The accompanying Schedule of Expenditures of Federal Awards (the “Schedule”) includes the federal award activity of the Puerto Rico Aqueduct and Sewer Authority (the “Authority”) under programs of the federal government for the year ended June 30, 2025. The information in this Schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“Uniform Guidance”). Because the Schedule presents only a selected portion of the operations of the Authority, it is not intended to and does not present the financial position and changes in net position of the Authority.
The Schedule was prepared using the accrual basis of accounting, which is the basis used by the Authority to account for its federal awards activity. The Authority’s accounting system provides the primary information from which the schedule is prepared.
The Schedule of Expenditures of Federal Awards includes expenditures incurred in prior years. For the year ended June 30, 2025, the Authority recognized approximately $158 million for the Disaster Grants - Public Assistance (Presidentially Declared Disasters), approximately $23 million for the Community Development Block State Grant, approximately $5 million for the Hazard Mitigation Grant Program and approximately $18 million for the Water and Waste Disposal Systems for Rural Communities in federal expenditures in the Schedule of Expenditures of Federal Awards that were incurred in prior years but were considered to comply with all eligibility requirements during the fiscal year.
The FALN numbers included in the Schedule are determined based on the program name, review of grant contract information and the assistance listings in the System for Award Management (SAM.gov) website. FALN numbers are presented for those programs for which such numbers are available.
Matching costs, such as the nonfederal share of certain program costs not borne by the Federal Government, are not included in the Schedule.
The Authority has elected not to use the 10 percent de minimis indirect cost rate as allowed under the Uniform Guidance for the year ended June 30, 2025.
For the year ended June 30, 2025, there were no awards passed-through to subrecipients.
U.S. Office of Management and Budget (“OMB”) Uniform Guidance requires that federal financial reports and claims for reimbursements contain information that is supported by the books and records from which the basic financial statements have been prepared. The Authority prepares the federal financial reports and claims for reimbursements primarily based on information from the internal accounting records of the federal programs. The Authority prepares a reconciliation of the internal accounting records of the federal programs with the Authority’s accounting system.
State Revolving Fund (SRF) The Authority receives federal funds for its capital improvement projects through various loans granted by the Clean Water State Revolving Fund Programs (“CWSRF”) and the Drinking Water State Revolving Fund Programs (“DWSRF”) (collectively, the “SRF Loans”), created under the federal Clean Water Act of 1972 and Safe Drinking Water Act of 1974, as amended, administered by the Commonwealth’s Environmental Quality Board (“EQB”) (succeeded by the Puerto Rico Department of Environmental and Natural Resources or “PRDNER”) and the Puerto Rico Department of Health (“PRDOH”), respectively. On July 26, 2019, the Authority and Financial Advisory Authority (“AAFAF”, by its Spanish acronym) consummated a definitive debt restructuring modifying the Authority’s then outstanding SRF Loans in the amount of $570 million plus $26 million of new funds for ongoing capital improvement projects (the “SRF Agreements”). The SRF Agreements were approved by the Oversight Board, pursuant to Section 207 of PROMESA, and consolidated all the SRF Loans into two SRF loans (the “2019 SRF Loans”) with a 30-year maturity and for years 1 through 10 bearing interest at 0% and requiring $10 million annual principal-only payments and for years 11 through 30 bearing interest at 1% per annum and requiring $27 million annual debt service thereafter. After the July 2019 debt modification, with the agreement of and in collaboration with the EPA, the Authority regained access to funds from the SRF Programs on the dates and by the amount expressed in thousands in the table below. The loans interest rate is 1% and amortize in a 30-year period after project completion. The subsidized loans or grants are funds with no principal repayment and 0% interest rate. All of the above SRF Loans, are designated as Other System Indebtedness on a parity as to payment with other senior indebtedness under the Authority’s MAT and are not guaranteed by the Commonwealth. Rural Development (RD) The USDA Rural Development (“RD”) assists the Authority in the financing and construction of aqueduct and sewer facilities in rural areas. On July 26, 2019, the Authority and RD agreed to modify the Authority’s then outstanding balance of the RD bonds, totaling $403 million, including accrued interest as of that date into two new loans. The agreement consolidated and converted all the then outstanding RD bonds into two new loans (the “RD Loans”) with a 40-year maturity bearing interest at 2% per annum, with a $10 million annual debt service requirements from years 1 through 10 and $17 million in annual debt service requirement thereafter. The RD Loan Agreements are also designated as Other System Indebtedness on a parity as to payment with other senior indebtedness under the Authority’s MAT and are not guaranteed by the Commonwealth.
The Authority participates in federally assisted programs from the Federal Emergency Management Agency’s (“FEMA”) Public Assistance (“PA”) Grant Program. Through the PA program, the Authority receives supplemental federal disaster grant assistance for debris removal, emergency protective measures, and the repair, replacement or restoration of disaster-damaged, publicly owned facilities. The Authority also receives assistance for hazard mitigation measures during the recovery process to protect damaged facilities from future events through the Hazard Mitigation Grant Program. On September 6, 2017 and September 20, 2017, Hurricanes Irma and María, respectively, hit Puerto Rico resulting in island-wide catastrophic damage to Puerto Rico's infrastructure, homes, and business. As a result of the impact of these Hurricanes, most of the island's population was left without electrical power and there was significant disruption to the water distribution system among other basic utility and infrastructure services. These factors caused significant disruption to the island's economic activity. The entire island was in the process of an immense infrastructure rebuilding program. The President of the United States of America issued a state of emergency declaration for Puerto Rico, as a U.S. territory. The order mandated federal assistance through the Department of Homeland Security and FEMA to assist in local and territorial recovery efforts. The Authority suffered damages to water treatment facilities and structures across the island which resulted in a material adverse change in the financial condition of the Authority and the Commonwealth of Puerto Rico. Significant emergency work was made after hurricanes and significant projects to restore the damaged facilities were made. On January 7, 2020, Puerto Rico was struck by a 6.4 magnitude earthquake causing significant damage to infrastructure in the southwestern portion of the island, an island-wide power outage and water shortages. President Trump also approved an emergency declaration allowing direct federal assistance for emergency measures to protect lives, property and public health after the series of earthquakes. On January 5, 2021, the President of the United States announced that FEMA would award federal grant funds to help rebuild Puerto Rico’s water and wastewater treatment plants, pumping stations, dams, and reservoirs affected by Hurricane María. On January 8, 2021, the funds were obligated through an agreement (the “2021 FEMA Funding Agreement”) by which FEMA agreed to pay $3.66 billion to the Authority for recovery and resiliency capital projects related to damage suffered by the Authority during Hurricane María. The amount represents the federal government’s 90% funding share of the $4.07 billion fixed cost estimate for repairing such damage to the Authority’s facilities. The Authority is required to meet a 10% cost share (“match”) requirement for its FEMA-funded permanent work projects under the 2021 FEMA Funding Agreement. On September 2, 2021 the Department of Housing of Puerto Rico and the Authority entered into a sub-award agreement with federal Housing and Urban Development (“HUD”) Community Development Block Grant – Disaster Recovery Flexible Match program (“CDBG-DR Program”) funds for $200 million under the CDBG-DR Non-Federal Match Program to fund the state match of the FEMA award. Subsequently, on November 22, 2024 the agreement was amended to include an additional award for $200 million. On September 18, 2022, Hurricane Fiona made landfall along the extreme southwestern coast of Puerto Rico on as a Category 1 hurricane with winds of 85 mph, according to the National Hurricane Center. The hurricane resulted in massive amounts of rain, reaching more than 30 inches in some areas in the south and the central mountain region and catastrophic flooding. As a result of the passage of Fiona, all of the island lost electricity service, which was not restored in some places for many weeks. As result, The President of the United States of America issued a state of emergency declaration for Puerto Rico, as a U.S. territory. The order mandated federal assistance through the Department of Homeland Security and FEMA to assist in local and territorial recovery efforts. Late on August 13, 2024 and during August 14, 2024 tropical storm Ernesto impacted Puerto Rico by unleashing torrential rain and damaging winds. The center of the storm passed within 40 miles of San Juan, with maximum sustained winds of 70 miles per hour in the east region and gusts of almost 90 miles in the Municipality of Culebra. The island experienced heavy flooding, with nearly 10 inches of rain, swollen rivers, and flooded roads. After passing north of Puerto Rico, Ernesto became a Category 1 hurricane. The island's eastern and central regions were the most impacted. The President of the US declared a state of emergency for Puerto Rico and ordered Federal assistance to supplement Commonwealth and local response efforts due to the emergency conditions resulting from tropical storm Ernesto. The President’s action authorizes the Department of Homeland Security, Federal Emergency Management Agency (FEMA), to coordinate all disaster relief efforts which have the purpose of alleviating the hardship and suffering caused by the emergency on the local population, and to provide appropriate assistance for required emergency measures, authorized under Title V of the Stafford Act, to save lives and to protect property and public health and safety, and to lessen or avert the threat of a catastrophe in 38 of the 78 municipalities in the Commonwealth of Puerto Rico. Specifically, FEMA was authorized to identify, mobilize, and provide at its discretion, equipment and resources necessary to alleviate the impact of the emergency. Emergency protective measures (Category B), limited to direct Federal assistance, will be provided at 75 percent Federal funding.
The Authority participates in the EPA Capitalization Grants for Drinking Water (FALN No. 66.468) and Clean Water (FALN No. 66.458) State Revolving Funds Programs that provide loans for eligible water infrastructure projects. Transactions relating to these loans and guarantee programs are included in the Authority’s basic financial statements. Loans made and/or proceeds received during the year are included in the summary of federal expenditures presented in the SEFA. These loans do not have federal continuing compliance requirements except for repaying the loans and therefore the outstanding balance is not considered as part of current year federal expenditures.
The following table shows the Federal grants and loans received as subrecipients during the fiscal year presented in the Schedule for the following programs: (a) Capitalization Grants for Clean Water State Revolving Fund (FALN 66.458) pass-through from the Puerto Rico Department of Natural and Environmental Resources and Puerto Rico Infrastructure Finance Authority (PRIFA). Loan proceeds of $39,815,371. (b) Capitalization Grants for Drinking Water State Revolving Fund (FALN 66.468) pass-through from the Puerto Rico Department of Health and PRIFA. Loan proceeds of $13,297,578 and Grants of $17,811,242. (c) U.S Department of Homeland Security (FALN 97.036) Pass-through from the Commonwealth of Puerto Rico's Office of the Governor's Authorized Representative through Central Office for Recovery, Reconstruction and Resiliency (COR3) and the Federal Emergency Management Agency (FEMA). Grants of $270,676,208. (d) U.S Department of Homeland Security (FALN 97.039) Pass-through from the Commonwealth of Puerto Rico's Office of the Governor's Authorized Representative through Central Office for Recovery, Reconstruction and Resiliency (COR3) and the Federal Emergency Management Agency (FEMA). Grants of $5,729,227. (e) U.S Department of Housing and Urban Development (FALN 14.218) Pass-through from the Puerto Rico Department of Housing. Grants of $32,297,770.