McClintock means business

Multitasking secretary of State keeps his eye on Puerto Rico’s bottom line

With his thick Rolodex of political connections, built up through decades as a lawmaker, and as a leader of the pro-Statehood New Progressive Party and local national Democratic Party, Kenneth McClintock may just be the most prepared secretary of State in recent memory.

The move to the State Department was a natural for the former Senate president, who has been involved in politics since at least age 14. During his first half year in office, McClintock has clearly reveled in the pomp and protocol of his new role, whether it’s crisscrossing the island with Puerto Rico astronaut Joseph Acabá, welcoming visiting dignitaries or dealing with the travails and tribulations of traveling islanders amid mishaps from Beijing to Miami.

He has also opened the doors of the fabulous State Department headquarters in the heart of Old San Juan, holding a monthly art or historic exhibit to coincide with the wildly popular Gallery Nights, and contributing to the cultural life of the city.

Nonetheless, McClintock may ultimately make his mark through a quiet administrative revolution he is undertaking at his agency, which has yet to attract headlines but promises lasting impact. McClintock is showing he is one secretary of State who means business.

“We see ourselves as the oil that helps move the economy,” McClintock told CARIBBEAN BUSINESS in an exclusive interview. “If you don’t have that oil moving within the motor, the motor will stop.”

McClintock and his team are looking at every aspect of the State Department that deals with island businesses, aiming to streamline bureaucracy and enhance the experience for the end user. That includes the corporate, trademarks and commercial-loan registries, as well as the agency’s oversight role of examining boards.

The new secretary of State is also taking seriously his agency’s role in drumming up business for Puerto Rico through commercial missions and sustained contact with officials in potential markets for island goods and services.

He will also play a pivotal role in the Fortuño administration’s attempt to reform and streamline the massive Commonwealth-government bureaucracy, an effort expected to kick off in earnest this fall.

“We have a corporate registry. If we don’t have an efficient registration of corporations, that can bring the economy to somewhat of a standstill. If we can’t issue certificates of good standing, that can also bring the economy and financing to a standstill,” McClintock said.

“We run a trademark registry…we have commercial transactions registry…we help the federal government issue passports. If you don’t have a friendly place for people to go to get help to fill out their passports, that can also bring things to a standstill,” he added.

Stoking the economic engine
In his first six months in office, McClintock and his team have done much to “keep the oil flowing.”

Streamlining corporate filings may be the biggest and quickest accomplishment so far. Issuing annual certificates of good standing were “taking as long as two, three and four months,” but now are issued the same day or the next day. “Sometimes it takes somebody to come from outside and look at things,” McClintock said. “This simplifies things dramatically.”

The certificates are used by corporations to prove they comply with local laws and are authorized to do business in Puerto Rico. They are often required for loans and other financial transactions.

McClintock said he quickly discovered some 90% of all corporate-standing requests were repeat requests from the previous year, so he implemented a system that requires bringing a photocopy of the previous year’s certificate of good standing, plus a stamped copy of the corporation’s new annual report, which is the main requirement for corporations to maintain their good standing.

The simple solution was first resisted because some in the bureaucracy suggested this could allow corporations to submit false documents, but the new secretary of State argued corporations in good standing should have the same presumption of innocence as those arrested and facing trial for crimes have.

“Why suggest a corporation that has never had any problems with the government is guilty until proven innocent of falsification of documents, fraud and other crimes. Why don’t we assume the corporation’s innocence,” McClintock said. “If we later determine they are falsified documents, then we will throw the book at them. However, don’t keep 99.9% of the people seeking a certificate of good standing waiting three or four months under the old system simply because one in a thousand or one in million are trying to get by.”

There is a “resistance to change” within the government bureaucracy, McClintock acknowledged, with some employees still telling people the good-standing certificates were taking a month or longer. “So, we put up signs to remind them of the change,” he said.

McClintock made a second discovery almost immediately upon assuming his new role: that “tens of thousands” of inactive corporations on file at the department were actually active corporations that simply hadn’t been filing their annual financial reports.

To incentivize their return to good corporate standing, McClintock drew up a regulation allowing for payment plans for corporations in arrears in their corporate filings which, in addition to a $100 fee, also carry a $500 fine for each year a filing has been missed.

“There are tens of thousands of corporations in arrears with the State Department that will be able, in a gradual way, to legalize their circumstances,” McClintock said. “It also means some of the money the State Department is owed, we would be getting at least a part of that. It’s really nice to have accounts receivable turned into cash so, from a fiscal point of view, it is also beneficial to the State Department and the government.”

McClintock’s regulation grants three-year payment plans to for-profit corporations and five-year plans for nonprofit entities, provided they make an initial payment of 25% of their debt. The good-standing certificates they will receive during that time will be conditioned on maintaining perfect compliance with the payment plan and the corporate reporting fees and filings.

While the secretary of State enacted the procedure, he isn’t taking credit for the idea. That comes from a citizen who contacted McClintock through his Facebook page. (The secretary of State insists he will be as accessible an agency head as he been a lawmaker, which means citizens can contact him directly through “email, cellphone and Facebook.”)

A refrigeration technician contacting McClintock through the social-networking site said he wanted to get on the government’s list of contractors but couldn’t come up with the $1,800 for the back-filing fees and penalties he owed to get on the list. So, the idea of a payment plan was born.

“The Treasury secretary can authorize payment plans for tax debt, which is more important than fines for not filing an annual report,” McClintock said. “So, I asked why can’t I? As a result, we are in the process of drawing up the first payment plan, which I said had to go to the guy that gave me the idea through Facebook.”

Embracing the digital age
Despite improvements to Puerto Rico’s incorporation laws over the past several years, the State Department is still in the dark ages when it comes to technology, which McClintock, an Internet buff himself, knows all too well.

“Virtually everything here is manual. There is a little digitalization in the trademarks office. We want to digitalize as much as possible,” he said.

The reliance on paper records is the reason it remains a timely process for an entity to get a certificate of good standing its first time, McClintock acknowledged.

“If it is the first time you are asking for a good-standing certificate, then you will have to go through the process,” he said. “It’s tedious. Employees have to climb like Spiderman to retrieve files and then an analyst has to verify the documents are accurate.”

Like other cash-strapped government agencies, the State Department lacks the internal resources for a major investment, but McClintock said the agency is tapping federal resources through the Workforce Investment Act to begin the badly needed process of digitalizing records.

“We have already entered an agreement through which 40 displaced workers will be trained in digitalization so we can digitalize not only all of our corporate records, but also our examining board, trademarks and all physical records,” he said. “It will improve our ability to hand down certificates of good standing.”

The agency is also working on website improvements to make it easier for people to access its services directly on the Internet. That includes the incorporation process itself, which McClintock wants to bring up to the national vanguard, as exemplified by the state of Delaware, where you can register a corporation on the Internet, pay the fees with a credit card and have a preliminary certificate of incorporation online within minutes. The goal is to have that system operational by 2010. McClintock wants all new corporate registries from then on to be made in digitalized format and then to slowly work backward to digitalize existing records.

“Our goal is to achieve or surpass what Delaware has achieved. It will be a symbol of this administration, making it easier to do business in Puerto Rico,” McClintock said. “The first thing you do as a business is incorporate. If your experience incorporating requires you to go to a colecturía, which is only open during old banking hours, and then go through a series of two or three staff members, the message you receive is that there is a very inhospitable, bureaucratic environment in which to do business, right from the start. What we want to do is make that first step easy and simple. That will send a message that Puerto Rico is open for business.”

The push toward the Internet will also affect the agency’s role of administering the exams for 22 different professional examining boards. McClintock wants professionals to be able to request to take and pay for the exam online. He also sees his role as something of a consumer advocate for those taking the exams; he will push to have professionals given the opportunity to take the exam more than once a year, as well as for the delivery of timely results.

Another “chronic problem” is the agency telephone system, which McClintock calls “a big torture.” His staff communicates with each other via personal cellphones, having given up on the antiquated switchboard. McClintock said the system would be completely replaced during this fiscal year, as part of a governmentwide communications contract expected to save a lot of money.

“The new telephone system will make it easier, through voice prompts and so forth, for people to access our services right on the phone,” McClintock said, adding that a governmentwide data and computer system is also in the works for a future date.

Budget constraints
Like everywhere in the Commonwealth government, these are tough budgetary times at the State Department, meaning solutions to problems not only need to work but be cost-efficient as well.

McClintock’s staff communicates through personal cellphones because the agency doesn’t pay for any cellular phones at all. “We eliminated them entirely,” he said. “If I as able to run the Senate without one single cent being spent on cellphones over the four years, I think I will be able to run the State Department the same way.”

For the 2010 fiscal year that started this month, the State Department will get $3.9 million less than last year, a whopping 27% budget cut. McClintock said $1.4 million corresponds to nonrecurring costs from last year, which included the governor’s inauguration and the government-transition process, so it is really a cut of $2.5 million.

“We are everyday devising ideas to save money,” he said. One large area of savings will be from a cutback in rental payments the agency makes for external office space. An Immigrant Services office in Santurce was closed and moved into the agency’s existing offices in Old San Juan, and an Examining Board office building is also being closed down and will be moved to the Old San Juan location.

State Department offices in Arecibo and Ponce will get free office space from the municipal governments, and McClintock said an additional island office at another free location may open. Offices in Mayagüez and Fajardo are rent-free and will remain open.

While the agency pays for office space in Plaza Las Américas, it will be maintained because it is convenient to the public and will offer all State Department services, not just passports.

McClintock expects the savings through the new governmentwide telephone and data contracts will be “dramatic.” He is also investing in equipment so the agency moves away from paper records and toward PDF files for all records, which also will achieve significant long-term cost savings.

While travel remains an essential part of the secretary of State’s role, McClintock said he was being as frugal as possible here as well. The government of Puerto Rico didn’t have to pay for a single hotel night during the intensive legwork that led up to the recent economic cooperation agreement with the Dominican Republic.

“We are being extremely frugal. We took multiple trips to the Dominican Republic without hotel stays,” McClintock said, adding that he and his staff would take early-morning flights, cram in as many meetings as possible during the day, then take a return flight home that night. “We might have ended up like zombies when we got back, but the work got done at a much lower cost to the government.”

Diplomacy for business
A primary function for the secretary of State will be supporting efforts through diplomatic and government channels to drum up business for Puerto Rico and building commercial relationships with offshore markets and destinations.

“In the trade area, we fully recognize the lead has to be taken by Economic Development & Commerce Secretary José Ramón Pérez-Riera,” McClintock said. “The State Department provides major support. We do research. We put the strength and force of the State Department at their disposal.

“That helps bring business to Puerto Rico,” he said.

Besides the increased economic coordination between Puerto Rico and the Dominican Republic, the State Department has also arranged meetings with Israel, Mexico and Costa Rica.

McClintock said there will be commercial missions, but they will only come after a lot of previous work has been done. “The governor wants to do a commercial mission not as a site visit, but where you sign and finalize commercial agreements that have already been worked on before the mission,” he said. “It has to be the end of some transaction and planting the seeds for future transactions.”

In addition, McClintock said everything the agency does abroad will be done in “strict coordination with the U.S. State Department,” noting the U.S. chargé d’affaires witnessed the signing of the agreement with the Dominican Republic.

McClintock, who has extensive government contacts through his work via the Democratic Party and organizations such as the Council of State Governments, has also been put in charge of trying to get large government organizations to hold conventions on the island.

“We will do this for several reasons including to fill hotel rooms and to make use of our great convention facilities,” he said. “Bringing government officials to Puerto Rico increases their familiarity with Puerto Rico so, when you go on later to lobby them on behalf of Puerto Rico, they are much more amenable to granting the request.”

McClintock will also use his new post to lobby government officials on initiatives that could boost the island’s economy. Currently, he is building support among Eastern Caribbean nations for the island’s bid to win an exemption from post-9/11 security requirements, which have sharply reduced the number of international flights landing in Puerto Rico, which brought tourists both here and elsewhere throughout the Caribbean. The local government wants to get a wavier for passengers who are only changing planes in San Juan to other international destinations from having to get a visa and pass through customs.

While Tourism Co. Executive Director Jaime López is lobbying industry groups throughout the region, McClintock is working to build support among government officials. Last week, he met with St. Kitts’ foreign minister. “The response was extraordinary. They see it as a win-win situation. It helps Puerto Rico, but it also dramatically helps the Caribbean,” he said.

Getting other governments lined up behind the initiative could help win key support of the U.S. State Department. “They are not only doing it because Puerto Rico is asking for it, but Caribbean nations are asking for it to increase tourism to their region.”

“We are using all our influence. It will give the U.S. State Department added value in acceding to the request,” McClintock said.

Spearheading a government revolution

Secretary of State Kenneth McClintock’s ambitious agenda at the State Department may be overshadowed by his larger role spearheading a government reform as head of the proposed Executive Branch Modernization Council.

Over the next two years, the entity will forward recommended reorganization plans to the governor, who will use them as a guide in submitting legislation to a joint House-Senate commission that will make the final decisions on consolidating and eliminating agencies, as well as merging functions.

“Everything is open to discussion,” McClintock said, when asked which agencies could be merged or eliminated. “Obviously, no chief executive can deal with 130 separate entities. There will be opportunities to either consolidate agencies or processes.”

He said individual agency heads are already reviewing their operations with an eye toward improving essential services and eliminating nonessential tasks.

“I’m already bringing everybody together to ensure we are all on the same track,” McClintock said, adding his experience as head of the Fortuño administration’s transition team will be “invaluable” in accomplishing this task.

Also sitting on the proposed Executive Branch Modernization Council will be Office of Management & Budget chief María Sánchez Bras, Labor Secretary Miguel Romero, Public Policy Secretary Ángel Figueroa and Government Chief Information Officer Juan Eugenio Rodríguez.

The proposal, which the Legislature is expected to act on at the start of the new session next month, establishes a two-year term for the council and the legislative commission. The administration says the reform is essential in achieving its goal of cutting $2 billion in annual government spending while improving the delivery of services. While the Legislature has the constitutional authority and responsibility for creating and eliminating government agencies, the plan envisions the executive branch acting as a “partner” by providing lawmakers with a roadmap of recommendations based on direct management experience of the agencies.

The legislation, which also applies to public corporations that don’t issue bonds, mandates government agency chiefs review their operations, determine their core functions and offer options to the council to improve service and eliminate unnecessary functions.

That information will be submitted to the council, which will then make recommendations to the governor, who will then submit legislation to the joint House-Senate commission, which will make the final decisions on consolidating and eliminating agencies.

The participation of Government Chief Information Officer Rodríguez is important because technology is expected to play a large role in the reform process.

“One thing I am injecting into the process is I don’t see this as simply a structural organization. I see this as a reorganization of processes,” he said. “The big example is the certificates of good standing. The change required no structural reorganization. Through streamlining, we have taken a service that was done very slowly and are now delivering it at light-years speed.”

McClintock’s public life

Kenneth McClintock has been involved in politics practically his entire life.

At age 14, President Richard Nixon appointed him as delegate to the White House Conference on Youth and he later served under President Jimmy Carter on the National Advisory Committee for Juvenile Justice & Delinquency Prevention. In 1979, he founded the Puerto Rico Statehood Students Association, serving as its first president.

A graduate of University High School in Río Piedras, he went on to receive business administration and law degrees from Tulane University in New Orleans.

He has spent most of his working life at Puerto Rico’s Capital, serving initially as a staffer and then getting elected senator in 1992. He would be re-elected four times, eventually becoming Senate president in 2004.

During his years as a lawmaker, he also established himself as a force in the Democratic Party. In 1996, President Bill Clinton appointed him to the Democratic Platform Committee and, in 2008, served on the DNC Credentials Committee.

In 1999, McClintock became the youngest and first Hispanic chairman of the Council of State Governments.

In 2007, he was appointed co-chair of Hillary Clinton’s Hispanic Leadership Council and directed, along with Roberto Prats, her successful presidential primary in Puerto Rico.

McClintock served as the head of the Fortuño administration’s transition committee before being appointed secretary of State.

Statehood gains ground as status preference