Private Sector Coalition wants federal jurisdiction over electric sector
SAN JUAN – The Private Sector Coalition is asking for the federal government to extend its jurisdiction over the island’s power sector as part of an effort to introduce private competition into the generation and transmission of electricity.
The Coalition, which comprises more than 20 business groups including the Manufacturers Association, the Chamber of Commerce, Puerto Rico Products Association, the Puerto Rico Restaurant Association and the Puerto Rico Hospital Association is in Washington this week to lobby members of the Task Force on Economic Growth for Puerto Rico in favor of its economic development proposals.
“We believe the best option for addressing Puerto Rico’s electric sector woes while stimulating private investment and competition is to formalize jurisdiction of the Federal Energy Regulatory Commission’s (FERC) over the Puerto Rico electric sector. In order to facilitate the implementation of widely known competitive policies and avoid the legal challenges and associated government bureaucracy inherent to the Puerto Rico Electric Power Authority (Prepa). Congress must enact legislation to accomplish this task,” the Coalition wrote to Congress.
Rodrigo Masses, president of the Manufacturers Association, said the island needs to produce at least $6 billion to $7 billion. All of the economic efforts are aimed at achieving that, including lowering energy costs. Asked by Caribbean Business, Masses said their proposals do not dismiss the possibility of the FERC taking over control of the energy sector, which is currently a monopoly headed by Prepa.
Ramón Pérez Blanco, president of the P.R. Products Association, said they were meeting with more lawmakers including staffers of Sen. Marco Rubio and Senate Minority Leader Harry Reid, who is not a member of the Task Force. They noted that officials such as Republican Sen. Orrin Hatch, who is the Task Force’s chairman, are not meeting with anybody because they are waiting for the group’s first meeting.
Hatch is supposed to deliver by Sept. 15 initial recommendations on how to help Puerto Rico. The Task Force also includes as members Rep. Tom MacArthur, Rep. Sean Duffy, Rep. Nydia Velázquez, Washington Resident Commissioner Pedro Pierluisi, New Jersey Sen. Bob Menéndez and Sen. Bill Nelson.
One of the proposed initiatives involves tax incentives for manufacturing firms by changing the current federal tax code, which puts U.S. business at a disadvantage in today’s global economy. The proposal entails exempting 85% of dividend income from federal income tax and the remaining 15% to be taxed at 50% of the federal corporate income tax rate. The exempt income must be Puerto Rico source income.
“By approving the measure, the federal government would achieve the dual objective of stimulating the return of funds held abroad because of the attractive tax environment and, at the same time, stimulating investment in Puerto Rico in order to generate Puerto Rico source income. In order to implement the measure a number of sections of the Internal Revenue Code need to be amended, including Section 864, but also Sections 245, 901, 904 and 933A and 959,” the coalition said.
The key principles of the proposal are aimed at ensuring that it is not tainted with the corporate welfare stigma of Section 936 and providing for mandatory repatriation of trapped Puerto Rico source income and including strong base erosion rules.
While Chamber of Commerce officials told Caribbean Business last week that they had reservations with the proposal, President-Elect Alicia Lamboy said the organization was on board with the idea.
The group is proposing a payroll tax holiday which consists of a six-year, 50% reduction in the Social Security tax for workers, employers and the self-employed in Puerto Rico to raise the take-home pay of workers and reduce operating costs for businesses, thus helping to stabilize the island’s economy during the implementation of the fiscal adjustment program that the fiscal control board must move forward under the Puerto Rico Oversight, Management & Economic Stability Act.
The payroll tax holiday could put around $1 billion into the economy.
The Coalition is also asking the Task Force to promote the adoption of public policy at the federal level aimed at stimulating the development of the aerospace industry in Puerto Rico. The rationale for this is that locating new operations on the island will not only advance the local development objectives, but also benefit the defense establishment in the U.S. since Puerto Rico operations are highly cost effective.
Puerto Rico has an ample supply of highly competent engineers. Among the firms already established in Puerto Rico are Honeywell, Pratt & Whitney, Lockheed Martin, Hamilton Sundstrand, Axon Group, Lufthansa Technique and Florida Turbine. “We also note the many graduates of Puerto Rico’s engineering schools are now NASA engineers,” the Coalition said.
While Promesa allows for the island’s procurement to be carried out through the federal General Services Administration, the Coalition wants Congress to set aside for Puerto Rico a portion of the procurements by the federal government.
On the other hand, the Coalition is exploring reform or modification of the Jones Act to promote the free market and a more competitive environment for Puerto Rico.
As they have said before, the groups are also seeking parity in federal funds for health care.
In tandem, “we urge Congress to work with the Centers for Medicaid and Medicare Services (CMS) to reform the Wage Index and provide a proxy for the SSI that direct disparate treatment of Medicare reimbursements for our hospital, doctors and clinics. We question why SSI days have been used in the formula by CMS when residents of Puerto Rico are not eligible for SSI,” the Coalition said.
Hospital Association President Jaime Plá said the change in the wage index is needed so they can raise the salaries of health care workers.