Bhatia Rushes to Press on Action by Committee on which Fortuno Serves... Bhatia Thinks He Is News... Acevedo Administration Promotes Federal Tax Loophole... Senate Committee Votes $39.7 Million for Puerto Rico Water Projects

June 24, 2005
Copyright © 2005 THE PUERTO RICO HERALD. All Rights Reserved.

. ..

Bhatia Rushes to Press on Action by Committee on which Fortuno Serves

Puerto Rico’s 3.9 million residents are represented in their national government by a sole "resident commissioner" who has a seat in the lower house if its legislature but a vote only in a couple of that house’s committees. If the territory were a State of the U.S., Puerto Ricans would be represented by six members of the House of Representatives and two members of the upper house, the Senate, all with full voting power and serving on many committees, if not all committees in the case of the House of Representatives. Puerto Ricans would also have eight votes in the election of the president and the vice president of the executive branch of the federal government.

Because Puerto Ricans are so underrepresented in their national government, the Commonwealth’s governor spends an estimated six times as much as any State governor on Washington representatives -- even though the territory’s average income level is less than half that of any State.

One would think that the additional resources would be devoted to supplementing the work of the resident commissioner, focusing on the Senate and the executive branch and on House committees on which the resident commissioner does not serve.

But Wednesday, the lead representative in the nation’s capital of Governor Anibal Acevedo Vila ("commonwealth" party/D) provided news reporters with a stark example of duplication of resources and playing politics instead.

The gamesmanship was demonstrated by Puerto Rico Federal Affairs Administration (PRFAA) Director Eduardo Bhatia by issuing a news release regarding a major bill to authorize the U.S. Army’s Corps of Engineers to conduct river and harbor improvement projects.

The bill was approved Wednesday by the House Committee on Transportation and Infrastructure. It originated in the Subcommittee on Water Resources and Environment.

Puerto Rico’s resident commissioner, Luis Fortuno (statehood/R), is a member of both the committee and the subcommittee. He could not only handle the bill but handle the release of news on it. But Bhatia rushed out his release on the bill in an effort to suggest that he and Acevedo were due the primary credit for provisions that would benefit Puerto Rico.

Why did Bhatia rush to the press? The Acevedo aide was defeated for mayor of San Juan in the last two elections in Puerto Rico after serving one term in the territorial Senate and he is widely expected to be the "commonwealth’ party’s candidate for resident commissioner in the next election.

A major provision of the bill would give preliminary approval to a federal contribution of $85 million to improve the Martin Pena Canal in San Juan, primarily through dredging. The provision directs the secretary of the Army to review a territorial plan for the flood protection and environmental restoration work. It gives preliminary approval for the Corps of Engineers to conduct the work if the Army determines the plan to be feasible and to meet federal standards.

The $45 million balance of the project’s total $130 million cost would have to come from the Commonwealth. The $85 million in federal spending would also need to be contained in a separate appropriations law.

Bhatia said that $130 million project would be just the first phase of the work. Additional phases would improve housing and transportation facilities in the low-income area, and decontaminate the lagoon in the area.

The Acevedo aide also said the project was his boss’ initiative and that Fortuno merely supported it.

In his rush to the press, Bhatia overlooked another provision of the bill that would benefit the territory. This provision would exempt harbor and navigation projects in Puerto Rico studied by the secretary of the Army from a requirement that harbor projects the Army recommends to Congress for funding be "justified solely by national economic benefits."

The exemption would also apply to three of the U.S.’ four other populated territories -- American Samoa, Guam, and the Northern Mariana Islands - - and to communities in States at least 70 miles from ports accessible by highways or railroads.

Bhatia did announce one other provision of the bill that would benefit Puerto Rico: an authorization for an appropriation of funds in a subsequent bill to control flooding and improve the quality of the water of the Valenciano River.

How was Bhatia able to announce the news so quickly? The bill’s primary sponsor and the chairman of the subcommittee is one of Acevedo’s closest allies in Congress: Representative John Duncan, Jr. (R-TN). The conservative Duncan is an opponent of statehood for the territory.

Bhatia Thinks He Is News

PRFAA Director Bhatia June 16th issued a "news" release that simply exemplified his view that he is news.

The release concerned a meeting with 25 high school and college educators from Puerto Rico in Washington for one month internships in congressional offices.

There was no news in the news release other than the fact that the meeting was held -- which is not news. Further, neither the educators nor the members of Congress for whom they are working were mentioned.

Instead, Bhatia tried to suggest that he was due credit for the creation of the internship program when he served in the Senate in 1997.

The suggestion was humorous because the program is named for Pilar Barbosa, a statehood activist who was the daughter of the founder of the territory’s statehood movement. Bhatia: denies the fact that Puerto Rico is a territory in terms of its political status; contends that it is a "commonwealth" instead -- although there is no such status; and asserts that under "commonwealth" Puerto Rico can obtain national government powers, such as the powers to determine the application of federal laws and to enter into agreements with foreign countries that require national sovereignty -- all while being granted new federal assistance as well as all current aid to Puerto Ricans and U.S. citizenship.

Bhatia’s high opinion of his own importance is reflected in an explanatory sentence he has added to most PRFAA news releases. It inaccurately says that he "represents the Commonwealth of Puerto Rico in the United States". It also says that he is Governor Acevedo’s "main adviser … on matters of interest to Puerto Rico in the United States."

Bhatia may be Acevedo’s main adviser on matters in the U.S. but he only represents the governor in the States and not the Government of Puerto Rico or Puerto Rico as whole entities. PRFAA is an arm of the governor. The Commonwealth’s principal policy-making body, its legislature, does not consider Bhatia the representative of the Government of Puerto Rico or of the territory. Further, federal law provides that the resident commissioner is Puerto Rico’s official representative to the federal government.

Acevedo Administration Promotes Federal Tax Loophole

Governor Acevedo’s administration is promoting a federal tax loophole and is providing manufacturers in the States with misleading information in an effort to lure them to the territory.

The Internet Website of the Puerto Rico Industrial Development Company (PRIDCO) prominently claims that the companies will enjoy “No Federal Income Taxation” if they establish operations in the territory. It encourages them to operate a “Controlled Foreign Corporation” (CFC) in Puerto Rico, saying that “Profits from sales to the US mainland are free from U.S. taxation.”

In fact, CFC income is taxed by the federal government when it is ‘repatriated’ to parent companies in the States. Moreover, operating CFCs in Puerto Rico avoids the intent of a 1996 federal law.

The law ended credits that could be taken against taxes otherwise due on income from manufacturing in Puerto Rico. A controversial credit provided by federal Internal Revenue Code Section 936 has equaled 40% of the taxes due on income attributed to the territory. A non-controversial credit provided by IRC Sec. 30A has cut tax bills for wages and local taxes paid in Puerto Rico and investments made there. The credits were limited to existing users in 1996 and are totally repealed effective the end of this year.

The law intended that companies using the credits as of 1996 would pay a portion of the taxes that companies manufacturing in the States pay through the end of this year and that they pay equal taxes as of next year. New operations were to pay taxes on an equal basis with companies manufacturing in the States.

Operating CFCs in Puerto Rico has enabled companies to avoid the taxation intended by the 1996 law. (Further, most companies operating CFCs in Puerto Rico have established the subsidiaries in foreign tax havens to avoid Commonwealth as well as federal taxation.)

The tax avoidance is an issue that the U.S. Senate Committee on Finance’s chairman and ranking minority member have asked the Congress’ Government Accountability Office to report on in a study of Puerto Rico federal tax and social program issues that is expected to provide the basis for legislation next year.

The PRIDCO Website uses particularly imprudent language to promote the territory as a location for manufacturing by companies in the States. It contains as a slogan, “The advantages of going offshore” at a time when there is considerable movement among federal policymakers for curbing tax benefits for companies “going offshore.”

The website also claims “The Lowest effective corporate income tax without leaving the U.S.”, an “unparalleled value that no other location can match.” The Congress’ Joint Committee on Taxation staff has said that the Sec. 936 credit was ended because it was unfair to the States and companies operating in them to have much lower tax rates for income from Puerto Rico. Additionally, several Senate Finance Committee members last year gave the same reason for rejecting a proposal by then Puerto Rico Governor Sila Calderon (“commonwealth”) for a new tax exemption for income from manufacturing in the territory.

Senate Committee Votes $39.7 Million for Puerto Rico Water Projects

The Senate Committee on Appropriations late Thursday released a report on its approval of legislation that would provide $39.7 million for five water projects in Puerto Rico.

The amount is $100,000 less than would be appropriated by the House of Representatives-passed Energy and Water Appropriations bill for federal fiscal year 2006, which begins October 1st. It is also $100,000 more than was proposed by the Bush Administration.

Like the House-passed bill and the President’s budget request, the Senate bill would appropriate $20 million to control flooding by the Puerto Nuevo River and $14 million to control flooding by the Portugues and Bucana Rivers. There was also agreement between the Bush Administration, the House, and the Senate committee on spending $1.8 million for dredging the San Juan harbor.

Like the Bush Administration, the Senate committee would spend $3.8 million to control flooding by the Areceibo River. The House approved $4 million for that flood control project.

The Senate committee bill would also appropriate $100,000 to study ways of controlling flooding by the Guyanes River in Yabucoa. The $100,000 was not proposed by the Bush Administration and is not in the House-passed bill.

If the Senate passes its committee’s bill without changes regarding the Puerto Rico provisions, the minor differences between the Senate and House bills would be resolved through a ‘conference committee’ of representatives of both houses of the Congress.

The projects would be conducted by the Corps of Engineers.

In another report released by the Senate Appropriations Committee late Thursday, it was estimated that the federal government will give Puerto Rico $97,815,000 in collections of federal customs duties during fiscal year 2006.

The amount would represent an increase from an estimated $89 million this fiscal year.

The federal government gives the Government of Puerto Rico its collections of duties on products brought into the territory less the cost of collecting the duties. It does not grant States the revenue.

The grant was originally enacted into federal law just a few years after the United States took Puerto Rico from Spain to provide a source of funding for the federal governing of the territory. In recent decades at least, federal officials have not reconsidered the purpose of the grant.

The "Washington Update" appears weekly.

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