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No Budget Deficit???


March 10, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

A group of former government officials, led by Juan Agosto Alicea, former chairman of the P.R. Aqueduct & Sewer Authority board of directors, and former Secretary of the Treasury Juan Flores Galarza, were quoted recently in the front pages of a newspaper in Puerto Rico as claiming that the government of Puerto Rico does not have a deficit for the current year. They had the gall to say that what’s happening is that the government is spending more money every year than it collects in revenues. How brazen, how insolent, can former Gov. Sila Calderón and her cabinet members get? The most basic definition of deficit is precisely: "an excess of expenditure over revenue" (Webster’s Ninth New Collegiate Dictionary 1984 Edition).

In other words, Agosto Alicea and his fellow ex-cabinet members maintain that "a deficit is not a deficit." Why? Because they say so, while everybody else recognizes that not only do we have a deficit, but that the deficit is much higher than what former Gov. Pedro Rosselló and the New Progressive Party leaders have been saying for the past two or three years. Not only is there a deficit, but most of the information and financial data now available, indicates that the deficit is most probably in excess of $2 billion, the highest, by far, than we have ever had in Puerto Rico.

But, as has been customary for former Gov. Calderón and her acolytes, the present deficit is "not of their doing," but it is allegedly a deficit that has been carried from administration to administration since the decade of the 1970s. Without giving any facts to support their statements, they blame past administrations, and many members of the press repeat their false information without bothering to check and see if it is correct or not.

The reason for the gigantic $2 billion deficit is their own doing. During my administration, January 1977 to January 1985, I established a policy that limited the increase of the public debt from one year to the next to the amount of increase in the Gross Domestic Product. The public debt could never be more than 60% of the Gross Domestic Product. By doing that, we strengthened our public finances in spite of the fact that we inherited a deficit of approximately $350 million from the previous administration (Gov. Rafael Hernández Colón, January 1973 to January 1977), in which the governor had borrowed $110 million from the Public Employees Retirement Fund to illegally cover part of the deficit.

During my administration we not only made up the deficit, but we reimbursed the Retirement Fund. However, the money was borrowed without interest by Hernández Colón, so the Retirement Fund suffered financially because it lost the income it could have received by investing the $110 million.

We not only managed to control the growth of our public debt and balance our budgets, but we also strengthened our basic infrastructure, during years when the cost of oil increased from $11 per barrel to about $42 per barrel and interest rates increased sharply to 21%. How did we do it? By being innovative and by being fiscally responsible. We bit the bullet and made difficult and politically unpopular decisions, but I felt we had a duty to protect our people and make the responsible decisions, no matter what the personal political cost would be.

But, instead of looking for solutions to the inordinate budget deficit, the present governor, Anibal Acevedo Vilá, is looking for distractions by fanning other issues, such as insisting on a candidate for Secretary of Justice who has been shown to be highly prejudiced against statehooders and who has shown a predisposition to persecute statehooders and cover-up the misdeeds of his Popular Party colleagues and independence followers. He also submits a bill designed to delay and confuse the status issue, stimulating public discussion to evade the budget deficit issue. Now, of all things, at a moment when the most important public issue is how to handle the deficit, he indicated that he was not going to discuss the issue in his State of the State Message. By the time you read this column, we will know whether he tackled the budget issue or not.

If he refuses to face the issue, the reason would be his fear to acknowledge the failures of the Calderón administration, of which he was an important participant. He would have to accept that during their (Calderón’s and Acevedo’s) administration they spent approximately $80 billion of our tax money during their four years. And what do they have to show for it? (1) More crimes than ever; (2) A deteriorated and incredibly inefficient health system, even after eliminating 300,000 people from the government’s health insurance program; (3) More schools than ever which are failing to meet minimum acceptable standards of education; (4) A deterioration of our electric power, water, and waste water treatment distribution systems; (5) The worst road maintenance program we have seen in decades; (6) The increasingly large amount of public funds being used for illegal government propaganda publicity; (7) Practically paralyzing the construction and development of both public and private projects, causing large increases in costs to the government projects and private developers; and (8) The incredible number of multimillion-dollar government contracts for counseling and services to large financial contributors to the Popular Party, whose results are nowhere to be seen.

But, not only did they spend approximately $80 billion during the past four years, but they also increased our public debt from $22 billion in the year 2000 to $38 billion by Dec. 31, 2004. Data is from the testimony of past president of the Government Development Bank, Antonio Faría, during the recent Senate hearings, an increase of $16 billion in only four years. Never before in our history has such an incredible increase in public debt been made by any governor.

And what significant and important public project was initiated by the Calderón and Acevedo Vilá administrations? None that I know of. As a matter of fact, they stopped all the important public projects being developed by the Rosselló administration. They even talked about imploding the Coliseum. They stopped and delayed Route 66, causing tremendous increases in the cost of the project, which after years of delay and deterioration of structures left unfinished, is now under construction on the same route, which they had objected to. The same unnecessary delays happened with the Urban Train, the Coliseum, and the Convention Center, which increased the costs of all of them. The people of Puerto Rico, we, as taxpayers, have had to pay hundreds of millions of dollars in cost overruns, as a result of the petty partisan political persecution of officials of the Rosselló administration by the Calderón and Acevedo Vilá acolytes.

Why doesn’t Acevedo Vilá want to talk about the deficit? Because he is an important part of the reasons for the huge deficit. Like his predecessor, he is very adept at overspending and using public funds for personal and partisan political purposes, but he has no experience in fiscal responsibility. He not only has failed to face the issue, but is trying to obstruct the approval and implementation of a sales tax by ordering his appointees to object to the sales tax, propose a much more complicated and less effective value-added tax, and suggesting that nothing be done unless it is all part of a tax reform package.

A full-fledged tax reform package is much more complicated to legislate and implement than the elimination of all excise taxes and the implementation of a sales tax. If we really want to start doing something about the budget deficit, let us eliminate the excise taxes and pass a sales tax bill so that we can start collecting taxes from our underground-economy tax evaders and thereby increase our tax revenues. After that, we can start discussing a full tax-reform package, which, as I said, has too many complicated issues and which, if done carefully as it should be, should take at least two years. Let’s not allow Acevedo Vilá to get away without accepting his responsibility and doing something about the deficit and our government finances.

Carlos Romero Barceló is a two-term former governor of Puerto Rico (1977-84), a two-term former resident commissioner (1993-2000), and a two-term former mayor of San Juan (1969-78). He was president of the New Progressive Party for 11 years.

This Caribbean Business article appears courtesy of Casiano Communications.
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