When I initially came to this island in late 2012, few people applied for grants under laws 20 and 22. Partly this was because it wasn’t well known, and the other part was the concern of the government actually honoring its commitment. As one of those early applicants I can attest to that concern and provide a primary reason behind the lack of initial enthusiasm.
When Governor Luis Fortuño lost the election in November 2012, nobody could be sure if the law under the incoming Governor García Padilla would not get reversed. Also, there was something more ominous for a newcomer: the perception that government had a history of changing the game. Even if laws may attract me to the island, they could be changed on a whim. I experienced this firsthand when I was initially moving to the Virgin Islands and at the last minute a representative of the government changed the terms on me. That issue is exactly what led me to find Puerto Rico as an alternative and I was very glad those unfortunate circumstances with the Virgin Islands changed the course of my future and brought me to my new home.
Yet changes started occurring quickly. First, it was hiring three employees, although I had half a dozen employees to start in my asset management firm (now 18). Then it changed to five employees. Later, buying real estate was required (which I support). Then eliminating the requirement. Then donating $5,000 dollars annually to a local charity (which I also support). Then doubling it to $10,000 but restricting giving to certain charities which showed political favoritism on a list most charities cannot get on.
Less than a year ago, Act 60-2019 reinstated the real estate purchase requirement, although I already made considerable investments where I live and work in Dorado. As mentioned, it also doubled the required annual charitable contribution to $10,000, where at least half needs to be donated to a charity published in a list controlled exclusively by a legislative committee led by Representative Tony Soto. The same committee who in turn rejected our public nonprofit foundation’s application to be included in the list even though we clearly qualified and refusing to provide a formal rejection notice as to the reason for the rejection because there was not viable one.
A couple weeks ago a minimum 1% Mansion Tax was enacted by the Municipality of Dorado on real estate transactions of a $1,000,000 or more, targeting certain residential areas in response to missed fundraising targets of a nonprofit organization which will ultimately be funded by said tax. This was after the mayor’s office asked for our support to help fund their initiative and we agreed to help but were blindsided by the tax a month later instead.
Then as soon as last Friday another change, again spearheaded by Representative Tony Soto through the controversial House Bill 2419. The 200-page bill contains significant last-minute amendments to the PR IRC affecting businesses and tax practitioners just days ahead of important due dates. However, something familiar happened; two pages buried another sting at the 20/22 (now law 60 program). Now all 22/60 recipients must pay an unjustified annual processing fee of $5,000, instead of the $300 fee currently applicable, for a report that takes no more than an hour to complete and that’s about three pages long. This is just another hidden tax that scares away future recipients and hurts the development of this amazing program.
Whenever I meet potential recipients as the head of the 20/22 Act Society, changes are always a concern. I’m always asked whether the government will again change the game. Although changes would have to be of prospective nature, hypothetically protecting existing grants, they’re now applied to both existing and prospective grantees, which I don’t think would hold up to legal challenges. These dynamics continue undermining the credibility of incentives programs for present and future investors and entrepreneurs.
Constant changes pose a risk to more than 40,000 direct and indirect jobs created, $1.2 billion in investments, $250 million in annual tax revenues, and almost $1 billion annually in salaries for Puerto Rican residents, among other significant metrics. Puerto Rico’s attractiveness as a business jurisdiction is more uncertain than ever as a result of constant changes. Unfortunately, history has evidenced how the game continues to change, and our legislators need to stop messing with a program that has been the greatest asset to the island since Section 936 incentives were repealed by Congress and threw this island into what is now almost a 20-year recession.