The State Of The Commonwealth

by John Marino

March 11, 2005
Copyright © 2005 THE PUERTO RICO HERALD. All Rights Reserved.

. Facing a $1.4 billion budget deficit, Gov. Acevedo Vilá used his first state of the commonwealth address Wednesday night to make the case that it was time to take "difficult decisions" and cut down the size of government.

He said he would consolidate and eliminate government agencies, institute a hiring freeze, begin an early retirement program and eliminate subsidies to public corporations like the water utility, which has been hemorrhaging to the tune of $200 million annually.

The governor also laid out plans for a number of economic development, infrastructure, education and public safety initiatives aimed at improving the business climate and the quality of life for everyday residents.

It was an earnest attempt to sound positive in a gloomy environment by a freshman governor who squeaked into office and was addressing the opposition New Progressive Party-controlled Legislature.

New Progressive and Puerto Rican Independence party lawmakers complained afterwards that the speech was long on promises but short on details, and in the end, it did come off as a preview of Acevedo Vilá‚s budget address, slated to be delivered next week.

As many PIP and NPP lawmakers complained, the address raised more questions than it answered.

The governor should be credited for acknowledging the gloom, saying that for 20 years the central government has been spending more than it earns. The governor said he would freeze positions, eliminate "temporary or irregular contract positions," provide incentives for early retirement, eliminate or reduce subsidies to public corporations and prop up the Commonwealth Employees Retirement System, which has an unfunded liability approaching $11 billion.

But Acevedo Vilá‚s prescription for a cure was no more specific than what he has been saying since announcing back in December the recommendations contained in his transition committee‚s final report, which first broached the scope of how shoddy the state government finances are in.

"We will aggressively attack tax evasion by businesses and individuals, eliminate exemptions, discounts, deductions and credits that are not justified and that promote tax evasion," Acevedo Vilá said, adding that instituting a real tax reform could take up to two years.

But he was still silent on a consumption tax, which most experts say is the best way to bring relief to the salaried middle class, eliminate the 6.6 percent excise tax and tap into the island’s huge underground economy. Acevedo Vilá again deferred to the findings that the committee he appointed to draft tax reform recommendations will deliver next month.

The most specific he got was saying any tax reform measures should be part of a comprehensive fiscal reform, attack tax evasion, provide justice to the salaried middle class, promote economic development and generate sufficient government income.

By not commenting directly on the most logical solution, he undercuts his stated position that he is willing to make the tough decisions to solve problems. A sales tax would probably be hugely unpopular, and the governor would pay a political price for enacting one, after campaigning so vehemently against NPP proposals to enact one.

But not only has the NPP called for a consumption tax, but also so does an expensive study undertaken by the Calderón administration. Former Gov. Sila Calderón had said before the November election that the next governor had the "moral obligation" to enact the consumption tax and other measures outlined in the $4 million report.

Also, although the governor outlined modest improvements in the island school system -- improving standardized test scores by 20 percent and reducing the student drop-out rate to 30 percent ˆ neither Acevedo Vilá nor his Education secretary in comments to reporters discussing the address mentioned another multimillion study commissioned by Calderón that called for a complete reengineering of the bloated school bureaucracy. Instead, legislation was proposed to cut down on teacher vacancies and student dropouts.

Questions did not only linger over how the new administration would confront the budget gap, and put the commonwealth on a better financial footing over the long haul, but on how the administration would pay for the list of initiatives Acevedo Vilá ticked off in the address.

Besides increased investment in education, the administration is promising to modernize Puerto Rico’s law enforcement agencies, offer millions in incentives to small business and undertake huge infrastructure projects, like the megaport in Ponce, a redevelopment of Roosevelt Roads naval base and an expansion of the Urban Train.

Much of the investment, according to La Fortaleza economic advisors, is expected to come from the private sector. But the investment climate is not so rosy to believe it will be easy to make happen.

Just this week, Hewlett Packard announced it was firing hundreds of workers in its Aguadilla plant and shifting a production line to Asia. Two days later, a local supplier to HP said it would be forced to lay off scores of workers because of the lost contract.

If Wednesday evening‚s address was meant as a curtain raiser for his budget message next week, Acevedo Vilá accomplished his goal. In his next speech, he will have to begin answering some of the unanswered questions surrounding the direction in which he wants to take the commonwealth government.

John Marino, Managing Editor of The San Juan Star, writes the weekly Puerto Rico Report column for the Puerto Rico Herald. He can be reached directly at: Marino@coqui.net

Self-Determination Legislation | Puerto Rico Herald Home
Newsstand | Puerto Rico | U.S. Government | Archives
Search | Mailing List | Contact Us | Feedback