Mud Thrown At Puerto Rican In Democratic Race… Acevedo Reevaluating Multi-Million Dollar Representation Contracts… Governor’s Representative Squabbles With Resident Commissioner… Puerto Rico Representatives React To Tax Recommendations

February 4, 2005
Copyright © 2005 THE PUERTO RICO HERALD. All Rights Reserved.

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Mud Thrown at Puerto Rican in Democratic Race

A desperate effort is being made to stop former Puerto Rico Secretary of the Governorship Alvaro Cifuentes from being elected as a vice chairman of the Democratic National Committee (DNC).

National Democratic Party leaders have been sent a copy of a Puerto Rico newspaper article about a controversial territorial government contract with the baseless suggestion that Cifuentes is linked to the contract.

The same tactic was used on Cifuentes when he was elected Chair of the DNC’s Hispanic Caucus four years ago. Nothing ever came of the suggestion.

Leaders of Puerto Rico’s "commonwealth" party do not want Cifuentes to be elected because he favors statehood for the territory, although he has not promoted that status as Hispanic Caucus Chair and he has included Puerto Rico commonwealthers in Caucus activities.

Additionally, Cifuentes has been disengaged from Puerto Rican politics, focusing instead on the national Democratic Party for sometime. He moved to the Washington area almost a decade ago.

Cifuentes was secretary of the governorship during the first term of Pedro Rossello (statehood/D). Rossello lost to Governor Anibal Acevedo Vila ("commonwealth" party/D) in the last election by less than one-fifth of one percent of the vote and is believed to want a rematch.

Acevedo’s failed running-mate for resident commissioner, Roberto Prats, who chairs the territory’s local Democratic committee, has led the two other Puerto Rico "commonwealth" party representatives on the DNC in nominating another candidate for DNC vice chair, former Philadelphia, PA and Clinton Administration official Nelson Diaz. At the same time, the three endorsed a third candidate for the same post, U.S. Representative Gregory Meeks (NY).

Puerto Rico’s Democratic National Committeeman, Senate President Kenneth McClintock (statehood), is supporting Cifuentes.

So are DNC members of Puerto Rican origin who represent States and most other Hispanic members of the DNC. Diaz, who preceded Cifuentes as DNC Hispanic Caucus Chair and whose family came from Puerto Rico, has attracted virtually no Hispanic support and little other support other than Pennsylvania Governor Edward Rendell, a former DNC "General Chairman," with whom Diaz worked while Rendell was mayor of Philadelphia.

Cifuentes’ support is not limited to Hispanic DNC members. In fact, he is considered the favorite in the race, having been endorsed by over 200 of the 440 DNC members. He is given very high marks by DNC members for his chairmanship of the Hispanic Caucus.

His main competition is from another Member of Congress, Rep. Michael Honda (CA). Honda’s campaign received a boost this week from the endorsement of the nation’s largest labor organization, the AFL-CIO. A number of DNC members are AFL-CIO members. Honda also has substantial support in the U.S. House of Representatives, including the backing of Minority Leader Nancy Pelosi, who is also from California.

The election is next weekend.

Acevedo Reevaluating Multi-Million Dollar Representation Contracts

Governor Acevedo is reevaluating the multimillion dollar a year Washington representation team that he led for his predecessor, Sila Calderon, while the territory’s resident commissioner during the past four years.

Acevedo, who personally managed a representation effort that failed to achieve most of its major objectives, was dissatisfied with the follow through of the operation.

There have been only two exceptions to his review. He moved three top resident commissioner office staffers into the legislative division of the governor’s offices in the States, the Puerto Rico Federal Affairs Administration. He also said that Calderon’s lead lobbyist, former Republican National Committee Chairman Charlie Black, who was paid millions of dollars by the Calderon Administration, would continue to be retained.

Black is close to Senator Trent Lott (R-MS), the former Senate Majority Leader. He also had close ties to President Bush’s father, the first President Bush.

Among the firms also paid millions of dollars under Calderon that are still up in the air are Winston & Strawn and Patton Boggs, large law/lobby operations. With respected law firm Winston & Strawn is Francisco Pavia, Calderon’s Washington representative when she was mayor of San Juan. Lobbying firm Patton Boggs is known best for its fundraising for Democratic members of Congress.

Other firms that have had multimillion dollar contracts are public relations giant Edleman Worldwide, which includes former Deputy Chief of Staff to President Reagan Michael Deaver, and U.S. Strategies, a smaller lobbying shop retained because of its relationship to then Senate Democratic Leader Tom Daschle.

Smaller lobbying shops paid about a half a million dollars each have been Smith & Dawson and former Representative Toby Roth. Ramon Luis Lugo, one of the most astute "commonwealth" party strategists and an effective lobbyist in San Juan as well as Washington, is associated with Smith & Dawson. Roth, a major lobbyist for English becoming the official language of the U.S., has lobbied against statehood being an option for Puerto Rico, citing the predominant use of Spanish in Puerto Rico.

An early casualty of Acevedo’s dissatisfaction with the Commonwealth’s Washington operation under Calderon was her PRFAA Director, Mari Carmen Aponte. Acevedo, who lived in Aponte’s home while in Washington for most of the time that he was Calderon’s resident commissioner in the States, rejected her offer to stay on. Aponte had been disengaged from the Calderon/Acevedo legislative effort.

Acevedo replaced Aponte with a Puerto Rican politician, former senator Eduardo Bhatia, who lost the last two elections for mayor of San Juan. Bhatia is currently expected to be the "commonwealth" party candidate for resident commissioner in 2008.

The Commonwealth has had to spend millions of dollars a year on lobbyists and other representatives in Washington and has had a relatively large governor’s office here. The reason is that the Commonwealth does not have the representation in the federal government that a State of its population would have -- two senators, six representatives, and hundreds of congressional staff members as well as eight Electoral Votes.

Governor’s Representative Squabbles with Resident Commissioner

New PRFAA Director Bhatia, known for making personal attacks on opponents in elections, fired his most direct salvo to date at new Resident Commissioner Luis Fortuno (statehood/R) Thursday.

Bhatia said that Fortuno was only following the lead of Governor Acevedo in the first bill that Fortuno introduced in the Congress.

The relatively minor bill would make 10,000 acres of the Caribbean National Forest a Wilderness Area, putting it off limits to human activities.

In a letter to Fortuno that he made public, Bhatia said Acevedo had initiated the legislation while resident commissioner. He did not point out, however, that the Wilderness designation had been suggested by the U.S. Forest Service.

Also to be remembered is the fact that Acevedo did not get the bill enacted into law despite efforts in two Congresses.

New York’s Democrats in the Senate saw the issue differently than Bhatia. They introduced a companion bill in the Senate. The two said that they were "pleased to be working with" Fortuno and issued a news release with him.

The three members of the House of Puerto Rican origin also joined Fortuno in introducing the bill, Democrats Jose Serrano and Nydia Velazquez of New York and Luis Gutierrez of Illinois, a strong Acevedo ally. The bill was also sponsored by Representative Ileana Ros-Lehtinen (R-FL).

Bhatia’s attack over a relatively trivial matter was all the more strange because Acevedo while resident commissioner often claimed that he had initiated legislation that had actually been substantially advanced by his predecessor, Carlos Romero-Barcelo (statehood/D). Acevedo tried this in trying to claim sole credit for the equal treatment of Puerto Rico in elementary and secondary education programs for schools serving children from low-income families and for the closing of half the gap between Medicare payments for in-patient hospital services in the territory and payments in the States.

Bhatia’s previous jabs at Fortuno in trying to promote Acevedo have been indirect.

Puerto Rico Representatives React to Tax Recommendations

Puerto Rico’s top officials and their representatives reacted this week to tax changes that would have major impacts on the territory recommended by the staff of the Congress’ Joint Committee on Taxation.

The impacts were first revealed in UPDATE last week.

The recommendation that got the most attention in other Puerto Rico publications would equalize the taxation of all alcoholic beverages. This would lower the tax on hard liquor from $13.50 per proof gallon (gallons of beverage based on their alcoholic content) to $8.40 and increase the tax on beer and wine to $8.40.

The federal government is granting the territory $13.25 per proof gallon this year of collections of the tax on Puerto Rican rum and 90 percent of foreign rum and current law would grant $10.50 per proof gallon in future years. Lowering the tax to $8.40 would result in lower grants. If the recommendation were in place this year, the territory would receive up to $140 million less than the $382 million it is expected to receive. This loss could be mitigated, however, by increased rum sales due to the lower cost.

The other recommendations that would impact Puerto Rico substantially would change the taxation of "foreign" subsidiaries of companies based in the States. Most manufacturing operations in Puerto Rico are such subsidiaries. Manufacturing makes up 42 percent of Puerto Rico’s economy.

Foreign subsidiary income is currently not taxed until it is ‘"repatriated" to the States. The recommendations would exempt dividends that foreign subsidiaries pay their parent companies but tax other forms of their income. The recommendations would also close loopholes which allow companies to attribute income to their foreign subsidiaries. Overall, companies would pay more tax, $54.8 billion over 10 years.

A related recommendation would consider companies to be located where their active management is conducted. Currently, companies are considered to be located where they are incorporated. Many companies have incorporated in foreign tax havens. This includes almost all foreign manufacturing subsidiaries in Puerto Rico.

Under the proposal, if a company’s active management is in the U.S, it would pay all federal income taxes. If its active management is in Puerto Rico, it would have to pay Puerto Rico income taxes it is avoiding now by being incorporated in a foreign tax haven.

Governor Acevedo and PRFAA Director Bhatia said that they were not concerned about the recommendations and asserted that the recommendations had no chance of becoming law. Acevedo also said that the proposed changes in the taxation of foreign subsidiaries in Puerto Rico would not affect the companies. Bhatia later said that the recommendations were more serious than he first thought.

He also said that he would work against the recommendations. The Puerto Rico impacts of the proposals, however, would be minor in comparison to the national impacts and reasons for the proposals. The impacts would be tangential consequences of the proposed national policy changes, not targets of it.

Resident Commissioner Fortuno also discounted the possibility of the recommendations passing.

A Senate Finance Committee aide, however, said that the recommendations would be seriously considered, probably in a major overhaul of the federal tax system that President Bush and Republican leaders of the Congress want.

After first suggesting that he, too, would work against the proposals, Fortuno dispatched aides to speak with the Joint Tax Committee staff about the recommendations. They emphasized the impacts on Puerto Rico and the need for measures to help the territory’s economy and budget.

The Joint Tax Committee staff are preparing another report for the Senate Finance Committee on measures concerning Puerto Rico’s economy.

The "Washington Update" appears weekly.

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