Calderon’s 2003 Budget: Rewarding Public Employees At The Expense Of The Public At Large

by John Marino

February 15, 2002
Copyright © 2002 THE PUERTO RICO HERALD. All Rights Reserved.

. JOHN MARINOGiven the tough economic times, Gov. Calderón's proposed $21.8 billion fiscal year 2003 budget is surprisingly big, a healthy 5.8 percent increase over this year's budget.

But don't get the idea the budget reflects optimism about the economy and government revenue projections in the coming year.

The budget increase is largely paid for by raising new taxes, scuttling programmed tax cuts and increasing lottery earnings.

For public workers and the Puerto Rican Independence Party, there are some gifts befitting Valentine's Day. And they come from the two measures that make up the heart of Calderón's proposed budget.

To the tune of $180 million, the central administration's approximately 150,000 workers will get a $100 monthly pay hike -- despite warnings by island economists that it just doesn't have the cash. The PIP, meanwhile, the perennial third place in Puerto Rico's tri-party political playing field, will benefit most from Calderón's proposal to publicly finance primary and general election campaigns - another budget busting measure at $50 million.

Both measures are worthy, but whether they are wise given the commonwealth government's current fiscal state remains to be seen.

More worrisome is the fact that more egalitarian tax cuts were repealed in order to pay for the new initiatives. The third phase of the Rosselló administration tax reform would have sliced 1 percent off all tax brackets except the highest, and Calderón put off a "marriage penalty tax repeal" that would have provided $80 million in relief to married couples who both work - a now dominant trait among the island's middle class.

There is good news for all within the budget. The Corrections, Police, Health, Education, Justice and Emergency Medical agencies all got hefty increases, as did the Comptroller's Office.

Calderón also proposed the creation of a kind of tax evasion czar - and given this year's budget, no one should doubt her resolve on this front.

Her proposal to raise taxes on cigarettes and alcoholic beverages seems justified, especially if they are tied to health spending, as Calderón implied. The governor even has a point on the increase in tax on recreational vehicles, as they apparently are taxed at a more advantageous rate than regular automobiles.

A dicier move is the plan to offer a 90-day amnesty period during which taxpayers can withdraw up to $20,000 from their IRAs without paying a government penalty on early withdrawals. In theory, the move could give the local economy a $300 million economic boost. And Treasury could collect $30 million in taxes.

But if it works, the measure would also gut the retirement savings of thousands who probably should not touch those funds. It's not clear it will, however. Bank penalties will still apply, so they might serve to dissuade taxpayers from raiding their IRAs.

The addition of a new lottery game to raise revenues, however, is just a flat-out bad idea. Revenue estimates will probably be inflated because the new game will cut into the business of existing games. Worse, it will unfairly target the poor, who will already be hit hard by the proposed sin taxes. This point is even more glaring given that Calderón has already slashed capital gains taxes in half.

The real story of the Calderón budget is that it is based on the repeal of two tax cuts put in place by her predecessor. And she did it to award public employees at the expense of the public at large.

Labor has historically had much more political influence than its numbers would suggest. And that is no more true than today, with the movement getting a 90,000-member boost from the Rosselló administration move to allow public workers to unionize.

But whether Calderón's costly move will curry favor with labor remains to be seen. Some labor leaders hailed the raise, but were quick to add that they expected greater negotiating powers with their government bosses.

The real battle with labor will take place when individual unions sit down to negotiate collective bargaining agreements with agency heads. Union officials have made clear they expect more cash. Administration officials have made clear there is none.

Calderón can't continue to blame current fiscal woes on the previous administration. The strategy is wearing thin.

Did the Rosselló government use all available resources to finance its program? It sure did. But the Calderón administration, which cleaned off suspect loans of the Government Development Bank by taking out $2 billion in long term debt, is ready to finance infrastructure projects and under-performing government agencies once again with a newly fortified GDB balance sheet.

If Calderón's budget adds up, it won't have to. But House Finance Committee Chairman Francisco Zayas Seijo was scratching his head a day after the address wondering aloud how the public worker pay hike would be paid for.

Meanwhile, other allies such as veteran Popular Democratic Party Sen. Eudaldo Baéz Galib are questioning whether Calderón's campaign finance reform proposal violates the local constitution. He is particularly concerned that a time limit on campaigns may violate free speech guarantees. New Progressive Party lawmakers, meanwhile, are solidifying opposition to the tax increases and other measures, and while the PIP has praised the campaign finance and anti-corruption measures, it has praised little else.

Much has been made about a coming showdown between the governor and lawmakers over the new water utility contract, with the Legislature threatening to override a gubernatorial veto for the first time in Puerto Rico history.

But I believe Calderón will finesse her way out of the showdown by signing into law a measure that allows lawmakers a legislative rubber-stamp on whatever contract the administration awards.

The real battle looks like it will come during the upcoming budget talks.

John Marino, City Editor of The San Juan Star, writes the weekly Puerto Rico Report column for the Puerto Rico Herald. He can be reached directly at: Marino@coqui.net

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