House Passes $69m Grant For Puerto Rico But Acevedo Not Involved…Clinton Criticizes, Acevedo Praises Medicare Bill’s Coverage Of Puerto Rico…Bush Names 16 Puerto Rico Municipalities Disaster Areas…Defense Dept. OKs Calderon Nominees For Planning Use Of Base Property…Congress Approves Free Association Extension For Two Pacific Nations

November 28, 2003
Copyright © 2003 THE PUERTO RICO HERALD. All Rights Reserved.

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House Passes $69 Million Grant For Puerto Rico But Acevedo Not Involved

The U.S. House of Representatives November 20th passed a bill that would extend a temporary increase in the grant to Puerto Rico of collections of the federal excise tax on rum distilled in the territory or foreign countries.  The grant would be extended for one year through the end of 2004.

The legislation would provide Puerto Rico with an estimated $69 million but the Commonwealth's representative in the House, Resident Commissioner Anibal Acevedo Villa ("commonwealth" party/D), had no apparent involvement with the bill and still seems to be unaware of it.

The federal government has long granted Puerto Rico and the U.S. Virgin

Islands $10.50 per proof gallon of collections of the tax.  For the past two decades, it has also granted collections on foreign rum to the two territories. 

In the 1980s, the tax was increased from $10.50 per proof gallon to an eventual $13.50 but the increase bills kept the additional amounts in the federal treasury.   The legislation contradicted the claims of Puerto Rico "commonwealthers" that the Commonwealth is exempt from federal taxation, any federal tax collections that do take place in Puerto Rico must be turned over to the territorial government, and the federal government cannot change these aspects of Puerto Rico’s tax autonomy without Puerto Rican consent.

In 1993, the grant was increased for five years to $11.30 -- an extra 80 cents per proof gallon.  The purpose was to compensate Puerto Rico for the loss of most of the tax exemption for income that manufacturers based in the States attribute to territorial operations (Internal Revenue Code Section 936).

In 1999, the grant was temporarily increased at the request of President Clinton to $13.25 of the $13.50 per proof gallon.  Twenty-five cents of the tax was to remain in the federal treasury to prevent a misunderstanding that the Commonwealth had a right to the revenue.

The Clinton Administration, Gov. Pedro Rossello (statehood/D), Resident Commissioner (statehood/D) Carlos Romero, and the Congress' tax committees  -- all of which helped develop the bill -- agreed that the Puerto Rico Conservation Trust would receive one-sixth of the $2.75 per proof gallon increase.

The day before the House passed the current bill, a group of Senate Finance Committee members introduced a similar bill.  The group was led by Committee Chairman Chuck Grassley (R-IA) and Ranking Democrat Max Baucus (MT) and included nine other senators from both parties -- making it likely to be approved 

The Senate bill would extend the extra $2.75 per proof gallon for six months to June 30, 2004.  It would provide Puerto Rico with an estimated $47 million. 

With Acevedo ‘missing in action’ on the legislation, the key lobbying for the extension of the extra grant was done by the highly regarded Conservation Trust.

Clinton Criticizes, Acevedo Praises Medicare Bill’s Coverage Of Puerto Rico  

Legislation to reform Medicare, the federal health care insurance program for the elderly and the disabled, finally passed the national legislature this week after years of efforts. 

President Bush and most Republicans in the Congress touted the biggest expansion of the program since it was initiated four decades ago but most  Democrats complained it is inadequate.   

There was also a disagreement on the Bill’s treatment of residents of Puerto Rico.  Senator Hillary Rodham Clinton cited the treatment as one of the Bill’s little-recognized deficiencies while Resident Commissioner Acevedo Vila sung the Bill’s praises. 

The issues concern the coverage of low-income Puerto Ricans.  "Residents" of Puerto Rico (and the other U.S. territories) House and Senate negotiators of the bill reported "would not be eligible for regular low-income subsidies." Of 550,000 Puerto Rico Medicare recipients, an estimated 290,000 have incomes low enough to qualify for the Bill’s additional assistance for the poor.

The central element of the bill will help pay for medicine for people who are not hospitalized.  Currently, Medicare now only covers the cost of medicine for patients who are in hospitals.

From April 2004 until 2006, the bill provides for discounts on the retail cost of prescription drugs for outpatients.  The discounts will range from one to 60 percent, depending on the medicine, but will average an estimated 12.5 to 25 percent. 

Low income Medicare recipients -- those with income below $12,123 for an individual and $16,362 -- are to receive an additional subsidy of $600 in each 2004 and 2005.  These benefits are in addition to any subsidy provided by  Medicaid, the health care program for the poor.  The bill allotted a limited amount of $35 million to Puerto Rico for the $600 payments -- just enough to pay for the estimated cost (but not enough if the estimate is too low). 

Beginning in 2006, Medicare would cover 75 percent of the cost of medicines for program participants who are not poor up to $2,250 a year, none of the cost between $2,250 and $3,600, and 95 percent of the cost over $3,600.   

To obtain the subsidy, these individuals will have to pay $420 a year and the first $250 of costs.

The bill generally provides that Medicaid will cover the cost of medicines for the poor beginning in 2006 except for $1 per prescription for generic drugs and $3 for brand-name drugs.  However, Puerto Rico was allotted a limited amount of an additional $12.5 million a year beginning in April 2006 for this purpose.  There are no limits on this subsidy in the case of the States.

The treatment mimics the treatment of Puerto Rico and other territories and the States in the basic Medicaid program.  States can receive unlimited amounts in the program under which the federal government pays 50-85 percent of the State’s Medicaid costs.  Puerto Rico and other territories receive limited amounts for their Medicaid programs.  In the case of Puerto Rico, the amount equals about one-fifth of the program’s cost.

The limitations caused Clinton to say that, "For some reason, we are not providing adequate funding for the people of Puerto to get the prescription drugs to which American citizens under the bill are entitled."  Clinton also noted that, "Puerto Ricans are American citizens.  They are not some alien group over there.  They don’t live in a State but neither do the people who live in the District of Columbia."

DC is treated equally with the States under the bill.  The nation’s capital is considered part of the United States, Puerto Rico and the U.S.’ four other insular territories are considered unincorporated possessions of the U.S.  The Supreme Court has ruled that federal programs can treat unincorporated territories differently than the States as long as there is a rational basis for the different treatment.  Cost is among the potential reasons for different treatment, according to the court.

Acevedo ignored the different treatment of Puerto Rico in the bill’s subsidies for medicine for the poor.  He said he was "highly satisfied" with the bill’s treatment of Puerto Rico, which he said was good.

Another provision of the bill changes the formula for Medicare payments for in-patient hospital services in Puerto Rico.  Medicare pays one set of rates for hospital services in every U.S. area other than Puerto Rico and a different -- and lesser -- set in Puerto Rico.  The Puerto Rico set is 50 percent based on the national rates and 50 percent based on local costs.  The change will base the Puerto Rico set 75 percent on the national rates and 25 percent on local costs.

The change will begin to take effect in April 2004.  At that time, the percentage based on the national rates will increase to 65 percent, with the percentage based on local costs reduced to 35 percent.  The 75 percent/25 percent formula would take effect in October 2004. 

The change will increase Medicare payments to hospitals in Puerto Rico $35 million to $50 million a year.

Acevedo and other Puerto Ricans unsuccessfully sought to change the Puerto Rico rates to the national rates 100 percent. 

According to sources who worked on the provision, Acevedo had little responsibility for the improvement in the formula that was made.  Senate Finance Committee Member John Kerry, a candidate for the Democratic presidential nomination, publicly gave the credit to San Juan, Puerto Rico Mayor Jorge Santini (Statehood/R).  Kerry and Senator Rick Santorum (R-PA) were leading congressional advocates for equality or, at least, and improvement in the formula for the Puerto Rico payments. 

San Juan was ably represented on the bill by two Puerto Ricans who are associated with one of Washington’s top lobbying firms, Quinn Gillespie.  The San Juan lobbyists are Manuel Ortiz and Juan Carlos Iturregui.  Ortiz is the Puerto Rico coordinator for Kerry’s campaign. He is also the coordinator in the States of the gubernatorial campaign of Acevedo’s main rival in next year’s gubernatorial election, former Governor Rossello.

Other Puerto Rican representatives who influenced the approval of the legislation included the lobbyists for the Puerto Rico Hospital Association.  They include Luis Baco, a lawyer with McDermott, Will and Emery, who formerly worked for Acevedo’s predecessor as resident commissioner, Carlos Romero Barcelo (Statehood-D).  They also include lobbyists for the Washington Group. 

Another Puerto Rican lobbyist, Jose Fuentes Agostini, a former territorial Secretary of Justice under Rossello, also worked on the provision.  Fuentes represents the municipalities of Bayamon and Guaynabo, which are headed by Mayors Ramon Luis and Hector O’Neill both Republicans as well as members of Puerto Rico’s statehood party.   

Acevedo’s greatest impact on the formula change may have been to -- intentionally or unintentionally -- cause it to be delayed for three years.   The 75 percent /25 percent formula was proposed by President Clinton in 2000 at the request of Romero, the Hospital Association, and Rossello.  The proposal won the support of Republicans in the Congress as well as Democrats.  But despite the support of Republicans such Santorum, the proposal was blocked by Senate Majority Leader Trent Lott (R-MS).  Lott was the closest ally in the Senate of then candidates Acevedo and Sila Calderon ("commonwealth"/no national party) and in touch with them at the time be blocked the formula change. 

The current bill also includes changes in Medicare payments to physicians that could net doctors in Puerto Rico $40 million a year. 

Bush Names 16 Puerto Rico Municipalities Disaster Areas

President Bush this week designated 16 Puerto Rico municipalities as disaster areas due to heavy rains.  The towns are Guánica, Guayama, Juana Diaz, Maunabo, Patillas, Rio Grande, Salinas, Santa Isabel, Yauco, Arroyo, Canóvanas, Fajardo, Loiza, Naguabo, Toa Baja and Yabucoa.

The declaration, which came in two stages, authorized individual, residential, and business assistance from the Federal Emergency Management Agency, now a part of the new Department of Homeland Security.  It did not authorize reimbursement to governments in Puerto Rico for infrastructure costs, which was also requested by Governor Calderon but Calderon said that this additional assistance could still also be authorized later.

Defense Dept. Oks Calderon Nominees For Planning Use Of Base Property

The Director of the Department of Defense’s Office of Economic Adjustment (OEA) this week designated entities recommended by Governor Calderon to develop and implement plans for the future use of property of the Roosevelt Roads Naval Station in Ceiba, Puerto Rico that is not claimed by federal agencies other than the Navy or homeless groups. 

OEA Director Patrick O’Brien approved Calderon’s recommendation of a ‘Local Redevelopment Authority’ headed by: Puerto Rico’s resident commissioner; the heads of its Departments of Economic Development and Commerce and Natural and  Environmental Resources, Planning Board, government Tourism Company, and Ports Authority; the mayor of Ceiba; and two representatives of the civilian community in the area who are not government officials.  The Economic Development and Commerce Department was also given lead responsibility for coordinating the planning. 

The base is scheduled to close March 31, 2004, although some of its operations -- including the school and the hospital will continue to be open past that date. 

Puerto Rico Economic Development and Commerce Secretary Milton Segarra said that he hoped to have a plan for use of property that would be transferred to the territorial government ready by the summer of 2004.  Among factors that will influence the implementation of the plan is any clean-up that needs to occur for environmental reasons.         

Congress Approves Free Association Extension For Two Pacific Nations

Final congressional approval was given this week to legislation to extend and modify the U.S. free association with two Pacific island nations, the Federated States of Micronesia and the Republic of the Marshall Islands. 

U.S. assistance and other provisions would be extended until 2023.  The U.S. Compacts of Free Association with the two states initially took effect in 1986 and most of their U.S. assistance provisions expired in fiscal year 2003, which ended September 30th. 

The two states are comprised of islands that the U.S. took from Japan during World War Two and then administered as territories under a trusteeship agreement with the United Nations.  They are two of the three states that are freely associated with the U.S.  The third is the Republic of Palau, territory also taken from Japan that freely associated with the U.S. in 1993.

The freely associated states are internationally recognized as sovereign nations but have permitted the U.S. to exercise national defense powers in their territory.  They receive substantial amounts of U.S. assistance, including some domestic programs.  Their citizens are citizens of their nations but have special right to access the U.S.  The free association can be terminated by either the U.S. or the island nations but the compacts provide that some provisions will still continue in effect for a period of time if free association is terminated.  

The "Washington Update" appears weekly.

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