Technicality Saves $360M For Puerto Rico, For Now… Senate Expected To Withhold $30M For Puerto Rico Train; Calderon Says “Ok”… Bush Ally Says White House Not Implementing Executive Order On Puerto Rico’s Status Issue

January 24, 2003
Copyright © 2003 THE PUERTO RICO HERALD. All Rights Reserved.


The U.S. Senate has agreed to the transfer to Puerto Rico’s territorial government of up to $360 million in federal tax collections during the fiscal year that ends September 30.

The agreement came through an amendment to legislation to fund most federal programs for the remainder of the fiscal year. The amendment deleted a provision of the legislation reported in UPDATE last week that would have withheld the funds from the Commonwealth unless it revised a beer tax law enacted last year.

At issue was the law’s increase in the tax and its exemption of a local producer. The law was proposed by Governor Sila Calderon ("commonwealth" party/no national party).

Puerto Rico’s Resident Commissioner, Anibal Acevedo Vila, ("commonwealth" party/D), claimed credit for the amendment. It reversed a provision proposed by Treasury and General Government Appropriations Subcommittee Chairman Ben Nighthorse Campbell (R-CO) with the support of Senators Christopher (Kit) Bond (R-MO) and James Talent (R-MO) in an Appropriations Committee bill sponsored by Chairman Ted Stevens (R-AK). Campbell reportedly proposed the provision at the request of the giant Coors brewing company based in his State. Bond and Talent reportedly supported it in the interest of the Anheuser Busch company, an even bigger brewer headquartered in their state.

Acevedo boasted that he "defeated" the effort by Campbell et. al., saying "It was done by me personally." He said he did this by contacting the Colorado senator and threatening Coors that he would tell people that the company had "declared war on the people of Puerto Rico."

Could Acevedo -- Puerto Rico’s sole representative in the Congress, a member of the House of Representatives, rather than the Senate, without a vote on legislation in that body, a Democrat, and in only his third year in the Congress -- have defeated four members of the Republican majority in the Senate, including three senior members?

The truth is that the provision was only set aside because of problems with the way that it was proposed. Further, the senators who agreed to set it aside promised to consider the issue in another context.

The problems with the provision stem from the law that it would have effectively amended and from congressional rules regarding the content of appropriations bills. The law that the provision would have amended transfers to the territorial treasury $13.25 of collections of the $13.50 per proof gallon tax on rum produced in Puerto Rico. It also transfers the $13.25 on over 90% of the rum produced in other countries. One problem with the provision was that the Finance Committee, rather than the Appropriations Committee, is the lead committee of jurisdiction regarding the law.

The Finance Committee’s leaders, Chairman Charles Grassley (R-IA) and Ranking Minority Member Max Baucus (D-MT), had not been consulted on the provision. Committees in the Congress jealously protect their jurisdiction as power comes from the exclusive right to originate legislation on a particular matter. They also protect their jurisdiction to ensure the consistency of policy and to ensure that matters are considered with appropriate expertise. These factors are held to be so important that committees sometimes even object to other committees legislating within their jurisdiction when they agree with the policy that the other committee is proposing.

Consistent with this, Grassley and Baucus proposed an amendment to delete the provision. In a Senate Floor debate on the issue, they both said that the appropriations bill was an "inappropriate" measure for addressing the issue.

They both also, however, signaled that they would consider the matter in tax legislation. Baucus suggested that the reconsideration would come in considering legislation to extend the current amount of the transfer. Grassley said "I commit to working together with those concerned."

The current amount of the transfer -- the $13.25 per proof gallon -- expires at the end of this calendar year. At that time, it is slated to be reduced to $10.25 per proof gallon. Thus, legislation to continue the higher amount of the transfer is likely to be considered this year.

Campbell agreed with the amendment and this timetable. He said "resolving this issue prior to the end of this year is very important" and called the Puerto Rico tax increase on non-Puerto Rican producers "horribly excessive."

Another problem with the provision that aides to Grassley and Baucus recognized that Campbell and other ‘appropriators’ were unaware of was that it would also have denied most of the funding of the Puerto Rico Conservation Trust.

The Trust is a joint creation of the U.S. Interior Department and Puerto Rico’s territorial government. It is generally viewed in Washington as doing good work in preserving natural and historic properties in the territory. Its main source of funding is 50 cents of the $13.25 that is transferred to Puerto Rico for each proof gallon sold.

In the Senate debate, Baucus raised another "dispute" regarding Calderon administration tax policies that related to the Trust. His concern -- which Grassley said he shared -- was whether the Calderon Administration would fulfill the commitment of her predecessor, Pedro Rossello (statehood party/D), for the 50 cents per proof gallon subsidy for the Trust. Grassley noted that Rossello had "stepped forward" on the issue and expressed the hope that Calderon would agree to the transfer to the Trust by the end of the year.

The appropriations bill’s provision was also problematic because it was "legislation" on an appropriations bill. Appropriations bills are supposed to be limited to allocating funds provided for by "authorization" laws and not make policy. Policy-making is the purview of authorization laws. In the House, any single member of the Congress who objects can make a ‘point of order’ against a legislative provision on an appropriations bill and complicate its passage.

The determination of Campbell and others to press the proposal or another measure to encourage the Calderon Administration to change its beer tax policy was indicated in the Appropriations Committee’s explanation of the provision:

"In June of 2002, the Government of Puerto Rico enacted huge increases in the excise tax on beer but exempted one local beer producer. Those increases make the tax on beer imported onto the Island from the mainland or abroad one of the highest alcohol excise taxes in the world. This excise tax has placed an undue and unfair burden on the Island‘s consumers and on U.S. beer producers. It is costing jobs on the mainland in factories and in supplier industries, including agriculture

"In order to remove this unfair barrier to trade and encourage a more equitable tax structure in Puerto Rico, the Committee has included a new . . . provision . . . to freeze the return to Puerto Rico of the entire $300,000,000 rebate. . . Once the Secretary of the Treasury determines that the discriminatory tax system has been abolished, the rum rebate will be retroactively reinstated."

The language also, however, demonstrated the Committee’s unfamiliarity with the matter. The funds are not a "rebate" nor "returned" Puerto Rico, referring to its territorial government, as the taxes were not paid by the territorial government in the first place. Additionally, the amount of the transfer is also uncertain.

This is because the law provides for the transfer of $13.25 per proof gallon however many proof gallons are sold in a particular year. The actual amount of the transfer is determined by sales, not annual federal budget decisions. The amounts in federal budget documents are simply estimates.

President Bush’s budget estimated the amount at $235 million. Acevedo put the amount at $360 million. $334 million was transferred in Fiscal Year 2001. The Bush Administration estimated that the amount would fall to $246 million in the fiscal year that ended last September 30 because it planned for the amount of the transfer to fall from $13.25 to $10.25 per proof gallon at the end of 2001. Its $235 million estimate for this year may have been calculated without consideration of the $13.25 amount versus the $10.25 amount.

While the record clearly indicates what actually happened on the rum tax transfer issue, Acevedo told Puerto Ricans a very different story. Although aware of the Senate debate, he hid its contents from Puerto Rico reporters and told them, instead, how he had "defeated" the Stevens-Campbell-Bond-Talent provision.

With typical hubris, Calderon and Acevedo may have strengthened the determination of critics of the unequal beer tax to act in the Congress to press Calderon to change it in statements in the wake of the retreat on the provision. Acevedo said that he had promised no concessions regarding the tax and that he had only said he would facilitate communications on the matter. Calderon exposed how useless such talks would be by flatly dismissing the possibility of a change in the tax. She also said that her administration does not act on pressure "much less on pressures of that nature" referring to the Stevens-Campbell-Bond-Talent legislation. This, presumably, also applies to pressures from Senators Grassley and Baucus.


The spending bill that Senate leaders hoped to complete Thursday night includes $30 million for the commuter train that is being built in Bayamon, Guaynabo, and San Juan, Puerto Rico.

The amount recommended by the Appropriations Committee was $15 million less than the Committee approved last year in a bill that failed to become law and almost $30 million less than the House Appropriations Committee approved last year. It, additionally, was $10 million less than President Bush’s budget proposed.

Perhaps recognizing that it may be difficult to obtain a higher level of funding, Acevedo Vila and Calderon’s transportation secretary said that more than $30 million is not needed before September 30.

This position contradicted their lobbying on the matter last year. Then, they pressed for much more. They obtained initial success when House Appropriations Committee Member Jose Serrano (D-NY) convinced the Committee to provide almost $60 million.

Serrano, who was born in Mayaguez, Puerto Rico was criticized by some other New York City leaders for obtaining the funds while the New York City subway has substantial unmet rehabilitation funding needs. Late last year, Serrano said that he was not anxious to provide Calderon and Acevedo with similar help again because of their support for the re-election of New York Governor George Pataki over a Democrat who was strongly supported by Serrano and other New York leaders who have joined Puerto Rico causes.

The federal government has pledged $1.3 billion for the construction of the San Juan metropolitan area commuter rail system. The pledge was made in a "full funding agreement" entered into by the Clinton Administration with the administration of Calderon’s predecessor, Pedro Rossello (statehood party/D). The current president of Puerto Rico’s statehood party, Carlos Pesquera, was a key figure in obtaining the commitment as Rossello’s transportation secretary.

The Senate committee’s Fiscal Year 2003 Tren Urbano cut reflected the determination of Bush’s Director of the Office of Management and Budget, Mitchell Daniels, to reduce the amount of the current fiscal year’s spending below what congressional Republican leaders wanted last year and their decision that there were higher priorities for spending than the Tren Urbano project. Daniels sought the reductions from when even congressional Republicans wanted to spend -- let alone Democrats – out of concern about the rapidly expanding federal budget deficit.

The difference between Daniels and congressional Republican leaders on the issue was a primary reason that appropriations for most federal programs for the fiscal year that began last October 1 were not made before last year’s election. The results of the elections being seen as an endorsement of President Bush’s leadership led congressional republican leaders to agree to reduce what they wanted to spend by the $10 billion Daniels demanded.


Governor Calderon’s chief lobbyist in Washington, Charlie Black, reportedly said this week that the Bush White House is not implementing the executive order on resolving Puerto Rico’s fundamental issue, the territory’s political status.

The statement was surprising because Black is a close ally of the Bush political operation and an influential Republican Party operative and the executive order was continued in effect by Bush in 2001. In effect, Black said that senior members of the Bush Administration are not fulfilling a presidential assignment.

The executive order established a task force comprised of representatives from the White House and the President’s Cabinet to work with leaders of Puerto Rico and the Congress’ territories committees to enable Puerto Ricans to choose the territory’s status among realistic options until the territory obtains a status that provides for national government democracy. It was established because of local confusion over the options due to unrealistic status proposals such as the one championed by Calderon and Acevedo Vila.

Under this proposal, Puerto Rico would be recognized as a nation but in a permanent union with the U.S., with the Commonwealth determining the application of U.S. laws and entering into agreements with foreign countries and the U.S. continuing to grant citizenship and all aid now granted Puerto Ricans.

The Task Force is co-chaired by Bush’s point man on Puerto Rico issues, Intergovernmental Affairs Director Ruben Barrales and Deputy Assistant Attorney General Sheldon Bradshaw.

Black gave an implausible explanation for their inaction that a White

House spokeswoman recently gave. It was that the Task Force members are too busy with national security matters to take any action on Puerto Rico status matters.

Black’s statement was also surprising because Calderon has said that she is "definitely" going to pursue that status issue this year in the federal government even though she has rejected the idea of Puerto Ricans choosing their status preference.

Calderon and Black, who is paid $1 million a year by the territorial government, may actually not want the Bush Administration to act on the issue since any federal action on her status proposal is certain to say that it is impossible.

The "Washington Update" appears weekly.

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