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Conference committee to finalize the budget

Differences between House and Senate force final approval of budget on the committee; governor’s veto remains a possibility


June 30, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

The pressure of approving the budget before the established deadlines forced the Legislature into marathon sessions, with some members of the body and their consultants staying in their offices overnight. The recent downgrade of the Commonwealth’s general-obligation bonds, which prompted ratings agencies to pinpoint the massive government spending and ballooning deficit as dangerous factors for the Commonwealth’s credit quality and the island’s economy, seemed to add pressure to the budget-approval process. The political battles between the executive and legislative branches also brought the tension to a new high, making it almost obvious the debate over the budget would stretch until the last-feasible minute.

The first member of the Legislature to announce the budget that would be approved by the legislative branch was former governor Sen. Pedro J. Rosselló, during a televised speech in which he stated the budget for fiscal 2006 would be $9.211 billion. That represents $473 million less than the $9.684 billion proposed by Gov. Aníbal Acevedo Vilá and $357 million more than the running budget for fiscal 2005. Rosselló made clear reference to the source of the current economic situation in Puerto Rico. "We will approve a budget that is conscious of the economic disaster that was unleashed during the last years because of the Calderón-Acevedo Vilá administration and that will protect you from the intention of balancing a deficient budget on your backs," he stated during the speech.

The former governor also announced to the public that the Legislature wouldn’t approve the proposed elimination of exemptions for excise taxes on food, medicines, and other basic items. That measure would have brought in $639 million in revenue.

As opposed to the 20% tax on capital gains Gov. Acevedo Vilá proposed, Rosselló stated the tax increment would go from 5% to 12.5% for individuals and 20% only for corporations. In reference to the 4% tax that had been proposed for the banking sector, Rosselló said the tax would be 1% for banks and other financial institutions. The proposed increase in registration fees for luxury vehicles would be cut to a lower percentage, although a specific one wasn’t mentioned. The registration fees would have a maximum of $1,000.

Rosselló emphasized the necessary funds for payroll would be provided. He added that superfluous government spending would be cut in the areas of advertising, public relations, lobbying firms, professional services, transportation, and other operational costs, although the specific amounts to be cut weren’t announced.

Ileana Fas Pacheco, director of the Office of Management & Budget and a member of the governor’s cabinet, described the probability of the governor exercising his veto rights as "highly probable."

On Friday, the House of Representatives approved the $9.211 billion budget. The tax measures approved by the House were estimated to bring in revenue totaling $436 million which, when added to the $8.775 billion the Treasury Department estimates would be the tax revenue during fiscal 2006, equals the $9.211 billion that was approved for the budget.

Among the tax measures approved are a $10 fee for one-night stays in hotels, which would bring in $17 million; the capital-gains-tax increase, which would bring in $40 million; the increase in registration fees, which would bring $17 million; the 2.5% increase in taxes for corporations estimated to bring in $118 million; a 2% tax on controlled-foreign corporations, which would bring in $79 million; $100 million from the approval of interest-rate swaps on certain types of government debt; $50 million from the emergency fund; and $15 million from a tax on premiums.

Governor promises to veto

The governor’s reaction to the approval was far from positive, publicly stating the approved budget didn’t even qualify as a draft and he wouldn’t hesitate to veto the budget if the Senate didn’t fix it. The Senate, however, approved the budget, which was said to have a deficit of $240,000, with certain amendments, forcing the decision to pass to the Conference Committee. The committee, which is composed of members of both the House and the Senate, is meant to work out the differences between both legislative bodies to present a budget that is unanimously approved.

Gustavo Vélez, adviser to the governor on economic development and labor issues, confirmed Acevedo Vilá would rather run with the current budget than approve the proposed $9.211 billion, simply because it would be better to go forward with a budget that is already clear, rather than with one that is, in his view, uncertain. Vélez indicated the governor’s original budget, which totaled $9.684 billion, was designed to attend to education, security, and economic development, areas he believes aren’t covered in the legislative budget. The governor’s budget, he added, was designed for a two-year transition period, which required the resources and funds he indicated in the original budget.

The adviser also pointed out that the tax measures approved in the House remain vague in terms of revenue that potentially can be collected from those sources. In order for the governor not to veto the proposed budget, Vélez indicated the Conference Committee would have to attempt to bring the budget as close as possible to the one originally presented. Vélez added that the budget also would have to safeguard the necessary funds to prevent massive job cuts in government payroll.

As of closing Monday, the members of the committee were yet to be officially confirmed. However, CARIBBEAN BUSINESS sources indicated Kenneth McClintock, Migdalia Padilla, Lucy Arce, Carlos Díaz, Sixto Hernández, and María de Lourdes Santiago would represent the Senate on the committee, and Ángel Pérez would preside over the House representation. The Conference Committee has until June 30 to present the governor with a budget proposal for his ultimate approval. If one isn’t approved by then, the current $8.554 billion budget will run once again until an alternative budget eventually is approved.

This Caribbean Business article appears courtesy of Casiano Communications.
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