million headquarters at Fort Buchanan hasn’t been affected by the congressional construction moratorium or by the Usarso move. He said the project is now about half finished.

A fight on our hands

According to retired Maj. Gen. Felix Santoni, who currently serves as U.S. Secretary of the Army Thomas White’s civilian aide in Puerto Rico, the island’s elected officials will have to become more proactive if there is to be any hope of saving Fort Buchanan when the BRAC process resumes.

Resident Commissioner Anibal Acevedo Vila said he anticipates a complicated fight for Fort Buchanan in 2005 (assuming he’s re-elected, of course). Acevedo Vila has learned that more than a hundred bases may be targeted for closure in the next BRAC round. "In that process we’re going to present the importance of Fort Buchanan and that it should be maintained in Puerto Rico," the resident commissioner told CARIBBEAN BUSINESS.

Santoni said that while he recognizes the possibility that some additional facilities on the base may be declared excess property, he’s still hopeful that the U.S. Army’s sole post in the Caribbean Basin will be retained.

Future of Sabana Seca

Once the closure process at Sabana Seca is completed, the Navy is slated to declare the base excess property, Carder said. Other DOD elements will have the first opportunity to lay claim to the property.

Gen. Francisco Marquez, commander of the Puerto Rico National Guard (PRNG), told CARIBBEAN BUSINESS that he’s in the process of soliciting the use of a major portion of the base.

He said the PRNG would consolidate into Sabana Seca the armories it currently operates on prime land next to Plaza Las Americas and in Bayamon (adjacent to the Urban Train station). "The value of those two properties together could be in the neighborhood of $25 million," Marquez said.

If, for some reason, the PRNG or another DOD agency fails to proceed to occupy the former Navy base, the U.S. General Services Administration (GSA) will take possession of the property. The GSA routinely sells former federal properties to state and local governments as well as to private entities, generating income for the U.S. government.


Change is also in the air, of course, for the U.S. Navy operations in Vieques and in eastern Puerto Rico.

Actually, Vieques is currently benefiting substantially from $40 million in infrastructure & economic development projects by the Navy.

According to Cmdr. Robert Skinner of the Navy’s Vieques Civic Action Team, the biggest project of them all–a $16 million cargo & passenger ferry terminal at its former Mosquito Pier–has just gotten underway and should be completed by mid-2004. The project will include parking, ferry moorings, and a shuttle to transport passengers.

The Navy is also spending $4 million to finish by mid-2003 an upgrade & extension of the Vieques landfill, and is beginning a $3 million road repair project in the Vieques town of Isabel Segunda that’s expected to be completed at the same time.

The Navy also transferred $1.4 million to the U.S. Fish & Wildlife Service to manage conservation areas on its former property on the western side of the island, and spent $2.8 million this year in 144 minigrants, with over 50% of them going to tourism industry-related enterprises.

In the past, opponents of the Navy’s presence on Vieques argued that the Navy had contributed little to the island’s economic development and in fact had hindered its economic development. One of the Navy’s main contributions to the Vieques economy was its employment of more than 50 Vieques residents to work as civilian security guards at its Camp Garcia target range.

The accidental death of one such guard during training exercises in April 1999 fanned the controversy over the Navy’s use of the target range. U.S. Naval Station Roosevelt Roads spokesman Frank Worley said the Navy currently employs only six Vieques civilian security guards.

Up until earlier this year, Worley said the Navy had also employed 117 local Vieques residents at Roosevelt Roads, but that number is now down to only a handful.

Businesspeople on Vieques evidently are anxious to see the controversy resolved, as it has adversely affected the growth of the island’s incipient tourism industry, which is the island’s biggest private-sector employer.

James Weis, owner of the upscale Inn on the Blue Horizon on the island and chairman of the Puerto Rico Hotel & Tourism Association’s Vieques-Culebra Regional Committee, said that with or without the Navy, tourism is set to grow on the island.

He said the planned expansion of the Inn on the Blue Horizon–together with other hotel additions and the opening of the 158-room Martineau Bay Resort–are expected to employ hundreds more Vieques residents in the near future.

Roosevelt Roads

If the Navy finds an alternative to the Vieques target range and ceases to use it in May 2003–as President Bush has indicated it will–most of the negative economic impact won’t be felt in Vieques but on the main island of Puerto Rico.

It was Chief of Naval Operations Vern Clark who at a June 2001 hearing of the U.S. House of Representatives’ Armed Services Committee said that the target range on Vieques is an integral component of U.S. Naval Station Roosevelt Roads’ mission, so much so that without Vieques the continued operation of parts–and possibly all–of the Roosevelt Roads base would no longer be justified.

"It is clear to me that if we aren’t using Vieques, there will be elements of the Roosevelt Roads piece that will no longer be required," Clark told the congressional panel. "I can tell you that we invest $250 million to $300 million a year down there to make that operation go, and if we don't need it because we aren’t utilizing the facility, I have got other places to use it," he added.

The prospect of the shutdown of Naval Station Roosevelt Roads (NSRR)–the largest Naval Station in terms of land area in the world–thus also hangs just over the horizon.

Signs that the Navy has already begun to cut back on construction at NSRR include its cancellations of a $13 million Special Operations Command headquarters project and of the construction of a new school. A family housing renovation project was also put up for bid last year, but was never awarded.

Impact of Roosevelt Roads

According to Navy figures, the 8,612-acre Naval Stations Roosevelt Roads is home to more than 2,500 military personnel and more than 2,500 civilian employees. Another 2,400 dependents (family members) also live on base.

The Navy estimates that NSRR’s total economic impact on Puerto Rico surpasses $300 million annually. However, CARIBBEAN BUSINESS estimates that this figure could be significantly higher based on a dollar-for-dollar comparison with the Army’s expenditures at Fort Buchanan.

The annual payroll for NSRR’s 2,500 civilian employees currently exceeds $60 million while its military personnel payroll stands at $90 million.

Additionally, the Navy has indicated that it spends $46 million a year on base operations & maintenance. During fiscal year 2002 alone, the base had a $11.5 million Prepa bill.

NSRR spent another $107 million a year on contractors. Dozens of local contractors have performed major work at NSRR, including construction contractor Fermin Gonzalez, who is finishing a $19 million family housing revitalization project at the base that was originally awarded to his firm in 1998.

"Contracts at the bases have diminished a lot," engineer Ignacio Reynoso of Construcciones JFM told CARIBBEAN BUSINESS. A year ago, the firm had 15 employees working on NSRR projects; today that number is down to four.

Fermin Gonzalez, Construcciones JFM, Bared Co. of Puerto Rico, and Dick Corp. of Puerto Rico are among the major contractors who still have multimillion-dollar projects at the base.

Other smaller, service-related NSRR contractors include Fajardo-based Casa Suarez (industrial gas), Fajardo-based water distributor Erica International Corp., Santurce-based Dueñas Trailers, Carolina-based industrial carpet cleaner Cuadrado Alfombras, and Santurce-based Valines Industrial Laundry.

These contractors and suppliers provide essential services that help the Navy operate the 1,340 buildings on base, including a 1,300-student school system, a 100-room hotel, and the Navy Hospital.

As Puerto Rico Chamber of Commerce (PRCC) President Jose Joaquin Villamil noted, a shutdown of NSRR would have very negative economic impacts on the eastern part of the island, at least in the short term.

"It would also have a psychological impact on potential external investors in Puerto Rico," Villamil said. "And if it became a political issue, it would be very bad for Puerto Rico."

Acevedo Vila said he’s not convinced that NSRR will be shuttered. "The base plays an unequalled strategic role for the U.S.," he said.

Declining procurement spending

The previously cited report on U.S. Department of Defense procurement spending details spending by municipality and shows that during calendar year 2001, more than $137.1 million in DOD contracts were spent in the municipality of Ceiba. During the first nine months of 2002, however, only $11.4 million in new contracts have been spent in Ceiba.

San Juan has also experienced a significant decline. More than $38.1 million in DOD procurement contracts were spent in the municipality of the island’s capital city during calendar year 2001, but only $5.5 million of such contracts have been spent in San Juan during the first nine months of 2002.

Similarly, more than $6.1 million in contracts were spent in Guaynabo in 2001, but so far this year only $1.5 million in spending on such contracts has been reported.

Rolling with the punches

"We shouldn’t exaggerate the political dimensions of the base closings," Villamil said.

As other observers point out, the people of Puerto Rico continue to show strong support for the military, as evidenced by public opinion polls as well as by the island’s active duty, reserve, and National Guard recruiting & retention levels and distinguished service records.

Further, not all U.S. jurisdictions host major military bases, and jurisdictions that have lost major bases in the past have managed to find alternatives that have gone on to make even greater contributions to their economies

In view of the current military base closures and downsizings, Villamil stressed that it is important for Puerto Rico to have plans in place to make a successful economic transition at each affected location.

"What we have to avoid is what happened at Ramey [the U.S. Air Force’s former base in Aguadilla that was shut down in 1973]," Villamil said. "Not only did we not develop it; we let it deteriorate."

Acevedo Vila affirmed that government officials have learned from similar, poorly planned situations in the past–such as Ramey and Culebra, the sister island of Vieques which the Navy left in 1975.

"Economic development plans for Vieques, for example, reflect what’s been learned from the Culebra experience, and are oriented toward an organized development that will foster the island’s tourism industry and the protection of its environment," Acevedo Vila said.


Economic impact of actual and potential military base downsizings and closures ???

Action Impact
(in millions)
Departure of Army South $160
Closure of Sabana Seca $11
DOD procurement cutbacks1 $110
U.S. Army Fort Buchanan $640
Naval Station Roosevelt Roads $300
TOTAL? $1,221

1CARIBBEAN BUSINESS estimate based on DOD procurement spending in Puerto Rico municipalities during the first nine months of fiscal year 2002.

. Biggest Mobilization Of P.R. National Guard Since Korea

Two Thousand PRNG Troops To Be Sent To Europe For Operation Santa Fe


The biggest mobilization of the Puerto Rico National Guard (PRNG) since the Korean War half a century ago will get underway in early 2003, PRNG Gen. Francisco Marquez told CARIBBEAN BUSINESS.

Marquez said 2,000 PRNG troops (approximately 20% of the PRNG’s entire force) are to be mobilized for a six-month tour in Western Europe, where they will participate in Operation Santa Fe.

Marquez said that at present, 160 PRNG soldiers are deployed on a six-month assignment as military police at the U.S. Navy base at Guantanamo bay, where they guard al Qaeda prisoners. Another 160 PRNG soldiers are also currently serving a two-year tour in Saudi Arabia, as part of Operation Noble Eagle.

When the Operation Santa Fe deployment takes place, Marquez said 2,320 of his soldiers will be on active duty. He said such a large number of PRNG troops hasn’t been mobilized overseas since the Korean War, when 2,500 PRNG troops were mobilized.

The PRNG has a total of just over 11,000 troops in both its Army and Air components. Most of them (9,990) are part-time citizen-soldiers, who have other full-time civilian jobs and whose service commitment to the Guard is limited to one weekend a month and two weeks each summer, unless they are mobilized.

Both Marquez and PRNG Gen. Roberto Marrero said they have initiated communication with employers of members of the PRNG to discuss the mobilization. Marquez said he’s received only one complaint so far, and Marrero said some employers have actually said the mobilization comes at an opportune moment.

"Several employers have told me they’re in a downsizing mode because of the economy," Marrero said. "They say they just hope the economy is in better shape when their employees come back."

Marrero, who is making himself available to talk to civic and community groups around the island about the deployments and the war on terrorism, said such massive mobilizations are likely to become more common.

"This isn’t a war that’s going to end in a year or two, and right now the active members of the Armed Forces aren’t sufficient," Marrero said. "As a result, we can expect members of the National Guard to be rotated regularly going forward."

This Caribbean Business article appears courtesy of Casiano Communications.
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