By Joel Cintrón Arbasetti
Versión en español aquí.
Puerto Rico’s Resident Commissioner in Washington, Jenniffer González, is like the godmother of the Opportunity Zones in U.S. Congress. She claims as her achievement that the island was included in said investors’ exemption program, which is part of President Donald Trump’s tax reform.
While states can only designate 25% of their census areas below the poverty level as an Opportunity Zone, “almost 94%” of Puerto Rico was designated as that category, according to the Commissioner.
González was not alone in her endeavor. There were other players in Congress promoting the Opportunity Zones for the island.
At the same time, the main lobbyists of this measure are her political donors.
Among them are José Fuentes-Agostini, a lobbyist who is part of the Hispanic Advisory Committee of the Republican Party, former Justice Secretary during Pedro Rosselló’s first administration and part of Trump’s campaign committee; former Sen. Kenneth McClintock; and Zoraida and Jaime Fonalledas of Empresas Fonalledas, owners of Plaza Las Américas shopping center. They have donated between $1,000 and $2,700 each to the Resident Commissioner between 2016 and 2018, according to the registry of the Federal Elections Commission.
Three private entities related to these figures jointly invested, between Jan.17, 2018 and Jan. 22, 2019, nearly $3 million ($2,880,000) in lobbying services in Congress for matters that include the Opportunity Zone exemptions, according to the U.S. House lobbyist registry. lobbying disclosure registry.
Jenniffer González told the Center for Investigative Journalism (CPI) that she was not aware of lobbying efforts regarding the Opportunity Zones in Congress.
However, the CPI asked McClintock if he talked to González about his Opportunity Zones lobbying efforts and the former senator replied: “Well, you keep your friends informed of what you are doing. Just in case, they tell you ‘look this [congressman] is quite opposed, approach him this way’ or whatever.”
The CPI asked Empresas Fonalledas communications director Lorraine Vissepó if there was any communication with the resident commissioner Jennifer Gonzalez about the lobbying efforts for the Opportunity Zones.
On behalf of Empresas Fonalledas, Viseppó answered in writing: “Throughout this process, it is possible that our consultants communicated with the Resident Commissioner or her office.”
“This legislation originated in the U.S. Senate. Therefore, our efforts were largely concentrated in that chamber. The Resident Commissioner, as the representative of the people of Puerto Rico in Congress without the right to vote, plays an important role in getting the island included in any federal legislation, and so it was in this case,” added Vissepó.
Empresas Fonalledas spent $530,000. Of those, $370,000 through Akin Gump and $250,000 withFuentes-Agostini as a lobbyist.
In its communication, Empresas Fonalledas mentioned that its lobbying investments are not limited to the Opportunity Zones, but also include efforts for the Child Tax Credit, the Arecibo Observatory, Medicaid funds and Hurricane María recovery aid, among others.
“In the specific case of the Opportunity Zones, we worked to include Puerto Rico in this legislation, in which initially this territory was not included, since we see it as an opportunity to attract new capital to the country, that in turn will help stimulate our economy and put us on an equal footing with other jurisdictions,” they told CPI.
In response to questions from the CPI, Viseppó said Empresas Fonalledas “has no plans, at this time, to develop an investment fund to participate in the benefits of this law.”
“No one brought that to my attention, it was Senator [Tim] Scott who set up the Zoning Opportunity amendment. My amendment in the House, with the Speaker of the House, was basically to have it apply to most of Puerto Rico and the whole island was considered. I don’t know what kind of lobbying these organizations did, if any, because I worked directly with the Speaker of the House and, at that time the committee chairman,” González said.
Did you receive any information from the lobbying groups about the importance of Opportunity Zones?
“No, none. Why? Because this was part of my campaign proposals to seek incentives and federal funds for investment and economic development in Puerto Rico. We took advantage of the amendment that Scott had already presented in the Senate. And we did that, instead of Puerto Rico having to submit so much documentation, we are going to have it complete.”
Did any firm or company directly express interest in investing in Puerto Rico, if it was declared an Opportunity Zone?
“No, because there was no way of knowing if that amendment was going to pass. What we did have were the Census numbers that showed, and are the ones that I use for all my legislation, they showed several things: the poverty level in Puerto Rico is more than 47%.”
But weren’t meetings or approaches directly related to the issue of Opportunity Zones?
“Not with me. Remember that this happens after the hurricane and this reform was being discussed; I had participated in many of these public discussions. And we pushed until the end and we managed to include this amendment in the conference report for all of Puerto Rico. So, not with me.”
Those lobbying for this, Kenneth McClintock, Jose Fuentes Agostini, Zoraida and Jaime Fonalledas, are also donors of your political campaign.
“Yes, but they did not intervene in this matter, at least not with me. I worked this with the private sector, which was backing us up on this.”
With whom in the private sector? Because these people are of the private sector?
“I’m talking about the associations, the Chamber of Commerce, the manufacturing group. But the amendment, as such was worked out by us and we made it public and was supported by the industry at that time. Like the project that we’re filing now, in the area of tourism, but it is not necessarily because someone is lobbying for it, it is because we are looking to encourage economic activity in Puerto Rico.”
“The implication that one files legislation for someone in mind seems offensive to me. The Census data showed that Puerto Rico has a 47% poverty level. When Sen. Scott submitted that the areas of poverty in the United States could be addressed, specifically to encourage economic activity, I took advantage of that opportunity and submitted an amendment so that it applies to all of Puerto Rico. And that was what I announced at the time with the Speaker of the House and it is on the record. So we took advantage of legislation, an amendment that came from the Senate and what we did was to expand it to the whole island here.”
One of the first companies to create three Opportunity Funds in Puerto Rico was real estate firm Morgan Reed. Javier Alfonso Feliciano-Guzmán is the authorized agent for all three funds created and incorporated between May and June 2018: MRPR Opportunity Zone Fund, 960 Ponce Opportunity Zone Fund and Mr. Condado Opportunity Zone Fund.
Feliciano-Guzmán donated $1,000, on Aug. 28, 2018, and $1,500 on Aug. 31, 2018, to the PAC Todos with Jenniffer Inc., for Resident Commissioner González. On Dec. 31, 2017, Feliciano-Guzmán donated $1,000 to the Jenni Achieving Goals and Opportunities PAC.
The organization that invested the most in lobbying for issues that include the Opportunity Zones was the Puerto Rico Statehood Council, which spent $880,000, between Jan. 17, 2018 to Jan. 22, 2019. Fuentes-Agostini is the director of the Puerto Rico Statehood Council. The Statehood Council hired Akin Gump Strauss Hauer & Feld for these lobbying services, for which it paid $400,000, and Navigators Global, for $480,000. Fuentes-Agostini did not respond to a request for an interview from the CPI.
The Puerto Rico Equality Forum invested $790,000 in lobbying for matters that include the Opportunity Zones. Its president is Kenneth McClintock, who is also a lobbyist for the firm.
“[Opportunity Zones] is one of the parity issues that I have lobbied so far… In the states there have been these opportunity zones under different names. So, I favored extending that to Puerto Rico, under equal conditions,” McClintock told the CPI.
He added that he only lobbied for Puerto Rico to be designated as an Opportunity Zone, not for the exemption to apply to the entire island. However, he considers that the island’s broadest designation, compared to the states and territories, is compatible with the parameters of equality promoted by his organization, because in Puerto Rico there is more poverty.
The government contracted Vantageknight, led by Manuel Ortiz, for $680,000 to lobby for issues that include Zones of Opportunity.
DLA Piper: Simultaneous Advisors and Authorized Opportunity Zones Agents
Gov. Rosselló signed the local law to enforce these exemptions on May 14, but the Treasury Department and the Department of Economic Development and Commerce have yet to prepare regulations and a list of priority projects for the Opportunity Zones.
“As soon as the legislation is approved, you will see that there will be dozens of funds in Puerto Rico; everyone is waiting for that,” Treasury Secretary and Chief Financial Officer, Raúl Maldonado told the CPI on March 1.
One month after the signing of the local law, two opportunity funds have been registered.
These are Rioblanco Spectrum QOZ Fund I LLC, incorporated on May 16, and Rioblanco Spectrum QOZ Fund II LLC, incorporated on June 11, as Opportunity Funds administered by RioBlanco Capital LLC, an investment firm headed by Gabriel Jiménez. The authorized agent of Rioblanco Spectrum QOZ Fund I LLC is Camille Alvarez, a lawyer with the DLA Piper firm. The authorized agent of Rioblanco Spectrum QOZ Fund II LLC is Adriana Pérez, an attorney with of DLA Piper.
Attorney Manuel López-Zambrana, also from DLA Piper, was the government advisor in charge of the local legislation for the Opportunity Zones and is currently working with Maldonado and other advisers on the regulations that will oversee the Opportunity Zones in Puerto Rico. López-Zambrana and Gabriel Jiménez did not answer a request for an interview with the CPI.
On March 11, Puerto Rico ́s Office of Management and Budget awarded a $1,125,000 contract to DLA Piper LLP. Among their duties are “to assist in the review of tax reform and local law to enable the Zones of Opportunity. And assist the OCFO [Office of the Chief Financial Officer, Raúl Maldonado] and the Office of Management and Budget in the design and implementation of a program to launch real estate investment projects for Puerto rico, including Opportunity Zone investment,and successful implementation of Puerto Rico Opportunity Zone program, as part of the 2019 ‘Project Delivery Initiative’ .”
On April 30, the Office of Management and Budget granted another $375,000 contract to DLA Piper (Puerto Rico) LLC, to perform the same duties related to Opportunity Zones mentioned in the previous contract.
As early as August 2018, DLA Piper LLP had signed another contract with the Treasury Department, with a $750,000 cap, which includes “assisting Treasury in designing and implementing the program to launch the Opportunity Zones.” That same month, he signed another contract with the Treasury, with a cap of $250,000, for legal services that include advice on “economic development initiatives such as Opportunity Zones.”
DLA Piper is a tax adviser and lobbies in Congress, on behalf of the Puerto Rico government, Maldonado explained to the CPI. The firm has more than $7 million in contracts with this administration.
Prior to the signing of the local law, there were 15 other registered opportunity funds, mostly managed by U.S. investors.
The CPI asked Maldonado and Government investment chief , Gerardo Portela, whether they understood that there was a conflict of interest in having a lawyer from the firm advising the Government on the Opportunity Zones as the authorized agent of a fund that will benefit from that law. None of the officials answered the question sent in writing.
At the federal level, those who invest in Opportunity Zones through a qualified Opportunity Fund receive a 10% tax cut in the payment of capital gains taxes if they maintain the investment in the fund for more than five years. If they keep it for more than seven years, the cut increases to 15%. If they reach more than 10 years, they pay nothing in taxes if the investment is sold.
The local Opportunity Zones law provides the same exemptions on taxes paid to the Treasury Department, applicable to foreign and local investors. In addition, it offers municipal exemptions, tax credits, the elimination of 25% in the payment of taxes on goods and real estate, another 25% exemption in excise taxes for construction and an “agile procedure for the evaluation and issuance of permits.”
So far, how many requests for investment in Opportunity Zones has the government received? the CPI asked the Treasury Secretary, who also chairs the “Opportunity Zones Priority Projects Committee.”
“At the moment, the Government of Puerto Rico has not evaluated nor responded to any request for developments in Opportunity Zones subject to pending determinations by the committee established in Law 21, 2019, signed on May 14. However, the government continues to carry out negotiations and meetings at the U.S. Department of the Treasury. Investors were waiting for local legislation to invest in Puerto Rico,” Maldonado said in written statements.
When will the list of priority projects for Opportunity Zones be published?
“Law 21, 2019 establishes that the list of priority projects will have to be issued or published by the [Opportunity Zones Priority Projects] Committee within 60 days after the law is approved. Come July, we will be announcing the benefits of the legislation to present Puerto Rico as the best investment option,” added Maldonado.
When he signed the Opportunity Zones Law in the Convention Center, Gov. Ricardo Rosselló admitted to the CPI that his administration did not conduct a feasibility study to know the economic impact of the measure but affirmed that the federal government had done so.
Is there a feasibility study of the effectiveness of this Opportunity Zones project? Have you done any study of the impact it will have?
“Economic impact?” Rosselló asked.
Economic, social, of all kinds impact.
“They have obviously been carried out by the federal government in order to carry out the project,” said the governor.
The CPI asked González if there was a feasibility study at the federal level.
“No. The Census data is used on the areas that are economically below the per capita poverty level, among other things,” González answered.
What is your faith on this project based on? the CPI asked González.
“In that it brings an economic activity to areas that do not have the capital to make the investment and you are obviously bringing it from the outside to be able to receive an incentive to invest in these areas. And this is not only in the case of Puerto Rico, other states have it.”
What do you expect from the Opportunity Zones and in what amount of time?
“The Opportunity Zones will depend on how Puerto Rico markets them. It will depend on how the government of Puerto Rico makes an effort to encourage and bring in that investment. On how it defines the zones and what projects they are looking for in each zone to, obviously, be able to offer those alternatives. So now the mechanism will depend on the promotion process the island makes for this investment,” González answered.
Discrepancies Over Percentage
The percentage of the island designated as an Opportunity Zone varies according to the official being asked and is not reflected in the official documents on this initiative published so far.
“The percentage is not going to be in the law because we talked about it being the whole island. When the petition was made with the IRS, with the agreement with the Puerto Rico Treasury Department, it was determined to be almost 94%. Remember, once the allocation is destined , that is, the zone, Treasury has to submit it, and all the states have to submit to the IRS, obviously, the definitions of the zones and that is when they certify the percentage. Because this is done by a map, a map of jurisdiction over what areas it applies to and in which areas it does not,” González said.
The Commissioner added that she is going to file a bill so that 100% of the island is declared an Opportunity Zone, which translates, for investors, as an area where they pay few taxes.
On March 1, the CPI asked Maldonado if he submitted documents to the federal government requesting that all Puerto Rico be designated as an Opportunity Zone.
“I’ll get them for you, there were documents that were submitted to Congress at that time. There was correspondence, especially in communications with the committees,” said Maldonado. In May, the CPI requested the documents again, but they were not delivered.
“Regarding the document requested, I inform you that both the CFO, Raúl Maldonado-Gautier and the Resident Commissioner in Washington, Jenniffer González, held meetings with members of Congress and the Department of the Treasury to discuss the considerations related to the inclusion of Puerto Rico in the federal legislation,” replied Iliana Rivera, press officer of the CFO’s office.
González told the CPI that she presented another bill in May to create Depressed Zones to give additional tax credits to those who invest in those areas. However, she acknowledged that “it is going to be very difficult” for the measure to be approved because, if approved, other jurisdictions in the United States would request the same benefit.
Compared to other United States territories that have designated Opportunity Zones, Puerto Rico has the largest number, with 863 communities. The District of Columbia has 50, Guam 50, Northern Mariana Islands 20, American Samoa 16 and the U.S. Virgin Islands 14, distributed between St. Thomas and St. Croix, according to the official IRS list.