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Federal Funds: A Look At Puerto Rico’s Share (Part VII)


September 23, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

Each year, billions of dollar in U.S. federal funds are instrumental to the economic development of the Commonwealth of Puerto Rico. Yet, the island is unable to fully access a substantial number of federal programs by which these funds are channeled to individuals and to state and local governments throughout the mainland U.S., presenting an obstacle to Puerto Rico’s full development and to the well-being of the nearly four million U.S. citizens residing on the island.

There are two main reports that summarize how the U.S. government spends what are known in Puerto Rico as fondos federales, or federal funds. Prepared by the U.S. Census Bureau, these are the Consolidated Federal Funds Report (CFFR) and the Federal Aid to States Report (FASR). According to the Census Bureau, these reports include all 50 states, the District of Columbia, and the U.S. Outlying Areas. Puerto Rico is part of the U.S. Outlying Areas.

The CFFR data cover federal expenditures or obligations for the following categories: grants, salaries and wages, procurement contracts, direct payments to individuals, other direct payments, direct loans, guaranteed or insured loans, and insurance. Dollar amounts reported represent either actual expenditures or obligations.

In 2002, according to the CFFR, total federal-government expenditures amounted to almost $1.9 trillion. In most cases, the amount of federal funds received by the states is proportionate to their share of the U.S. population. Puerto Rico’s share in 2002 was $14 billion, or 0.75% of the total, although the island’s population represents 1.34% of the total U.S. population. On an average per capita basis, Puerto Rico received $3,644, or 56% of the states’ $6,527.

Puerto Rico’s per capita allocation was the lowest of any U.S. state. The per capita expenditures in Mississippi, South Carolina, and Connecticut were a respective $7,419, $6,355, and $7,336. In New York, New Jersey, and Florida, states with considerable Puerto Rican populations, the federal funds received per capita were $6,733, $5,898, and $6,271, respectively. Hawaii obtained $8,413, more than twice Puerto Rico’s per capita share of federal expenditures.

The CFFR divides federal expenditures into five major categories: direct payments to individuals for retirement and disability, direct payments to individuals for other than retirement and disability, grants, procurement contracts, and federal-government salaries and wages.

Retirement and disability

Federal direct payments to individuals for retirement and disability accounted for 32% of all federal expenditures in 2002, or $613 billion. In Puerto Rico, these payments accounted for 37.5% of all federal expenditures on the island, for a total of $5.28 billion. Nevertheless, they accounted for just 0.86% of the total federal expenditures for this category, substantially less than Puerto Rico’s population-proportionate share of 1.34%. On a per capita basis, Puerto Rico received $1,368, or $737 less than the U.S. average. Every state received more than Puerto Rico. On a per capita basis, for example, Puerto Rico got $960 less than Hawaii, $995 less than South Carolina, and $755 less than Connecticut.

Out of the $5.28 billion in direct federal-government expenditures for Puerto Rico residents’ retirement and disability, $4.56 billion was for Social Security payments. Retirement insurance accounted for $2.14 billion, survivors insurance for $951 million, and disability insurance for $1.47 billion. In addition, residents of Puerto Rico received $289 million for federal retirement and disability benefits, $410 million in veterans benefits, and $26 million in other direct payments for retirement and disability.

In 2002, $31.4 billion was channeled through the federal Supplemental Security Income (SSI) program, which provides monthly cash payments to low-income aged, blind, and disabled people in the 50 states, the District of Columbia, and the Northern Mariana Islands. Puerto Rico residents aren’t eligible for SSI.

The program is based on nationally uniform eligibility standards and payment levels. Federal SSI payments are determined by the recipient’s countable income, living arrangement, and marital status. As of January 2003, the maximum monthly federal SSI payment for an individual living in his or her own household and with no other countable income was $552; the maximum for a couple was $829.

Direct payments to individuals

A second major category of federal expenditures is direct payments to individuals for other than retirement and disability. There are eight types of these payments. The major programs include Medicare, earned income tax credits, unemployment compensation, food stamps, housing assistance, agricultural assistance, and federal employees’ life and health insurance.

Direct payments to individuals accounted for 22% of the total federal expenditures, or approximately $422 billion. Puerto Rico obtained $2.66 billion, or 0.63% of the total, less than half its population-proportionate share of 1.34%. On a per capita basis, Puerto Rico received $688, which is $766 less than the national average of $1,454. Every state in the nation received more direct payments to individuals under this category than Puerto Rico.

In 2002, Medicare payments totaled $251.1 billion. These expenditures in Puerto Rico represented just 0.57% of the total, or $1.42 billion. The expenditures were divided as follows: Hospital insurance accounted for $541 million and supplementary Medicare for t the remaining $875 million. There were 561,000 Puerto Rico residents enrolled in the Medicare program, or 1.4% of the national total of Medicare enrollees, a little more than the island’s population proportion.

This category of federal funds also includes expenditures for excess earned income tax credits (EITC) to individuals. The EITC is a refundable credit for low-income working individuals and families. Income and family size determine the amount of the EITC. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. Because most Puerto Rico residents don’t file federal income tax returns, they aren’t eligible for this credit. The EITC is available only to those who maintain a household on the U.S. mainland or are serving on extended active duty in the U.S. military.

Unemployment compensation payments also fall within this category of funds. Unemployment Insurance is a program jointly financed by federal and state employer payroll taxes. The Federal Unemployment Tax Act tax rate is 6.2% of taxable wages. The taxable-wage base is the first $7,000 paid to each employee during a calendar year. Unemployment compensation amounted to $48.2 billion in 2002, of which Puerto Rico’s share was $335 million. Federal expenditures for unemployment compensation were lower in Puerto Rico than in all states with a comparable population, even though unemployment was higher on the island.

Expenditures in the Food Stamp program in the states, another part of the direct payments to individuals, amounted to $18.2 billion in 2002. The government of Puerto Rico obtained approximately $1.35 billion in the form of a block grant that was distributed to over one million eligible recipients. Unlike in the states, the CFFR classifies this amount under grants and not under direct payments to individuals.

The government of Puerto Rico establishes eligibility parameters that are stricter than the federal government’s for the states. If those federal eligibility standards were applied in Puerto Rico, the amount assigned to the island would be substantially higher. Puerto Rico’s lower personal income and higher poverty levels in comparison to the states mean that more Puerto Ricans should be eligible for food stamps.

For housing assistance, Puerto Rico residents received $104 million from the $4.3 billion the federal government spent, representing 2.5% of the total. The majority of these funds for Puerto Rico came from the Public & Indian Housing program and the Public Housing Drug Elimination program. The disproportionate expenditure is evidence of the disproportionate number of people on the island who reside in public housing projects, surrounded by crime and living in poverty.

Life and health insurance for federal employees made up an additional $66 million of federal-government expenditures in Puerto Rico. The CFFR also notes a total $24.1 billion of direct payments to individuals under the category of "other," from which Puerto Rico’s share was $705 million, or 3%. This category includes a payment of $625 million for Pell Grants to ensure that over 180,000 Puerto Rico students can receive a college education. It also indirectly helps to pay the salaries of professors.

Puerto Rico’s share of the federal Pell Grant program was 5.4% of the $11.62 billion national expenditure. This is one example of a federal program from which Puerto Rico receives more than its proportionate share based on population, a fact many university students and public universities seem to ignore.

The amount of federal funds for other direct payments to individuals, even with the addition of the $1.35 billion from the Nutritional Assistance Program (PAN by its Spanish acronym) block grant, adds up to $4.01 billion, or approximately 1% of the total. That is substantially less than Puerto Rico’s population-proportionate share of 1.34%, which would be $5.65 billion.


The third major category consists of grants and represented 21.7% of all federal-government expenditures throughout the U.S. in 2002, or $412 billion in absolute terms. The grants identified in the CFFR could be allotted either to states and local governments or to the private sector, including profit and nonprofit organizations.

In 2002, grants for Puerto Rico (including PAN) totaled $4.83 billion, or 1.17% of the total federal expenditures for the category. Since states don’t receive their food-stamp funds as a grant and the PAN funds are really direct payments to individuals, Puerto Rico’s share in this category was actually $3.48 billion, or 0.8%. This amount is substantially lower than Puerto Rico’s proportionate share of 1.34%, which would have been equivalent to $5.52 billion, or an additional $2.04 billion.

The national per capita allocation of grant expenditures was $1,410, compared with Puerto Rico’s $902 (excluding the PAN grant), $508 less for every island resident, or a total of almost $2 billion less. Contrary to the rest of the U.S., where federal taxes paid by state residents contribute to the distribution of these federal grants, Puerto Rico doesn’t contribute to the payment of any. Federal taxpayers on the U.S. mainland fund all of these programs. In the case of Puerto Rico, federal grants come almost absolutely free. These grants, which are made by a wide range of federal agencies, affect almost every agency of the commonwealth government, our lives, and our well-being.

In 2002, Puerto Rico received $408 million (excluding PAN funds) from the Department of Agriculture (USDA). This amount was greater than the island’s population-proportionate share, mainly because of the island’s higher poverty level and lower personal and family income.

USDA grants to Puerto Rico included $335 million from the Food & Nutrition Service through two major programs: Child Nutrition and Supplemental Food, funded to the tune of $176.8 million and $152.8 million, respectively, according to the FASR.

Grants from the Department of Commerce added up to $17.2 million, or $4.46 per capita. As if Puerto Rico weren’t in need of funds for economic development, on a per capita basis, it only received 20% of the amount Hawaii received and 31% of Mississippi’s share. Hawaii got $27.4 million, or $22.01 per capita, and Mississippi got $40.7 million, or $14.17 per capita.

From a total of $365.7 million in grants from the Corporation for Public Broadcasting, Puerto Rico received $3.15 million in 2002. Local stations WIPR-TV and WIPR-FM got $2.3 million as community service grants, which helped them improve the quality and expand the scope of their services to the community.

Total Department of Defense (DOD) grants throughout the U.S. amounted to $2.4 billion in 2002, of which the CFFR indicates $1.47 million went to Puerto Rico. The DOD directs grants to state and local governments through the U.S. Army Corps of Engineers’ civilian construction program or the U.S. Army National Guard’s construction program. From the DOD, Connecticut received $35.5 million and Mississippi $8.7 million. Hawaii and South Carolina got $5.7 million and $44.9 million, respectively.

Grants for programs in Puerto Rico’s Department of Education totaled $678.4 million. On a per capita basis, Puerto Rico received $175.81, or 47.8% more than the national average of $118.94. The island’s amount is comparable to that granted to Hawaii, which received $177.69 per capita. Without these federal funds, Puerto Rico’s public schools would be much worse off than they are.

In most of the educational programs, including the Office of Special Education & Rehabilitation Services, the Office of Vocational & Adult Education, the Office of Elementary & Secondary Education, Impact Aid, No Child Left Behind, and Title I, Puerto Rico received more than its population-proportionate share. It didn’t fare nearly so well in other programs. From the Office of English Language Acquisition, Puerto Rico obtained $1.9 million out of a total $587.9 million; it received only $380,000 out of $463.5 million from the Office of Educational Research & Improvement; in International Education Programs, Puerto Rico got nothing from a total budget of $54.72 million; and from the Office of Student Financial Assistance, the island obtained just $600,000 out of $467 million, according to the FASR.

The Department of Energy is one of the largest sponsors of basic and applied research and development in the U.S. It provides funding and other support to researchers in academia, other government agencies, nonprofit institutions, and industry. Out of approximately $1.9 billion in federal expenditures, Puerto Rico’s share was $1.2 million, or 0.06%. The national state average was $38 million, almost 32 times more than Puerto Rico received. The Environmental Protection Agency channeled $4.25 billion in grants. Puerto Rico’s share was $46.4 million, or 1.09% of the total.

According to the CFFR, the Department of Health & Human Services provided $244 billion in federal grants to the states. Puerto Rico’s share was $971 million, or 0.4%. A population-proportionate share would have been $3.27 billion, or another $2.3 billion for Puerto Rico. On a per capita basis, Puerto Rico got $251.76, just 30% of the states’ average of $846.14.

Most of the grants from the Department of Health & Human Services include social programs for the neediest segments of the population. Among these programs is the Administration for Children & the Family (ACF), which provides funding for family assistance (welfare), child support, child care, Head Start, and other programs. In 2002, ACF grants to state and local governments added up to $43.36 billion, of which government agencies in Puerto Rico received $309 million, or 0.71% of the total. On a per capita basis, Puerto Rico received $80.13, compared with Connecticut’s $164.26, Hawaii’s $132.27, and Mississippi’s $151.86.

From the Administration of the Aging, one of the nation’s largest providers of home- and community-based care for the elderly and their caregivers, Puerto Rico received $11.16 million, or 1.03% of the total, which is $3.37 million less than its proportionate share.

From the Centers for Disease Control & Prevention (CDC), Puerto Rico’s government agencies got $5.5 million out of $650 million destined for state and local governments, or 0.85% of the total. South Carolina got $9.5 million and Connecticut $8.8 million. Mississippi, with a million fewer people than Puerto Rico, received $1.1 million more. The CDC promotes health and safety throughout the U.S. by preventing and controlling disease, injury, and disability.

According to the FASR, the Center for Medicare & Medicaid Services funneled over $150.6 billion in grants to state and local governments. Puerto Rico received $265.3 million, a mere 0.18% of the total. South Carolina got $2.41 billion, or over nine times more. Mississippi got over 8.5 times more. The state average was $3.01 billion, or more than 11 times what Puerto Rico received.

In addition, Puerto Rico obtained $128 million in grants from the Health Resources & Services Administration (HRSA), which represented 2.25% of the $5.69 billion total. The HRSA works to improve and extend life for people living with HIV/AIDS, to provide primary healthcare to medically underserved people, to serve women and children through state programs, and to train a health work force that is diverse and motivated to work in underserved communities.

Another $32.4 million came from the Substance Abuse & Mental Health Services Administration, a federal agency charged with improving the quality and availability of prevention, treatment, and rehabilitative services to reduce the costs in illness, death, disability, and money to society from substance abuse and mental illnesses.

Of the $5.14 billion in grants from the Department of Justice, Puerto Rico received $49.4 million, or 0.96%. This represents $19.4 million less than Puerto Rico’s population-proportionate share of $68.88 million. The per capita national average was $17.82, compared with Puerto Rico’s $12.80.

According to the FASR Puerto Rico received from Office of Justice programs just $8.7 million of a total $2.51 billion in grants and payments to states for law-enforcement assistance, or 0.35% of the total. For Juvenile Justice programs, the island got $300,000, or 0.06% of the total $554 million. For Crime Victims programs, the amount was $4.2 million, or 0.87% of the total $478 million total.

Grant expenditures from the Department of Labor in Puerto Rico represented 3% of the total, or more than double the island’s proportionate share. Out of $9.37 billion, Puerto Rico received $281.1 million. Puerto Rico’s per capita allotment of $72.85 was more than twice the national average of $32.49, or almost $100 million more than the state average.

Federal grants from the National Science Foundation (NSF) amounted to $4.43 billion, of which $13.2 million or 0.3% came to Puerto Rico. The NSF funds research and education in science and engineering through grants, contracts, and cooperative agreements. The foundation accounts for about 20% of the federal support to academic institutions for basic research. Awards totaling over $9 million were distributed mainly to various campuses of the University of Puerto Rico; Inter American University and Sagrado Corazon University received the majority of the residual. NSF is also a prime participant in the National Astronomy & Ionosphere Center (Arecibo Observatory), providing $9.4 million to support research.

Grants to Puerto Rico from the Small Business Administration amounted to $896,000, or 0.67% of the $133.7 million total. Another $1.5 million was contributed by the Department of State. Expenditures by the Department of Transportation added up to $42.66 billion, of which Puerto Rico received $131.8 million, or 0.31% of the total. The national per capita average was $148.07, over four times higher than Puerto Rico’s $34.16. Puerto Rico’s population-proportionate share would have been $572.2 million $439.8 million more. The Department of the Treasury also provided the commonwealth with $379.2 million, mostly from federal excise taxes on rum shipments to the mainland.

Procurement contracts

The fourth major category of federal-government expenditures is procurement contracts. In 2002, federal procurement contracts totaled $271 billion, or approximately 14% of all federal expenditures. Puerto Rico’s share was $365 million, or less than 1%. Total procurements are divided into nondefense and defense procurements. Puerto Rico’s share of $105.4 billion in nondefense procurements was $143 million. In defense procurements, Puerto Rico received $221 million out of a total $165 billion.

Federal-government expenditures for procurement contracts contributed $3.1 billion to the economy of South Carolina, or $755.92 per capita; $6.22 billion to Connecticut, or $1,796.29 per capita; $2.73 billion to Mississippi, or $952.04 per capita; and $1.62 billion to Hawaii, or $1,302.30 per capita. In Puerto Rico, the per capita expenditure by the federal government for procurements was $94.50, lower than in any of the states.

Expenditures in nondefense procurements represented $576 million to Connecticut, $515 million to Mississippi, and $1.9 billion to South Carolina–all amounts greater than Puerto Rico’s $143 million.

The island’s inability to secure federal procurement contracts is even more disturbing given that there are minority requirements for most such procurements, and most companies in Puerto Rico would qualify as minority-owned. Many observers say the reason for this is the lack of knowledge about the procedures involved; some say Puerto Rico hasn’t developed the right industries, while others point to the island’s lack of representation in Washington.

Salaries & wages

In 2002, 10% of the $1.9 trillion in federal expenditures, or $199.1 billion, went to the salaries and wages of federal employees, which account for the fifth major category of federal expenditures. In 2002, the federal government spent $930 million in Puerto Rico, or 0.47% of the total. Of that, 69%, or $638 million, went to the salaries and wages of nondefense civilians. The remaining $292 million was spent on salaries and wages paid by the Department of Defense.

Military salaries and wages in Puerto Rico accounted for $283.3 million, or 0.4%, of the $71.5 billion paid to military personnel stationed on the U.S. mainland and in Puerto Rico. Out of the $283.3 million, $98.67 million corresponded to people on active service, $121.36 million to inactive military, and $63.21 million to civilian personnel in the military. Federal expenditures for nondefense civilians in Connecticut and South Carolina, states with populations comparable to Puerto Rico’s, were a respective $1.07 billion and $972 million, meaning those states received respectively approximately $432 million and $335 million more than Puerto Rico.

Loans & insurance

In addition to federal expenditures, the U.S. government provides assistance in the form of loans and insurance programs. In 2002, the federal government provided a total $30.87 billion in direct loans. Puerto Rico’s share of these added up to $183.7 million, or 0.6%. On a per capita basis, Puerto Rico received $47.61, less than half the national average of $107.15.

Loan programs from the USDA provided approximately half, or $14.61 billion, of the $30.9 billion in direct loans. Of that $14.65 billion, $10.5 billion came from commodity and price support loans in which Puerto Rico didn’t participate. Puerto Rico received $82.5 million of the $4.15 billion in direct loans from other USDA programs. It should be noted that these are new loans provided during the fiscal year and don’t represent the total amount of direct loans outstanding.

The federal government also provided direct student loans that aren’t part of the Pell Grant program. The purpose of the loan program is to provide capital directly from the federal government (rather than through private lenders) to vocational, undergraduate, graduate, and postsecondary students and their parents. Applicants must be U.S. citizens, nationals, or in the U.S. for other than a temporary stay. Of the $14.7 billion approved in 2002, $98.5 million went to Puerto Rico residents. Puerto Rico got shortchanged in this program as well, receiving only $25.53 per capita, less than half the national average of $50.98.

The federal government provided an additional $1.5 billion in other direct loans, of which Puerto Rico’s share was $2.7 million, or 0.18%. On a per capita basis, Puerto Rico got 70 cents, or less than 14% of the national average of $5.31. Connecticut got $2.86, while Mississippi surpassed the national average, obtaining $5.57.

The federal government also provided guaranteed-loan programs, which included mortgage insurance for homes, the Family Education Loan program, Veterans Housing guaranteed and issued loans, and Veterans Administration home loans. In addition, it provided mortgage insurance for condominiums and USDA-guaranteed loans. Puerto Rico’s share of the $214.3 billion federal guaranteed-loan program was $1.17 billion, or 0.55%. On a per capita basis, Puerto Rico received $303.20, less than half the national average of $743.15.

In addition, the federal government provided insurance programs, including flood insurance, crop insurance, and life insurance for veterans and others. In 2002, the total coverage amounted to $667 billion; the volume of coverage for Puerto Rico was $3.17 billion.

Although not active in Puerto Rico during 2002, the Federal Emergency Management Agency (FEMA) channeled close to a billion dollars into the island’s economy in 1999, the year after Hurricane Georges struck. Hundreds of millions of dollars in grants and loans from the federal government not only kept Puerto Rico afloat but also helped to jump-start the economy.

Once again this week FEMA is in the forefront of the Commonwealth government’s priorities so that the federal government can help them assist thousands of Puerto Ricans in the aftermath of Tropical Storm Jeanne.

The bottom line is Puerto Rico’s economy receives billions of dollars each year in federal funds. These funds reach the pockets of almost every segment of the population and the Commonwealth government. Yet, Puerto Rico receives much less in almost every category of federal assistance than any of the states.

Economist Manuel Maldonado assisted with this series. Elisabeth Roman edited the articles.

Next week, CARIBBEAN BUSINESS will examine the economic implications for Puerto Rico as an independent nation.

Amounts of Federal Government Funds Per Capita 2002

Comparison of Selected States to Puerto Rico

All Categories

Hawaii: $8,413.54

Mississippi: $7,419.16

Connecticut: $7,336.25

New York: $6,733.35

U.S. Average: $6,527.24

South Carolina: $6,355.50

Florida: $6,271.34

New Jersey: $5,898.86

Puerto Rico: $3,644.19

Analysis: CB & QBS Intelligence

Source: Consolidated Federal Funds Report

Amounts of Federal Government Funds for Retirement & Disability Per Capita 2002

Florida: $2,615.23

South Carolina: $2,363.73

Hawaii: $2,328.91

Connecticut: $2,123.39

U.S. Average: $2,105.98

New Jersey: $2,084.43

New York: $2,046.24

Mississippi: $1,837.77

Puerto Rico: $1,368.76

Analysis: CB & QBS Intelligence

Source: Consolidated Federal Funds Report

Population Comparisons Selected States & Puerto Rico

As of July 1, 2002

New York: 19,157,532

Florida: 16,713,149

New Jersey: 8,590,300

South Carolina: 4,107,183

Puerto Rico: 3,858,806

Connecticut: 3,460,503

Mississippi: 2,871,782

Hawaii: 1,244,898

Source: U.S. Census

This Caribbean Business article appears courtesy of Casiano Communications.
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