Tax Committee Chairman Suggests Puerto Ricans Elect Different Leaders… Puerto Rico Medicare Increase Agreed To -- The Full Story… Senate Committee Approves Child Care Funding Increase… Republican Congressional Candidate Discusses Territory’s Status

September 12, 2003
Copyright © 2003 THE PUERTO RICO HERALD. All Rights Reserved.

. .. Tax Committee Chairman Suggests Puerto Ricans Elect Different Leaders

One of the most powerful members of the Congress on economic issues this week suggested that Puerto Ricans would benefit economically if they elect statehood party candidates next year.

Representative Bill Thomas (R-CA), Chairman of the House Ways and Means Committee and the Joint House and Senate Committee on Taxation, encouraged political and policy change in Puerto Rico in a letter to Luis Fortuno, Puerto Rico’s Republican National Committeeman and a candidate for the statehood party’s nomination for Resident Commissioner, the territory’s sole representative in the House.

Thomas wrote the letter after meeting with Fortuno, who had an extraordinarily large number of productive meetings in the Congress and the White House during a two-day visit to Washington. Fortuno is one of four candidates for the statehood party nomination for the territory’s sole congressional seat.

"Puerto Rico is at a political and economic crossroad," Thomas wrote. In a clear suggestion to Puerto Ricans to support Fortuno and not elect Resident Commissioner Anibal Acevedo Vila ("commonwealth" party/D) to replace patroness Sila Calderon as governor, Thomas asserted that "[w]ith the proper leadership and forward-looking policy solutions . . . Puerto Ricans will be afforded more opportunities for much-needed growth and prosperity."

The reference to "forward-looking policy solutions" was a not-so-subtle reference to Calderon and Acevedo’s top federal priority: 85-100% income tax exemption for profits that companies based in the States receive from subsidiaries in U.S. territories established as "foreign" corporations. Thomas and other key federal tax policy-makers see the proposal as a thinly-veiled effort to restore the federal credit against taxes on business income attributed to Puerto Rico provided by Internal Revenue Code (IRC) Sec. 936 as it existed prior to a 1993 reform.

A 1996 law ends the credit as of 2006. Federal officials universally viewed it as an excessive and unjustified subsidy to a select group of U.S. companies that was often abused and provided inadequate economic benefits to Puerto Rico.

Thomas has publicly opposed the Sec. 956 amendment since a meeting with Calderon, Acevedo, and Calderon’s then Economic Development and Commerce Secretary and now husband, Ramon Cantero Frau. Thomas went public with his opposition after Acevedo and Cantero told reporters that they had made progress in obtaining his support. In fact, Thomas had told Calderon at the meeting that he wanted to help Puerto Rico retain manufacturing jobs although he could not support her proposed recreation of Sec. 936.

Since then, Thomas has reiterated his willingness to extend IRC Sec. 30A or take other measures to help Puerto Rico economically. Sec. 30A was created in 1993 and 1996 as a preferred federal alternative to Sec. 936. It provides a tax credit for wages and local taxes paid in Puerto Rico and capital investments made in the territory. It also expires as of 2006.

Calderon’s predecessor and Acevedo’s likely opponent for governor, Pedro Rossello (statehood/D), helped develop the 30A credit. This appears to be a key reason that Calderon has ignored offers by Thomas and other congressional leaders to try to extend it.

Thomas’ suggestion that "Puerto Ricans will be afforded more opportunities for much-needed growth and prosperity" if they elect new leaders and abandon the 956 amendment reiterated his willingness to help Puerto Rico economically.

On learning that Calderon is now proposing to delay the effective date of her 956 amendment until after the end of Secs. 936 and 30A, however, Thomas said that the issue could be deferred until after the 2004 election.

Puerto Rico Medicare Increase Agreed To -- The Full Story

A ‘conference’ committee of leaders of the U.S. House of Representatives and the Senate on legislation to reform the national health care program for the elderly and the disabled this week agreed to an increase in program payments for hospitalizations in Puerto Rico.

The agreement would change Medicare payment rates from being 50 percent based on the rates that apply everywhere else in the nation and 50 percent on local cost factors to 75 percent national rates & 25 percent local costs. The change would be implemented over two years in equal installments.

The change would increase payments in Puerto Rico at least $25 million a year when fully implemented.

The agreement regarding the Puerto Rico hospitalization rates is similar to a House-passed bill’s version of the legislation. A Senate bill would have equalized the rates in Puerto Rico with those in the rest of the country.

Although agreement was reached on this issue, the conference is far from over. It has gone on for months, and there has been acrimony between its leaders, Ways and Means Committee Chairman Thomas and Senate Finance Committee Chairman Chuck Grassley (R-IA).

The primary purpose of the legislation is to create a subsidy for medicine for Medicare beneficiaries who are not hospitalized and who do not qualify for Medicaid, the health care program for low-income individuals. Medicaid pays for prescription drugs.

According to Senator Rick Santorum (R-PA), who co-sponsored the Senate’s Puerto Rico equality provision, it ultimately failed because of its cost. The legislation will cost $400 billion over ten years and Puerto Rican equality would have cost less than one-tenth of one percent more than the agreement would cost. But the overall cost of the legislation has become a major issue. This is because of the rapidly increasing federal deficit and President Bush’s request this week for $87 billion for Iraq reconstruction as well as Medicare issues.

Cost almost caused the idea of any Puerto Rico rate improvement to be dropped from the legislation. Thomas, who previously opposed equal rates -- and may have been tempted to drop any Puerto Rico rate improvement - - resolved the issue after meeting with Resident Commissioner candidate Fortuno.

Senate Finance Committee Members Santorum and John Breaux (D-LA), and Ways and Means Committee Member Jerry Weller (R-IL) also helped secure the rate improvement.

Thomas and Weller, a House Deputy Majority Whip, gave Fortuno credit for securing the formula change. Thomas said Fortuno’s support was "instructive and helpful to making sure that seniors in Puerto Rico continue to receive high quality health care." He went on to say that he "especially" appreciated having "the benefit" of Fortuno’s views "as the conference committee made the decision to strengthen the provisions for Puerto Rico." Weller’s spokesman confirmed Fortuno’s intervention.

Fortuno was one of two statehood party leaders that key members of Congress have credited with having helped generate decisions on the issue that were positive for Puerto Rico. Senator John Kerry (D-MA), who co-sponsored the Senate’s Puerto Rico equality provision with Santorum, said San Juan Mayor Jorge Santini, another statehood party leader, had convinced him to sponsor the provision.

Santini became active on the issue because Governor Calderon has acted to deny federal health care funds to San Juan. Puerto Rico’s capital city has been very ably represented on the issue by lobbyist Manuel Ortiz.

No one has given any credit to Calderon or Resident Commissioner Acevedo Vila for the rate improvement measures . . . other than Acevedo himself. He rushed to suggest some responsibility for the conference decision.

In rushing, however, Acevedo made mistakes in explaining the issue that he has made before. He said that Puerto Rico hospitals currently are paid 50 percent of the national rates rather than that the current rates are based 50 percent on the national rate and 50 percent on local costs -- a very different amount. He made the same mistake in describing the conference agreement, saying that it would increase the rates to 75 percent of the national rates rather than that it would change the formula to being 75 percent based on the national rate and 25 percent based on local costs.

Acevedo also said that the current formula is "unjust" -- a political slap at his predecessor, Carlos Romero Barcelo (statehood/D), and likely gubernatorial opponent Rossello that he has also made before. They helped bring about the current formula.

Acevedo’s comment was also, however, a swipe at: former President Bill Clinton, who proposed the current formula and won it in tough budget negotiations with Republican congressional leaders in 1997; the Puerto Rico Hospital Association, which supported the current rates; and members of Congress, such as Representatives Charles Rangel (D-NY) and Xavier Becerra (D-CA) and Senator Bob Graham (D-FL), who helped Clinton on the issue.

Acevedo’s comment, additionally, was questionable because the current formula was a substantial improvement over the one that preceded it. That formula was 25 percent based on national rates and 75 percent based on local cost factors. The Clinton 1997 formula change increased Medicare hospitalization payments in Puerto Rico $44 million the first year alone. It not only changed the formula but also improved the calculation of the local cost factors.

In his statement, Acevedo said that he had been working on the issue for two years. He did not, however, explain the true origin of the measure approved by the conference committee. At the request of Romero, Rossello, and the Puerto Rico Hospital Association, Clinton proposed the 75 percent national rates/25 percent local costs formula in 2000, although with the change taking place immediately rather than over two years.

The Clinton proposal won the support of Republicans as well as Democrats in the House and Santorum as well as Democrats in the Senate. It was not agreed to, however, because of the opposition of Senator Trent Lott, then the Senate Majority Leader and still the senator closest to Calderon and Acevedo.

Individuals currently working on the issue say that Acevedo and Calderon have put relatively little effort into it. Instead, the two have primarily spoken to committee members about Calderon’s request that companies in the States be exempted from 85-100% of the federal income tax for profits from their territorial subsidiaries.

Conference sources credit the following for the agreement to improve the Puerto Rico rates formula: San Juan lobbyist Ortiz; Puerto Rico Hospital Association lobbyist Luis Baco, who formerly worked on the issue for Romero and Rossello, Bayamon, PR hospital owner Richard Machado; Kerry; Fortuno; Thomas; Weller; Clinton and other 2000 federal and territorial proponents of the change; Puerto Rican lobbyist Jose Fuentes-Agostini; and Hospital Association lobbyist Tonya Saunders.

Puerto Ricans pay the Medicare tax equally with citizens in other parts of the nation. The federal policy justification for rates partially based on local costs in Puerto Rico has been that local costs, such as salaries, are far below other areas of the nation (although the lower rates keep the costs low).

Puerto Rico’s lesser treatment in the program, however, is also due to its status as a territory. The status enables the Congress to constitutionally treat citizens in Puerto Rico less well than citizens elsewhere in the nation. It also means that the territory of 3.9 million people - - mostly U.S. citizens -- have almost no voice in the federal system.

Senate Committee Approves Child Care Funding Increase

The Senate Finance Committee this week approved a bill proposed by Chairman Grassley to extend and modify the Temporary Assistance for Needy Families (TANF) program, the nation’s primary "welfare" program.

The bill exempts foster home and other childcare spending from the cap on TANF spending in Puerto Rico. TANF spending in territories has dollar limits that do not apply in the States or the District of Columbia.

The provision should increase the spending in Puerto Rico by at least $10 million a year.

In another embarrassment for Resident Commissioner Acevedo, news of the funding increase was disclosed by statehood party congressional hopeful Fortuno. He had been told of it by Senator Santorum, the primary advocate of the provision, in a phone call that Santorum made to him after a meeting the day before.

Republican Congressional Candidate Discusses Territory’s Status

Fortuno also had encouraging meetings with a number of other congressional leaders responsible for Puerto Rico issues.

He had a particularly fruitful meeting with the new chairman of the House committee on political status and other territorial issues, Richard Pombo (R-CA) of the Resources Committee. Pombo reportedly expressed interest in measures to help resolve the question of Puerto Rico’s future status.

Pombo’s interest was consistent with his support of legislation in 1998 to enable Puerto Ricans to choose the territory’s ultimate status. But it reflected a different view than what Acevedo has reported Pombo holds. Acevedo has said that Pombo does not intend to act on the status issue.

Fortuno also discussed the issue at the White House, where he was joined by Republican National Committeewoman Zoraida Fonalledas.

Another substantive meeting was conducted with the Chairman of the House Defense Appropriations Subcommittee, Jerry Lewis (R-CA). Lewis originated the House proposal to require the Navy to close the largest military installation in Puerto Rico, the Roosevelt Roads Naval Station in Ceiba, within six months and sell the 8,600-acre facility.

The proposal is now being considered by a House-Senate conference committee. The Senate bill does not include a provision on the subject. A Senate source this week called it "a political hot potato."

Fortuno also received offers of campaign help from: House Public Works and Transportation Committee Chairman Don Young (R-AK), a former Chairman of the Resources Committee; Representative Dan Burton (R-IN), former Chairman of the Government Affairs Committee, and Weller. He also has the support of Representative Tom Reynolds (R-VA), Chairman of the Republican Congressional Campaign Committee.

Fortuno’s Washington successes this week frustrated his Republican rival for the statehood party’s congressional nomination, Senator Miriam Ramirez de Ferrer. Ramirez has long had close working relationships with Bush White House officials and congressional leaders such as Young and Burton. Ramirez acted to ensure that Republicans in Washington know that she is also a candidate for the nomination.

The "Washington Update" appears weekly.

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