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Brace Yourself

July 12, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

There are at least 16.8 billion good reasons why Governor Sila Calderon ought to be very careful how she handles the Vieques issue here on out.

That’s the amount of federal funds injected into Puerto Rico’s economy in fiscal year 2000. The figure, $16.8 billion, is equivalent to 40% of the island’s gross national product.

Roughly 25% of that total–about $4 billion–went directly to the commonwealth government, which used the money for everything from infrastructure projects to direct services to the people through local government agencies. That means that a full fifth of the local government’s $20 billion annual budget comes from Uncle Sam.

Vieques is a complex issue about which reasonable people can disagree. Even among the business community there are different views on the most desirable outcome. But most business people tend to be practical and objective; they leave politics out of the equation. They need to make projections based on reality. The impact of federal funds on the local economy is an integral part of that reality. And there should be little doubt that in its present posture, even before knowing the final outcome, the Vieques issue could have a negative effect on the level of federal funding coming to Puerto Rico. Our call is for prudence on the part of the island’s political leadership so that it does not affect our economic future.

Here’s why.

For starters, the amount of federal funds for defense-related spending obviously would be curtailed. Last year, that was more than $1 billion. Following President Bush’s decision last week, the unlikely chance that the Navy might be voted to stay beyond 2003 is foreclosed. It would be naïve to think that the shut down of the inner range (i.e., target practice range on Vieques) won’t impact the whole operation at the Roosevelt Roads naval base. How much is not clear, but the potential impact could go beyond the Navy to affect other armed services presence on Puerto Rico.

Granted, some of the $1 billion the federal government spent on defense-related expenditures in Puerto Rico last year went to pay for earned benefits which are unlikely to be reduced, such as veterans compensation ($357 million) and military retirement & disability benefits ($84 million). But more than half went to defense procurement contracts ($289 million) and salaries and wages of U.S. military on the island ($253 million), which would no doubt be affected.

But beyond the cuts that will necessarily come as a direct result of the Navy’s exit, such as defense-related expenditures, there is the very real possibility that a confrontational approach on the part of the administration vis a vis the White House and Congress might adversely affect other federal fund allocations that are within Congress’ discretion.

It is true that some of the $16.8 billion in federal funds Puerto Rico received last year is not discretionary. For example, Social Security retirement and disability benefits–the single largest program–are considered "earned" benefits, i.e., we pay for part of what we receive. While in 2000, social security recipients in Puerto Rico received almost $4 billion in benefits, working people and businesses contributed $2 billion to the Social Security fund for benefits that will be received in the future.

But most of the federal funds injected into our economy are within Congress’ discretion. Even Puerto Rico’s participation in social programs such as nutritional assistance and Medicare–the second and third largest federal programs on the island–is determined by Congress. And, as repeatedly held by the courts, Congress is under no obligation to treat the island on an equal footing with the rest of the states.

So, brace yourself.

This Caribbean Business article appears courtesy of Casiano Communications.
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