Fortuno Acts To Correct Manufacturing Tax Mistake By His Predecessor… Ft. Buchanan Gets A Boost Despite Ire Over Breaking Of Vieques Accord… Fortuno Proposes New National Enterprise Zone System… El Yunque Protection Bill Progresses

May 13, 2005
Copyright © 2005 THE PUERTO RICO HERALD. All Rights Reserved.

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Fortuno Acts to Correct Manufacturing Tax Mistake by his Predecessor

Puerto Rico’s Resident Commissioner in the States, Luis Fortuno (statehood/R), has introduced a bill to fix one of the major economic blunders committed by his predecessor, now Governor Anibal Acevedo Vila ("commonwealth"/D) while Acevedo was in the U.S. House of Representatives.

The bill would include income that companies based in the States earn from manufacturing in Puerto Rico in a nine percent tax cut for income from manufacturing in the U.S. that was enacted into law last year.

The law was designed to provide an advantage -- and an incentive -- for manufacturing in U.S. areas over foreign locations.

Income from manufacturing in Puerto Rico was included in the Senate version of the legislation through an amendment by Senator John Kerry (MA), the Democratic presidential nominee, and supported by the Chairman and the Ranking Minority Member of the Senate Finance Committee, Charles Grassley (R-IA) and Max Baucus (D-MT) respectively. It had not been included in the initial version of the bill.

When Kerry’s amendment was approved by the Finance Committee, however, Acevedo fumed, "That’s not what we want!"

The inclusion of income from Puerto Rico in the tax cut was then dropped from the final version of the legislation by a ‘conference committee’ of representatives of the Senate and the House. The conference committee worked months to craft a final version of the legislation.

Acevedo requested re-inclusion of income from Puerto Rico in the tax cut on the literal eve of the public release of the conference committee agreement. He said he made the request at the urging of the Coca-Cola Company.

Exclusion of income from Puerto Rico from the tax cut has resulted in the federal tax rate on income from manufacturing in Puerto Rico being higher than the rate on manufacturing income from the States for the first time since at least 1921. It is a blow to Puerto Rico’s economy, which is 42 percent based on manufacturing -- twice the percentage in the nation as a whole.

Acevedo probably initially rejected the inclusion of income from Puerto Rico in the tax cut because he wanted an 85-100 percent tax exemption on income from manufacturing in Puerto Rico instead. The Senate Finance Committee formally rejected that proposal for the second time at the same time that it approved the nine percent manufacturing tax cut. The rejection culminated a three-year series of federal rejections of the 85-100 percent tax exemption advocated by Acevedo and his predecessor and mentor, then Governor Sila Calderon.

They advocated the Internal Revenue Code Section 956 amendment tax exemption as a replacement to a 40 percent tax credit for manufacturing income from Puerto Rico. A 1996 law ends the IRC Sec. 936 credit at the end of this year.

The law also this year ends an alternative tax credit for capital investments, wages, and local taxes that manufacturers based in the States pay in Puerto Rico. But Calderon and Acevedo opposed congressional efforts to extend the Sec. 30A credit.

Regarding the nine percent tax cut, Acevedo may have also been miffed that the proposal was sponsored by Kerry, whom he regarded as being too friendly with leaders of Puerto Rico’s statehood party. In fact, Kerry declined to take sides between Puerto Rico’s local political parties and favored Puerto Ricans choosing the territory’s future political status from among all of its options -- independence, nationhood in a terminable association with the U.S., and continued territory status as well as U.S. statehood.

Ft. Buchanan Gets a Boost Despite Ire Over Breaking of Vieques Accord

The House Armed Services Readiness Subcommittee agreed Thursday to permit some improvements to the Army’s Fort Buchanan in the San Juan metropolitan area.

The action partially repealed a moratorium on improvements to the base related to the closure of the Navy’s Atlantic Fleet Weapons Training Facility which was centered on Vieques, PR.

The approval also increased the chances of Ft. Buchanan surviving a federal effort this year to reduce nearly a fifth of the U.S. military’s base capacity. A major development in the effort is scheduled to occur Friday morning when Defense Secretary Donald Rumsfeld releases his department’s proposed base closure list.

Ft. Buchanan was on a preliminary version of the list. The final Defense Department list will be refined by a commission designated by leaders of the Congress and the president. Its decisions, due September 8th, are to be approved or disapproved by President Bush by September 23rd. The Congress will then have 45 days to reject the recommendations or they automatically take effect. Despite the presidential and congressional roles in the process, the Defense Department’s recommendations are expected to carry great weight and the commission’s decision is expected to be the final word on the matter.

The subcommittee did not lift the ban to the extent proposed by the Defense Department and sought by Puerto Rico officials. But more important than the extent to which the subcommittee agreed to lift the ban was the fact that it agreed to lift it at all. A willingness to have any improvements made demonstrates that the subcommittee sees a future for the base as a military facility.

The moratorium was originally enacted into law in 2000 so that the activities conducted at Ft. Buchanan in an area of relatively expensive land could be relocated to the Roosevelt Roads naval base in the less expensive area of Ceiba, PR if the Vieques range closed. The closure would have freed up facilities at Roosevelt Roads.

The 2000 law largely approved an agreement regarding the Vieques range reached between then Governor (and now Senator) Pedro Rossello (statehood/D), then President Clinton, and the U.S. military. It immediately ended training with live ordnance at Vieques and it provided for a referendum on the island in 2001 that was expected to end training with non-explosives May 1, 2003.

Rossello’s replacement, Governor Calderon, however, denied the existence of the agreement, broke its terms and, with then Resident Commissioner Acevedo, lobbied for an end to training with non-explosives in 2001.

The lobbying failed to end the training before May 1, 2003 but the Navy decided to close Roosevelt Roads in addition to the Vieques range. Calderon’s actions convinced the Navy that it could not rely upon the commitments of the Commonwealth government and that Puerto Rico was not a hospitable environment for its operations.

The environment created by Calderon also helped convince the Army’s Southern Command to move from Ft. Buchanan to Texas, just a few years after it had been brought to Ft. Buchanan by Clinton and Rossello. The location of a major Army command at Ft. Buchanan gave it an important active military mission that would likely have guaranteed it to remain open through a base closure effort.

Readiness Subcommittee Chairman Joel Hefley (R-CO) said Tuesday that the moratorium -- which was re-enacted into law in 2001 in response to Calderon and Acevedo lobbying against the 2000 Vieques agreement -- has been left in place because of "the events that culminated in the closing of Vieques," referring to the anti-Vieques agreement efforts of Calderon and others.

The subcommittee chairman credited Resident Commissioner Fortuno for the partial lifting of the ban. Fortuno has additionally won support for easing the freeze from House Armed Services Committee Chairman Duncan Hunter (R-CA), who, like Helfley, was upset by Calderon’s breaking of the federal-Commonwealth Vieques agreement.

Informed sources indicate that the key congressional decision-maker on the moratorium -- author Senator James Inhofe (R-OK), the Senate’s most vocal critic of Calderon’s Vieques actions -- has said he will not stand in the way of the repeal of a provision that has outlived its usefulness.

Inhofe’s counterpart as the House member most upset by Calderon’s breaking of the Vieques agreement, former U.S. Representative James Hansen is a member of the nine member commission that will refine the Defense Department’s base closure list.

Hefley’s statements directly contradicted the latest criticism of Fortuno by the head of Governor Acevedo’s offices in the States, Eduardo Bhatia. Bhatia had said that Fortuno was wrong to link the continuation of the moratorium to Calderon’s anti-Vieques range efforts.

A study commissioned by Calderon on the possibility of Ft. Buchanan remaining open criticized her administration for not making an adequate effort to prevent the base from being closed. Communities across the nation have been engaging in major campaigns to keep bases in operation because of the economic benefits that the bases generate.

The moratorium has held up more than $100 million in improvements to Ft. Buchanan. The partial lifting would permit at least a third of 28 projects that were put on hold to go forward.

The improvements will help transform Ft. Buchanan from an active Army base to one primarily serving the Army Reserves, according to Fortuno. It is hoped that the Reserve function, along with the base being the only Army facility in the Caribbean and the bilingual nature of Army reservists in Puerto Rico, will be enough military justification for the base to survive the base closing round.

It is not clear whether the subcommittee’s language would permit the Puerto Rico National Guard to relocate to Ft. Buchanan, as it hopes to however.

The Ft. Buchanan language was contained in a bill that would authorize spending by the Defense Department and related agencies for fiscal year 2006, beginning October 1st.

Fortuno Proposes New National Enterprise Zone System

Resident Commissioner Fortuno has proposed special tax benefits for impoverished communities across the nation – including Puerto Rico.

The communities would have to have more than 10,000 residents, a poverty rate twice the national average, a median household income less than 60 percent of the national median, and an unemployment rate two and a half times the national average.

The National Enterprise Zones could not be a part of existing Empowerment Zones, Enterprise Communities, Rural Development Investment Areas, or the District of Columbia Enterprise Zone.

The proposal is tailor-made for Puerto Rico. Fortuno has previously floated the idea as a replacement for the expiring IRC Sec. 936 credit.

Joining Fortuno in sponsoring the bill was Rep. Paul Ryan (R-WI), a member of the Ways and Means Committee to which the bill was referred. Ryan is also a member of the Congress’ Joint Economic Committee and of the House’s Budget Committee.

El Yunque Protection Bill Progresses

The House Forests and Forest Health Subcommittee held a hearing Wednesday on Resident Commissioner Fortuno’s bill to designate 10,000 acres of the Caribbean ("El Yunque") National Forest as a "Wilderness Area" -- protecting it from almost all uses.

A ‘companion’ bill introduced by Senators Hillary Rodham Clinton and Chares Schumer, both Democrats from New York, has already been approved by the Senate Energy and Natural Resources Committee.

The House subcommittee is expected to approve the bill next week.

All of the testimony in Wednesday’s hearing was favorable. Among the witnesses were Puerto Rico Senate Federal Affairs Committee Chairman Jose Garriga Pico and House of Representatives Natural Resources, Conservation, and the Environment Chairman Jose Rivera Guerra, both members of the statehood party.

Fortuno has gotten 15 other House Members to co-sponsor the bill. They include the number three leader of the House, Majority Whip Roy Blunt (R-MO) and House Democratic Caucus Chairman Robert Menendez (D-NJ).

This is the ninth year that Puerto Rico resident commissioners have tried to get the bill approved. It has progressed in previous Congresses but never passed both houses of a Congress.

Protective status for the overall forest dates to 1824 under a Spanish royal proclamation. It has more species of trees than any other forest in the U.S. National Forest System – 240. Its watersheds provide water to more than 800,000 Puerto Ricans and it has almost one million visitors a year. The forest is also home to the endangered Puerto Rican Parrot.

The "Washington Update" appears weekly.

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