Friday, September 22, 2017

[Column] Two self-imposed handicaps



By on August 10, 2017

The Government of Puerto Rico is engaged in a battle to reverse the economic decline with a great handicap: It has one arm tied behind its back.

It is unnecessary because it is self-imposed. Here are two examples.

The confrontation between the Government and the Promesa Fiscal Board over the furlough of government employees is a confrontation over the fundamental issue of power on internal matters.

Where is it? In the Government of Puerto Rico or in the U.S. Government?

“The Board does not have the power to impose its recommendation,” cried Governor Ricardo Rosselló’s representative, Christian Sobrino, at the Board members. The Governor, in a TV speech declaring that he will not implement the furlough, reiterated that the Board “does not have the faculty to unilaterally impose” its recommendations.

So the Board has decided to sue the island government in the federal courts to force it to comply.

According to some legal experts, the government has a strong juridical argument.

The U.S. Supreme Court’s recent  Sánchez Valle decision states: “As this Court has recognized, Congress in 1952 ‘relinquished its control over the Commonwealth’s local affairs granting Puerto Rico a measure of autonomy comparable to that possessed by a state…’”

But the Rosselló government will not use Sánchez Valle. It contradicts the core of his and his party’s status ideology: precisely that Congress does have unilateral power over Puerto Rico, that Puerto Rico is still a U.S. “territory,” a “colony.” That Commonwealth status does not even exist.

Obviously, Sánchez Valle gives Rosselló the strongest argument: that even if Congress meant to give the Fiscal Board the power, it couldn’t. But not using the decision, in this issue of fundamental importance to Puerto Rico, the government has tied one arm behind its back.

But let’s go deeper into this.

GDB President Christian Sobrino, the governor’s representative to the fiscal oversight board for Puerto Rico (CB/Juan J. Rodríguez)

In the end, the Board, members of Congress, the island’s political leaders, every Puerto Rican, wants the same thing: to end the economic and fiscal crisis.

And this brings us to an even more important example of how the Puerto Rico government has tied one arm behind its back.

In 2016, after Congress created the Fiscal Board, there was a big push in Congress to approve an amendment to Section 245a of the U.S. Internal Revenue Code as the keystone of proposals to revive Puerto Rico’s economic growth.

Section 245a was a substitute to Section 936 to restore the powerful tax incentive Puerto Rico lost when 936 was eliminated, triggering the economic crisis. The 254a proposal was carefully drafted to make two points – that it would again spark economic growth and that it would avoid the alleged “abuses” of 936.

By September of 2016, the Puerto Rican private sector had a small army of executives, economists, lawyers lobbying both chambers of Congress, President Obama administration officials, taking the proposals to the eight Senators and Representatives that made up the Task Force on Economic Growth in Puerto Rico.

Meanwhile, political leaders were also lobbying in Washington, meeting with House Speaker Paul Ryan and other congressional leaders. Gov. Alejandro García Padilla, followed by the Popular Democratic Party candidate for governor, David Bernier, and for resident commissioner, Héctor Ferrer, joined the lobbying.

But there was a problem. Time was running out. Everyone expected the New Progressive Party would win the November elections.

Now, there has always been in the New Progressive Party (NPP) a “moderate” and a “militant” statehood wing. The “moderate” wing was generally not willing to sacrifice the economy for the statehood “ideal.” Luis A. Ferré had bucked his own party on economic issues and in the 1970s had gone to Congress to support 936. NPP Resident Commissioner Pedro Pierluisi supported Section 245a.

But in the 2016 NPP gubernatorial primaries, Pierluisi lost to the “militant” wing led by Ricardo Rosselló.

Pedro Pierluisi and Ricardo Rosselló  (Caribbean Business)

In September, NPP vice president and candidate for resident commissioner, Jenniffer González, after doing her own lobbying, including with House Speaker Ryan, told the press that she was confident Section 245a “will not fly,” that Congress would not approve “incentive measures that follow the model of Section 936.”

One can debate whether Section 245a had any realistic opportunity “to fly.” Tax collectors never like tax exemption incentives, seen as “loopholes,” and the U.S. Treasury is no different.

For this reason 245a needed strong Government of Puerto Rico support. But after the November elections, there was and is an ironclad litmus test in its economic policy. The government will oppose anything that is “incompatible with statehood.”

This is fundamental. As a Commonwealth, Puerto Rico is considered by the U.S. Treasury “foreign” for tax purposes. That’s why the island is exempt from federal taxes, the one big competitive advantage Puerto Rico has over the states in promoting investment. This is what made 936 so powerful an incentive, and made Section 254a the best hope that Puerto Rico will revive economic growth.

So we see the magnitude of this self-imposed handicap. As the government desperately seeks ways to end the economic crisis, the statehood compatibility litmus test denies Puerto Rico precisely the competitive incentive.

Not only Congress, but the island’s private sector, are guided by the Puerto Rico government. With the statehood militants in power, “foreign jurisdiction” incentives, such as Section 245a – not only the best hope, but the only hope that Puerto Rico will finally get the economy growing again – don’t have a chance.

—A.W. Maldonado was a reporter and columnist for The San Juan Star, executive editor of El Mundo, and editor and publisher of El Reportero.

 

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