President’s Puerto Rico Status Task Force Named

March 1, 2002
Copyright © 2002 THE PUERTO RICO HERALD. All Rights Reserved.

. .. The White House has released the names of interim members of the President’s Task Force on Puerto Rico’s Status. A spokeswoman said that President Bush has formally made the appointments.

The list included top assistants to almost every member of the President’s Cabinet. Two seats were said to be vacant.

The Task Force is charged with clarifying the territory’s status options. The stated purpose of the task force is to enable Puerto Ricans to determine their preference among options that are not incompatible with the Constitution and basic laws and policies of the United States. The Task Force is also to work to implement an option chosen by a majority vote in Puerto Rico, and to work on the issue with Puerto Rican and congressional leaders.

Proposals of Puerto Rico’s ‘Commonwealth’ party have conflicted with basic concepts of national government as well as with the Constitution and federal policies, according to the Federal government, and are a key reason that the issue has floundered. The Commonwealth party commands the support of almost half of the islands’ voters.

Department of Justice Deputy Assistant Attorney General for Legal Counsel Sheldon Bradshaw co-chairs the Task Force with White House Director of Intergovernmental Affairs Ruben Barrales. The Justice Department’s Office of Legal Counsel is the federal executive branch’s authority on constitutional and other legal questions.

White House Assistant Press Secretary Mercedes Viera said that the Task Force is reviewing Puerto Rico’s options, and the Justice Department is providing guidance on the legal and constitutional issues.

The following officials are also on the Task Force:

Department of Agriculture Undersecretary for Food, Nutrition and Consumer Services Eric Bost,

      Department of Commerce Senior Advisor to the Secretary David Sampson,

Department of Education White House Initiative on Hispanic Education Director Leslie Sanchez,

      Department of Energy Senior Policy Advisor to the Secretary Chase Hutto,

      Department of Health and Human Services Deputy Chief of Staff Terry Halaska,

Department of Housing and Urban Development Assistant Secretary for Public and Indian Housing Michael Liu,

      Department of the Interior Deputy Chief of Staff Sue Ellen Wooldridge,

      Department of Labor Deputy Assistant Secretary for Policy Tevi Troy,

      Department of State Assistant Legal Advisor for Treaty Affairs Robert Dalton,

Department of Transportation Assistant Coat Guard Commandant for Operations Rear Admiral Terry Cross,

      Department of the Treasury General Counsel David Aufhauser,

Department of Veterans’ Affairs Assistant Secretary for Human Resources and Administration Jacob Lozada,

Environmental Protection Agency Assistant Administrator for Water Tracy Meehan,

Office of the U.S. Trade Representative Associate Representative Josette Shiner, and

      Office of National Drug Control Policy Special Assistant to the Director Chris Marston.

The Department of State’s Dalton presented that department’s testimony on the Commonwealth party’s current proposed ‘option’ to the U.S. House of Representatives Committee on Resources in October 2000. The State Department, like the federal executive branch as a whole, found serious faults with the proposal.

The Department of Veterans’ Affairs’ Lozada is of Puerto Rican origin.

The Task Force was created by an executive order by President Clinton. The order was slightly amended by President Bush. Clinton’s order provided most of the task force’s mandate . Bush’s order delayed the deadline for an initial report. The deadline was met by Barrales, who reported that the Task Force was being assembled. The Task Force is to report to the President at least annually. It is also to provide advice to the Congress.

A related order, a memorandum for the heads of all federal executive agencies that was issued along with the Clinton executive order, provided substantial background on the issue, and additional directives to the Task Force Co-Chairs and to agency heads.

Pataki Backs Choice of ‘Constitutional’ Option

New York Governor George Pataki (R) supported Puerto Ricans islanders choosing the territory’s status. Pataki is close to both Governor Calderon and President Bush.

Most news reports focused on Pataki’s unwillingness to take a side on whether there should be federal plebiscite legislation. But a less publicized and more important statement conditioned his support of a status choice by saying that the choice had to be consistent with the Constitution and laws of the United States. The platform on which Calderon was elected proposed a status formula that federal officials have said is inconsistent with the Constitution and basic laws and policies of the U.S.

Now it is the Senate Chairman who Contradicts Calderon on Her Tax Proposal

Senate Finance Committee Chairman Max Baucus (D-MT) announced that he does not support Governor Calderon’s proposal to cut the 35% federal tax on corporate income to 3.5% in the case of profits from Puerto Rico and other U.S. territories. Baucus made the announcement after -- and because -- Calderon told reporters that he supported it. She made the claim after she, Resident Commissioner Anibal Acevedo Vila, and Economic Development and Commerce Secretary Ramon Cantero Frau met with Baucus.

She also made the claim that Senate Majority Leader Tom Daschle (D-SD) supports her proposal, which would amend Section 956 and other sections of the Internal Revenue Code (IRC). The support of Baucus and Daschle would be especially important because they speak for one of the three key powers in the making of a decision on tax policy — Senate Democrats. The other powers are the Bush Administration, generally represented by Treasury Department officials, and House Republicans, represented by Ways and Means Committee Chairman Bill Thomas (R-CA). It is also not clear that Daschle supports the proposal.

Baucus and a number of other senators have indicated that they want to help Puerto Rico and have considered Calderon’s proposal. However, some of these senators are not inclined to further reduce taxes on profits that manufacturers based in the States report from Puerto Rico from the current 40% reduction under IRC Sec. 936 to 90% as proposed by Calderon. And some legislators have indicated a willingness to extend another tax incentive for companies based in the States to manufacture in Puerto Rico, IRC Section 30A. Sec. 30A provides a credit for wages paid and investments made in the islands. Experts note that extending 30A would serve as an incentive to the low- profit, labor-intensive companies that are currently moving their plants abroad, while the Calderon amendments would not. Both Secs. 936 and 30A expire in 2005.


Calderon’s inaccurate claim regarding Baucus recalled what happened after she, Acevedo, and Cantero met with Thomas. Afterwards, Cantero and Acevedo suggested progress in obtaining Thomas’ support. Thomas reacted by telling a reporter that he did not favor a new tax subsidy for Puerto Rico, clearly referring to Sec. 936 as well as Calderon’s Sec. 956 amendment.

He also said that a regional solution is needed to rectify Puerto Rico’s problem of competition from Carribean Basin nations that can now -- like Puerto Rico -- ship goods duty and quota free into the United States but are not subject to U.S. minimum wage as is Puerto Rico. Cantero has now rejected that idea, although it is Thomas who will decide the issue.

Calderon’s proposal has also not fared well with Treasury officials. They have told congressional tax writers that they have serious concerns about it from both tax policy and budgetary perspectives.

Perhaps in response, Cantero also said that the Calderon Administration is willing to make technical changes to its proposal. He mentioned changing provisions that involve the transformation of companies from domestic status to ‘controlled foreign corporations.’ Federal tax officials have been concerned that the provisions would enable income attributable to the States under Sec. 936 to escape taxation.

Meanwhile, Calderon claimed that a National Governors Association resolution backed her proposal. The two sentences, however, merely called for "certain tax advantages" to enable territories to compete with producers in foreign countries. The language could apply to a number of measures, including an extension of the 30A credit, a replacement for the tax advantages that federal law previously provided to ‘foreign sales corporations’ in the U.S. Virgin Islands and Guam, and a request from Guam for lowering the withholding rate on income from the territory that is due foreign-owned trusts.

One accurate claim that Calderon made regarding Baucus was that he would have the Congress’ Joint Committee on Taxation staff estimate the cost of the proposal. Federal officials have roughly estimated that it could be twice the cost of Sec. 936, currently $2.6 billion a year, but a formal estimate has not been prepared because the proposal has not been under serious consideration. A study by Pricewaterhouse Coopers for Calderon reportedly initially pegged the cost at $350 million-$500 million a year. Calderon’s lobbyists have claimed the cost would be $100 million-$150 million.

Calderon Supports Bush But Doesn’t Get Meeting with His Chief Aide

Governor Calderon had a brief exchange with President Bush during the National Governor’s Association’s winter meeting. She offered to help Bush in Hispanic communities and he then asked her how the Vieques Navy range issue was going. She told the President that it had calmed down because people were confident that he would try to end military training at the range by May 1, 2003, as he has previously suggested.

Calderon’s willingness to accept Bush’s intent is interesting because she was elected saying that the training had to end immediately and that the then existing law and presidential order requiring an end by May 1, 2003 were not adequate enough guarantees of an end. Her lobbying for an immediate end caused the law to be replaced by one that says that the range will be closed when the Navy and the Marine Corps determine that equal training facilities are available.

While Calderon expressed pleasure regarding her conversation with Bush and praised him, she failed to get a requested meeting with his Chief of Staff, Andrew Card.

Senate Proposes Comparison Between Food Stamps and Puerto Rico Program

Senate Agriculture Committee Chairman Tom Harkin (D-IA) disclosed that the Senate passed his proposal to require the General Accounting Office (GAO) to compare the Nutrition Assistance Program for Puerto Rico (PAN) with the Food Stamps Program and to authorize an additional $50 million a year for the program if the GAO concludes that PAN is inadequately funded.

Harkin included the proposal in the farm bill that passed the Senate a couple of weeks ago. Resident Commissioner Anibal Acevedo Vila and Governor Calderon seemed to be surprised by the action.

The report is supposed to be completed within nine months after the bill becomes law. Acevedo projected it would become law in April.

Puerto Rico was initially included in the Food Stamps Program but it was removed by a Reagan Administration proposal. The proposal called for the program to be replaced by block grants to all States and territories -- with less funding -- but Congress approved the block grant only in the case of Puerto Rico, which lacked the votes to stop it.

The grant was initially funded at $825 million, and is increased annually for inflation. The Bush Administration has estimated that it should be $1,377,000,000 during the fiscal year that begins October 1. The ‘Commonwealth’ option that obtained a plurality of the votes in Puerto Rico’s November 1993 status referendum proposed that the PAN grant be funded at the level of the Food Stamps Program. In 1994, the additional cost was estimated to be $600 million a year. The proposal was not supported by the Clinton Administration and was strongly opposed by House Republican leaders.

More Details on Calderon Lobbying Expenses Revealed

Government documents reportedly show that Black, Kelly, Scruggs, Healey & Associates (BKSH) has contracts permitting it to bill up to $1,020,000 during the current Puerto Rico fiscal year, which ends June 30. BKSH is best known as the firm of Calderon’s lead lobbyist Charles Black, a top Republican operative with ties to President Bush and Senate Minority Leader Trent Lott (R-MS). But another key Calderon lobbyist is James Healy, a former Democratic staffer for the House of Representatives Ways and Means Committee. The firm was paid $325,000 during Calderon’s first six months in office.

The second largest set of contracts is held by PattonBoggs, a well-connected, mostly Democratic lobbying shop. It can bill $970,000. The firm is known for its fundraisers. One of the most prodigious is Thomas Boggs. Boggs’ father was a Democratic House Majority Whip, mother succeeded her husband in the House, and sister, Cokie Roberts, is a top ABC-TV news anchor. Boggs is close to Senator John Breaux (D-LA), the chief Senate sponsor of Calderon’s proposal to exempt 90% of the profits that companies based in the States transfer from Puerto Rico. Among other partners are Clinton Transportation Secretary Rodney Slater and Clinton’s Assistant Army Secretary who oversaw the Corps of Engineers, Joe Westfall. PattonBoggs billed $387,553 during the first half of this fiscal year and $260,000 during the first half of 2001.

A third big firm, Winston & Strawn has contracts that could reach $820,000. From July 1, 2001 through December 31, 2001, it billed $452,338. From January1 through June 30, 2001, it reportedly billed $650,000. Winston & Strawn is more of a law firm than BKSH and PattonBoggs, but it more than holds its own in lobbying. Calderon’s former Washington representative, Francisco Pavia, works for the firm. Beryl Anthony, a former Democratic Representative from Arkansas who served on the Ways and Means Committee and was close to President Clinton, has been a key partner on the account. Another one is James Burnley, a Transportation Secretary during the Reagan Administration who reportedly has worked with White House Chief of Staff Andrew Card.

The Puerto Rico Justice Department has retained Covington & Burling, the firm of Calderon’s main strategist in her effort to force the Navy to immediately give up its range on the island of Vieques. The contract provides Copaken with $300,000 in fees and $100,000 in expenses. However, the firm billed another $470,785 during the first six months of the year.

The Puerto Rico Federal Affairs Administration (PRFAA) also has contracts with Smith, Dawson and Andrews ($125,000), The Roth Group ($120,000), and US Strategies ($105,000). US Strategies has another $105,000 contract with the Puerto Rico Industrial Development Company.

Smith, Dawson, a firm that specializes in transportation and water appropriations billed $46,500 during Calderon’s first six months in office. It is the firm of top ‘Commonwealth’ party strategist Ramon Luis Lugo, who organized anti-Navy Vieques training lobbying by Puerto Ricans in Washington.

The Roth Group, the firm of ex-Representative Toby Roth (R-WI) was reportedly paid $31,500 during Calderon’s first six months in office. Roth, like Luis Lugo and Black, was a major lobbyist against Puerto Rico status choice legislation, particularly working to encourage right-wing opposition in the United States to the concept of Puerto Rican/Hispanic political power.

The Calderon Administration also paid $117,000 to Pricewaterhouse Coopers this fiscal year for a report on the costs and benefits of Calderon’s proposal to cut the federal taxes of U.S. manufacturers in the territory from 35% to 3.5%. Pricewaterhouse was reportedly paid $50,000 for its work for Calderon during the first six months of her term.

The "Washington Update" is a new feature of the Puerto Rico Herald.
It will appear bi-weekly.

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