U.S. Senate Acts to Withhold $300M From Puerto Rico For Discrimination… Questions Raised About Vieques Range Closure Plan… Navy & Army Bases Threatened… Calderon Corporate Tax Exemption Bill Left Out of Major Plans But Still Around

January 17, 2003
Copyright © 2003 THE PUERTO RICO HERALD. All Rights Reserved.

. .. U.S. Senate Acts to Withhold $300 M From Puerto Rico for Discrimination

The U.S. Senate Thursday agreed to withhold $300 million in aid to Puerto Rico’s territorial government because it had enacted a discriminatory local law.

The aid is the transfer to the territory of $13.25 of the $13.50 per proof gallon federal tax on rum produced in Puerto Rico and foreign countries. The discriminatory local law increased the territorial tax on alcoholic beverages but exempted a local beer producer from the increase. The local law was proposed by Governor Sila Calderon, and the controversial exemption was proposed by some of her "commonwealth" party colleagues.

Transferring most of the collections of such taxes is special assistance that the federal government gives to territorial governments to enable them to operate. The transfers date to the days that territorial governments were subsidiaries as well as creations of the federal government. Similar tax collections in the case of the States are retained and used by the federal government.

Puerto Rico "commonwealth" advocates have contended that the transfers are an ‘entitlement’ of Puerto Rico’s territorial governing arrangement, but the Senate action, like the federal withholding of 25 cents of each proof gallon, shows that it is a gift and not a certainty.

Questions Raised About Vieques Range Closure Plan

As anticipated in the last edition of UPDATE, Navy Secretary Gordon England formally confirmed his department’s plan to replace its range on the eastern 40% of the island of Vieques, Puerto Rico by this May.

The range currently is the primary location for East Coast U.S. Navy and Marine Corps forces to practice amphibious invasions. It is the only place where the forces can practice all of the tactics used in the invasions -- Marines storming ashore while planes bomb from above and ships fire from the ocean -- together in a single location.

As previously reported, the $400 million plus replacement plan will divide up the elements of the practices among different ranges and bases in southern States and computer simulated targets in open ocean. This caused the U.S. Senate’s leader on the issue, James Inhofe (R-OK), to say that he would fight the plan

England met the standard in the 2001 law authorizing the range to be replaced by "certifying" that the plan would provide training that is equal to or better than training at Vieques after being advised on the issue by the top officers of the Navy and the Marine Corps, the Chief of Naval Operations and the Commandant of the Marine Corps. Inhofe, however, said he was not persuaded that the training would meet the standard, and suggested that advice he had just received from military officers had cast doubt on England’s assertion.

One of those officers could have been Marine Corps Commandant James Jones. In his December 31 memorandum of advice on the issue to England, Jones wrote that new techniques -- presumably such as the planned virtual training -- are not the equal of ‘live fire’ (explosive ordnance) training. Instead, he advocated replacement of the Vieques range because the military is not allowed to practice there with live ammunition.

Jones advice to England reiterated a position that he has stated for years and reflected the greater concern that Marine Corps officers have had about maintaining training on the Vieques range -- with live fire -- than Navy officers have had. Amphibious invasions are the one military tactic that the Marine Corps performs that no other military service performs. In order to practice in battle-like conditions, the Marines need to have the simultaneous Navy air and sea bombardment taking place as they storm ashore.

Not practicing amphibious invasions in realistic conditions suggests that the tactic is not essential. If it is not, questions can be raised about whether it is essential to have a Marine Corps or whether the other military services, such as the Army, can take over its functions -- with commensurate budget savings. Navy ships and places can get adequate practice firing at targets without having Marines storm ashore.

President Clinton halted live fire training on the range through a written order in January 2000 that was part of his agreement regarding the range with the Pentagon and then Puerto Rico Governor Pedro Rossello (statehood party/D). Under the order, live fire practices could only be resumed if approved by a Vieques referendum. If the voters did not agree, the range was to be closed by this May.

Clinton got the Vieques referendum authorized by the Congress over Inhofe’s opposition. But lobbying by Governor Calderon led to repeal of the referendum requirement and the enactment of the standard that the range could only be closed if the Navy developed an at least equal means of training. Inhofe played a key role in writing the standard.

The former chairman of the Senate Armed Services Military Readiness Subcommittee suggested that "political considerations" -- including anti-training protests and, presumably, the Bush Administration’s desire not to offend voters of Puerto Rican origin in States such as New York and Florida -- had out-weighed national security requirements in the certification.

He said he would see if he could overturn the certification in the Congress and he would seek to have members of the House of Representatives as well as Members of the Senate evaluate it. Inhofe acknowledged that overturning it would not be easy, however, because it was supported by the Chief of Naval Operations the Commandant of the Marine Corps.

There was no immediate reaction from the House Armed Services Committee to England’s announcement. England did not begin to tell members of Congress about the plan until the day that the new Congress was sworn into office, the day after the House committee’s leaders on the issue, Representative James Hansen and Chairman Bob Stump, retired.

Stump’s replacement as chairman, Duncan Hunter (R-CA), had no comment on the certification at the time, but an aide now says that he is likely to call in Navy officials to justify the certification. The aide said that the session would probably be a private meeting rather than a public hearing.

General Jones had harsh words for Puerto Rican training opponents in his memo to England. He wrote, "some in Puerto Rico have demonstrated an appalling hostility toward sailors, Marines and their requirement for pre-deployment training; this at a particularly dangerous time . . . this hostility stands virtually alone in contrast with the warm relations and appreciation expressed by the communities near our naval installations elsewhere in the nation, and, indeed, around the globe . . . I am distressed to state that the situation has deteriorated to the point that we must, henceforth, consider the acceptability of the risk to the safety of our men and women who train in such an environment . . . our sailors and Marines deserve better."

Range Closure Threatens Navy and Army Bases in Puerto Rico

The replacement of the Vieques range -- which was expected -- was not the biggest news to come out of England’s certification. Instead, it was the reiteration that closing the range would lead to military recommendations to close Puerto Rico’s largest military base, Naval Station Roosevelt Roads, in the town of Ceiba on the island of Puerto Rico’s eastern coast, seven miles from Vieques.

In his certification, England noted that closing of the Vieques range would result in the discontinuation of support activities at Roosevelt Roads. But the Commander in Chief of the Navy’s Atlantic Fleet, Admiral Robert Natter, went further to say, "Without Vieques, there is no way I need the Navy facilities at Roosevelt Roads. It’s a drain on Defense Department and taxpayer dollars."

Supporting Vieques is not Roosevelt Roads’ only activity but it has been the base’s major function. The base is the largest Navy base in terms of size outside the continental United States.

Natter’s statement was not new. A key negotiator of the 2000 Clinton-Pentagon-Government of Puerto Rico compromise on the Vieques range and the architect of the Vieques replacement plan, he had earlier made a similar statement. He also said at that time that he was reluctant to send Navy ships to Puerto Rico because of the handling of the Vieques controversy (during the Calderon Administration).

Natter is not the only military authority to suggest closing Roosevelt Roads. Pentagon officials have been saying that closing the base is a likely casualty of ending training at the Vieques range since the controversy over the range began in 1999. In a December 1999 report to President Clinton that the White House made public, Defense Secretary William Cohen advised that the Pentagon would reevaluate Roosevelt Roads and other military facilities in Puerto Rico if the Vieques range were closed.

The Chief of Naval Operations, Admiral Vernon Clarke, told the House Armed Services Committee in a public hearing in 2001 that it might not be worthwhile to keep Roosevelt Roads open if the range were closed.

And Inhofe said that Roosevelt Roads should be closed if the range is closed in his reaction to England’s certification.

Although Rossello said that he would accept the closure of Roosevelt Roads if it was the only way to end training on the Vieques range, Calderon has never taken the linkage seriously. Instead, she has dismissed federal statements on the issue as bluffs and said she would "not be intimidated."

Calderon reacted to Natter’s statements by saying that she would lobby to keep the base open. Her Resident Commissioner in Washington, Anibal Acevedo Vila, also said that he would make arguments regarding the strategic necessity of the base.

Roosevelt Roads’ activities inject hundreds of millions of dollars into Puerto Rico’s economy, and the base is responsible for the employment of thousands of people. While supporting Vieques training has been the base’s major activity in recent decades -- responsible for much of its spending, the base also has other functions. These include supporting efforts to apprehend drug traffickers and submarine training.

Despite these activities, the judgment of military officials is likely to carry much more weight than the views of Calderon and Acevedo on the need for the base.

Closing the Army’s Fort Buchanan in San Juan, Puerto Rico is an alternative to closing Roosevelt Roads. In this case, Buchanan’s activities would be transferred to Roosevelt Roads since the Navy base would have the space to house its activities and the consolidation would save the cost of maintaining two underutilized bases.

The 2000 legislation requiring the closure of the Vieques range if a Vieques referendum voted for that directed the General Accounting Office (GAO) to report on the feasibility of transferring Fort Buchanan’s activities to Roosevelt Roads if Vieques training ended and authorized the Secretary of Defense to transfer the activities. The subsequent GAO report found that the consolidation would be feasible.

Fort Buchanan will soon also be considered underutilized since disinterest from the Calderon Administration and hostility towards the military from some Puerto Ricans has prompted the Army’s Southern Command to leave that costly base for a new headquarters in Texas. Closing Fort Buchanan would also be a blow to Puerto Rico’s economy.

If the Congress does not act sooner, the ultimate decision will probably be made by a Base Realignment and Closure (BRAC) Commission in 2005.

The BRAC process was written into law to force the closure of unneeded military facilities despite the opposition of members of the Congress who represent the areas in which the bases are located. Before the process was created in 1988, unneeded bases were kept open by the advocacy of supportive, powerful members of the Congress who blocked bills to close bases at issue.

BRAC Commissions make less politically-influenced decisions on base closures and develop a comprehensive package of closures and transfers that the Congress votes on as a package, preventing individual members of the Congress from protecting individual bases.

In any case, closing the Vieques range -- like the decision of the Army’s Southern Command to leave Puerto Rico -- will cost Puerto Rico’s economy at least $100 million a year.

In announcing that she would lobby to keep Roosevelt Roads open, Calderon also announced that she would lobby to have the Interior Department transfer former Navy land on Vieques to local ownership. The land includes 3,000 acres on the island’s’ western side -- about 10% of the island -- that Interior got from the Navy in 2001 and 9,000-12,000 acres -- 30%-40% of the island -- that it would get after the closure of the range.

Calderon suggested that she could obtain this land from the Interior Department, but the 2000 law on the Vieques range prohibits Interior from disposing of the property. Instead, Calderon would have to get a law enacted to transfer it. A spokesman from Inhofe, who originated the provision in the 2000 law, reiterated this week that the senator would oppose legislation to transfer the land to local ownership.

Calderon Corporate Tax Exemption Bill Left Out of Major Plans But Still Around

In Puerto Rico, Calderon’s representatives publicly downgrade the importance of her priority federal request -- permanent tax exemption for profits that companies based in the States receive from territorial operations -- but her lobbyists are still quietly seeking federal approval in Washington.

The proposal has been left out of all the major economic proposals in the new Congress -- packages announced by President Bush, House Democrats, and the top Democrat on the Senate Finance Committee, Max Baucus (MT) -- but a key congressional official says that it still could be considered this year.

Calderon lobbyists explored the possibility of getting the proposal included in the House Democratic package but were rebuffed. Calderon’s official representative in the House, Resident Commissioner Acevedo Vila denied that any effort had been made, but an official source confirmed the failed attempt.

Acevedo did not explain why Calderon would not even try to get her proposal included. Last year, she explained its failure to even be considered by saying that there was no tax legislation in which it could be included (even though there was).

The real problem with the proposal is that it is not favored by most of the key players in making federal tax policy, including the Republican chairmen of the House and Senate tax committees, the Bush Treasury Department, and Baucus. Additionally, Calderon was recently caught in breaking her word to one of her proposal’s two most important supporters, Representative Charles Rangel (D-NY), the top Democrat on the House tax committee, on a New York issue that he cared about greatly.

But the opposition and the failure of Calderon to get her bill included in any of the major economic packages so far does not mean that it will never be considered. Its best opportunity could come in a likely congressional reconsideration of tax policies regarding international income. Puerto Rico and the other territories of the U.S. are not part of the United States for the purposes of most income tax laws.

The opportunity will be far from a sure bet, however. Ways and Means Committee Chairman Bill Thomas (R-CA) introduced a comprehensive bill on the subject last year and did not include the Calderon proposal.

Further, the Bush economic package demonstrated that the Calderon proposal is out of ‘sync’ with the trend of federal tax policy. Exempting corporate dividends from income taxes is the centerpiece of Bush’s package. The exemption would not apply, however, to dividends from companies headquartered abroad. By contrast, Calderon’s proposal would exempt 85-100% of dividends that ‘controlled foreign corporations’ in Puerto Rico pay shareholders in the States.

The Bush, Baucus, and House Democratic economic packages did include provisions that would benefit Puerto Rico and the other territories, however. All three proposed an extension of assistance for workers who have lost jobs, and an extension was quickly enacted into law last week.

Bush also proposed $3,000 accounts that individuals who have lost jobs could draw upon to pay for employment costs such as child care, training, and transportation.

Baucus proposed $75 billion in special budgetary aid to States and territories for the current fiscal year. He also proposed $4.3 billion in additional current high highway spending in which Puerto Rico could also share. Baucus additionally proposed tax reductions for business equipment purchases that could have some benefit to companies from the States with Puerto Rico income.

House Democrats proposed $31 billion in special aid to States this year that probably would include territories, at least to an extent. $10 billion would be provided for security against terrorism, $10 billion would be provided for medical care for the needy, $5 billion would be provided for highway construction, and the remaining $6 billion would be provided for further assistance to displaced workers. They also proposed a $300 grant to wage earners that could include Puerto Ricans.

Between the Baucus and House Democratic proposals, Baucus’ could be the more important. Bush will need support from some Senate Democrats to pass a version of his package. The votes of House Democrats are not expected to be needed. Baucus was a key figure in passing -- and winning compromises in -- the $1.6 trillion over 10 years tax package enacted in 2001 in response to a Bush proposal. He has already said that he will explore compromises with Republicans to pass an economic package early this year -- to the reported chagrin of some other Senate Democrats.

Bush is believed to understand that he will need to compromise. His $674 billion over 10 years economic package is more than double the size of what administration officials had suggested was being considered, and a number of Republican senators agree with Democrats that it is too big. Observers think that Bush changed his draft package to include aspects that he will sacrifice to win approval of the rest. For example, Bush’s proposal to end taxation of corporate dividends from taxation surprised observers since Bush aides had suggested that the proposal would be for a 50% cut in the tax. Was the 100% cut proposed to win a 50% cut?

First Bush Puerto Rico Program Proposal: $8m for Water Plant

President Bush’s budget for the fiscal year that will begin October 1 will propose $8 million to improve the Sergio Cuevas water treatment plant in Puerto Rico the White House announced this week.

"The Puerto Rico Drinking Water Grant" would improve the territory’s largest water system, serving 1.4 million people. The grant will be administered by the U.S. Environmental Protection Agency (EPA).

An EPA official said that over 80% of Puerto Rico’s public water does not meet federal health standards, posing a significant risk to public health in the territory.

The proposal will apparently be the first Bush Administration federal programs proposal for the territory.

The "Washington Update" appears weekly.

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