[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
EXAMINING PROCEDURES REGARDING PUERTO RICO'S POLITICAL STATUS AND
ECONOMIC OUTLOOK
=======================================================================
OVERSIGHT HEARING
before the
SUBCOMMITTEE ON INDIAN, INSULAR AND
ALASKA NATIVE AFFAIRS
of the
COMMITTEE ON NATURAL RESOURCES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
Wednesday, June 24, 2015
__________
Serial No. 114-13
__________
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COMMITTEE ON NATURAL RESOURCES
ROB BISHOP, UT, Chairman
RAUL M. GRIJALVA, AZ, Ranking Democratic Member
Don Young, AK Grace F. Napolitano, CA
Louie Gohmert, TX Madeleine Z. Bordallo, GU
Doug Lamborn, CO Jim Costa, CA
Robert J. Wittman, VA Gregorio Kilili Camacho Sablan,
John Fleming, LA CNMI
Tom McClintock, CA Niki Tsongas, MA
Glenn Thompson, PA Pedro R. Pierluisi, PR
Cynthia M. Lummis, WY Jared Huffman, CA
Dan Benishek, MI Raul Ruiz, CA
Jeff Duncan, SC Alan S. Lowenthal, CA
Paul A. Gosar, AZ Matt Cartwright, PA
Raul R. Labrador, ID Donald S. Beyer, Jr., VA
Doug LaMalfa, CA Norma J. Torres, CA
Jeff Denham, CA Debbie Dingell, MI
Paul Cook, CA Ruben Gallego, AZ
Bruce Westerman, AR Lois Capps, CA
Garret Graves, LA Jared Polis, CO
Dan Newhouse, WA Vacancy
Ryan K. Zinke, MT
Jody B. Hice, GA
Aumua Amata Coleman Radewagen, AS
Thomas MacArthur, NJ
Alexander X. Mooney, WV
Cresent Hardy, NV
Vacancy
Jason Knox, Chief of Staff
Lisa Pittman, Chief Counsel
David Watkins, Democratic Staff Director
Sarah Parker, Democratic Deputy Chief Counsel
------
SUBCOMMITTEE ON INDIAN, INSULAR AND ALASKA NATIVE AFFAIRS
DON YOUNG, AK, Chairman
RAUL RUIZ, CA, Ranking Democratic Member
Dan Benishek, MI Madeleine Z. Bordallo, GU
Paul A. Gosar, AZ Gregorio Kilili Camacho Sablan,
Doug LaMalfa, CA CNMI
Jeff Denham, CA Pedro R. Pierluisi, PR
Paul Cook, CA Norma J. Torres, CA
Aumua Amata Coleman Radewagen, AS Raul M. Grijalva, AZ, ex officio
Rob Bishop, UT, ex officio
------
CONTENTS
----------
Page
Hearing held on Wednesday, June 24, 2015......................... 1
Statement of Members:
Grijalva, Hon. Raul M., a Representative in Congress from the
State of Arizona, Prepared statement of.................... 25
Sablan, Hon. Gregorio, a Delegate in Congress from the
Territory of the Northern Mariana Islands.................. 4
Prepared statement of.................................... 5
Young, Hon. Don, a Representative in Congress from the State
of Alaska.................................................. 1
Prepared statement of.................................... 3
Statement of Witnesses:
Barcelo, Carlos Romero, Former Governor of Puerto Rico 1977-
1985 (PNP), San Juan, Puerto Rico.......................... 30
Prepared statement of.................................... 33
Berrios, Ruben, Former Senator in the Puerto Rican Senate,
President of the Puerto Rico Independence Party (PIP), San
Juan, Puerto Rico.......................................... 15
Prepared statement of.................................... 17
Fortuno, Luis G., Former Governor of Puerto Rico, 2009-2011
(PNP), Washington, DC...................................... 35
Prepared statement of.................................... 37
Pierluisi, Pedro R., Resident Commissioner of Puerto Rico,
Presidente of New Progressive Part (PNP), Washington, DC... 6
Prepared statement of.................................... 8
Ramirez, Miriam J., M.D., Former Puerto Rico State Senator,
2001-2004 (PNP), Founder, Puerto Ricans in Civic Action,
Orlando, Florida........................................... 46
Prepared statement of.................................... 47
Rodriguez, Cesar R. Miranda, Attorney General of Puerto Rico,
Testifying on Behalf of Governor Alejandro Garcia Padilla,
San Juan, Puerto Rico...................................... 10
Prepared statement of.................................... 11
Soto, Carmen Yulin Cruz, Mayor of San Juan, 2013-Present
(PPD), San Juan, Puerto Rico............................... 44
Prepared statement of.................................... 45
Vila, Anibal Acevedo, Former Governor of Puerto Rico, 2005-
2009 (PPD), San Juan, Puerto Rico.......................... 40
Prepared statement of.................................... 41
Additional Materials Submitted for the Record:
List of documents submitted for the record retained in the
Committee's official files................................. 72
OVERSIGHT HEARING ON EXAMINING PROCEDURES
REGARDING PUERTO RICO'S POLITICAL STATUS
AND ECONOMIC OUTLOOK
----------
Wednesday, June 24, 2015
U.S. House of Representatives
Subcommittee on Indian, Insular and Alaska Native Affairs
Committee on Natural Resources
Washington, DC
----------
The subcommittee met, pursuant to notice, at 2:24 p.m., in
room 1324, Longworth House Office Building, Hon. Don Young
[Chairman of the Subcommittee] presiding.
Present: Representatives Young, Benishek, LaMalfa,
Radewagen; Ruiz, Bordallo, Sablan, Pierluisi, and Torres.
Also present: Representatives Serrano and Grijalva.
Mr. Young. The committee will come to order. I do apologize
for the delay. Strange as the Congress may be, we have burning
questions and we had to talk about the baseball game. They
already knew who won and who lost, but then it was beside the
point.
Anyway, the Subcommittee on Indian, Insular, and Alaska
Native Affairs will come to order. The subcommittee is meeting
today to hear testimony on the following oversight topic:
``Examining Procedures Regarding Puerto Rico's Political Status
and Economic Outlook.''
Under Rule 4(f), any oral statements on the hearing are
limited to the Chairman and the Ranking Minority Member, and
this allows us to hear from the witnesses. We do have two
panels here today. Therefore, I ask unanimous consent that all
Members' opening statements be made part of the hearing record
if they are submitted to the Subcommittee clerk by 5:00 p.m.
today, or at the close of the hearing, whichever comes first.
[No response.]
Mr. Young. Hearing no objections, so ordered.
I also ask unanimous consent that the gentleman from New
York, Mr. Serrano, be allowed to join us on the dais to be
recognized and participate in today's hearing.
[No response.]
Mr. Young. Hearing no objection, so ordered.
STATEMENT OF HON. DON YOUNG, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF ALASKA
Mr. Young. Some time around the turn of this last century,
over 100 years ago, John Green Brady, the fifth territorial
governor for the District of Alaska, before Alaska was even a
territory, was reflecting upon the vain struggle of Alaskans to
obtain more initial self-government. The struggle of those
Alaskans had lasted for nearly 40 years up to that point,
leaving Governor Brady to remark, ``We are graduates of the
school of patience.''
Even today the words of Governor Brady still ring true when
referring to American citizens who call the island of Puerto
Rico home.
While the plight of Alaska being charted from its humble
beginnings as a Department in 1867 to its progression as a
District, then as a Territory, then ultimately its admission as
the 49th state of the Union in 1959, the overall journey that
citizens had to endure lasted for roughly 92 years.
For the past 117 years, another clock has been keeping time
on the relationship between the United States and an exotic
land off its shores, that of the island of Puerto Rico. Since
1898, the United States of America has held in its possession
the island of Puerto Rico.
Since establishing self-governance with the passage of the
Federal Relations Act of 1950 and the ratification of the
Puerto Rican Constitution in 1952, the United States has
allowed Puerto Ricans to govern themselves on internal matters.
However, Congress has maintained plenary powers over the
islands through the territorial clauses of the U.S.
Constitution, Article IV, Section 3, Clause 2.
Today's hearing will aim to continue the discussion on the
issue of Puerto Rico's political status, an important
discussion given the current economic crisis the island faces
today.
For the last 8 years, the island's economy has been mired
by recession, a result of misguided management policies from
within the public utilities and irresponsible debt trading
practices.
As Puerto Rico struggles to solve an economic and financial
crisis that is causing a migration of residents off the island
to the mainland, Congress must consider how the island's
unresolved political status is related to its economic and
fiscal problems, and what legislative measures are necessary to
restore Puerto Rico's financial stability.
The discussion of political status for the island always
sparks lively debate from Puerto Rico and among my colleagues
here in Congress and on this committee. I anticipate the same
here today, and I welcome it; such spirited debate is healthy.
Holding hearings such as this will further the discussion
and drive the point home that Congress maintains its duty to
serve the Americans of the island, just as we do to the
Americans here on the mainland. We must show the 3.7 million
Americans living in Puerto Rico that although they may not have
voting representation in the House or the Senate, those of us
tending this Nation will hear them when they speak. It is our
duty and we honor that duty to listen today.
On a personal level, I have been involved in this project
since 1994. I believe very strongly, right up front with you,
in statehood. That is no hidden secret. But that is up to the
decision of the Puerto Rican people. But the status quo cannot
exist--the unfairness to Americans not being listened to by
this Congress, and I think the responsibility to the people of
Puerto Rico.
A little history about this. Puerto Rico was supposed to
become a state first, and Alaska slipped in. I apologize for
that. We did a good job.
[Laughter.]
Mr. Young. Then the next was supposed to be Puerto Rico,
and it became Hawaii. Puerto Rico is still waiting, 117 years
later, to be recognized with full rights, as Americans--not
being punished, not being set aside and have higher health
rates and, really, frankly, putting a great group of Americans
that fought in more wars per capita than any other group of
people from any other state.
It is my goal, and always has been, to make a decision. The
status quo today will not work. Some will disagree with me, and
I know that, and you have your right to that disagreement. But
I know what is occurring does not work. The out-migration of
what I call the more talented people in Puerto Rico into the
mainland is devastating. So, we have to figure something out in
this Congress, and my goal is--frankly, stir the pot up--to get
things moving.
I want to congratulate my Resident Commissioner, Mr.
Pierluisi. He has done an outstanding job presenting his points
of view. I admire his other piece of legislation, Chapter 9,
that we have to look at. Every other state has that right, only
Puerto Rico does not. And we will discuss that in this
legislation.
[The prepared statement of Mr. Young follows:]
Prepared Statement of the Hon. Don Young, Chairman, Subcommittee on
Indian, Insular, and Alaska Native Affairs
Sometime around the turn of the last century, over 100 years ago,
John Green Brady, the fifth territorial governor of the District of
Alaska, before Alaska was even a territory, was reflecting upon the
vain struggle of Alaskans to obtain more initial self-government.
The struggle of those Alaskans had lasted for nearly 40 years up to
that point, leaving Governor Brady to remark, ``We are graduates of the
school of patience.''
Even today the words of Governor Brady still ring true when
referring to the American citizens who call the island of Puerto Rico
home.
While the plight of Alaska can be charted from its humble
beginnings as a Department in 1867 to its progression as a District,
then to a Territory and then ultimately to its admission as the 49th
state of the Union in 1959, the overall journey its citizens had to
endure lasted for roughly 92 years. For the past 117 years, another
clock has been keeping time on the relationship between the United
States and an exotic land off its shores--that of the island of Puerto
Rico. Since 1898, the United States of America has held in its
possession the island of Puerto Rico.
Since establishing self-governance through the passage of the
Federal Relations Act of 1950 and the ratification of the Puerto Rican
Constitution in 1952, the United States has allowed Puerto Ricans to
govern themselves on internal matters; however, Congress has maintained
plenary powers over the island through the Territorial Clause of the
U.S. Constitution, Article IV, Section 3, Clause 2.
Today's hearing will aim to continue the discussion on the issue of
Puerto Rico's political status, an important discussion given the
current economic crisis the island finds itself in.
For the last 8 years, the island and its economy have been mired by
recession, a result of misguided management policies from within the
public utilities and irresponsible debt trading practices.
As Puerto Rico struggles to solve an economic and fiscal crisis
that is causing a migration of residents to the mainland, Congress must
consider how the island's unresolved political status is related to its
economic and fiscal troubles, and what legislative measures are
necessary to restore Puerto Rico's financial stability.
A discussion of political status for the island always sparks
lively debate from within Puerto Rico and among my colleagues here in
Congress and on the committee. I anticipate the same here today, and I
welcome it--such spirited debate is healthy.
Holding hearings such as this will further the discussion and drive
the point home that Congress maintains its duty to serve the Americans
of the island just as we do the Americans here on the mainland.
We must show the 3.7 million Americans living in Puerto Rico, from
San Juan to Guayama, that although they may not have voting
representation in the House or in the Senate, those of us attending
today's hearing still hear them when they speak. It is our duty and we
honor that duty here today.
______
Mr. Young. With that, I will recognize the Minority Member.
STATEMENT OF THE HON. GREGORIO SABLAN, A DELEGATE IN CONGRESS
FROM THE TERRITORY OF THE NORTHERN MARIANA ISLANDS
Mr. Sablan. Thank you very much, Mr. Chairman. And buenos
tardes, everyone. I apologize that it took me, from the
Northern Marianas, a little over 500 years before we--I got to
see my fellow people from Puerto Rico. At one time we all owed
allegiance to a queen. It has been a long time after that
allegiance to the queen that you became a part of the United
States.
I want to begin by welcoming the witnesses to the hearing,
particularly those who traveled from the Island of Puerto Rico
to be with us today. I also want to recognize my good friend
and colleague, Ms. Gutierrez from Illinois. And I think I saw
Ms. Nydia Velazquez here earlier.
I want to especially welcome the leaders of Puerto Rico's
three major political parties, as well as our former Natural
Resources Committee colleagues, Congressmen and former
governors, Luis Fortuno, Anibal Acevedo Vila, and Carlos Romero
Barcelo.
Today's hearing will examine the link between the current
economic conditions on Puerto Rico and the unresolved issue of
the island's political status. I believe such an examination is
fitting, given the severe fiscal difficulties the island is
facing.
Currently, the government of Puerto Rico is $73 billion in
debt, and there are real concerns that the central government,
or one of its instrumentalities, may soon default on its bond
payment.
I am from the Northern Mariana Islands, which is a
commonwealth that has a permanent relationship with the United
States. When Puerto Rico becomes a state, we are next in line,
because we start first with the commonwealths, and then we do
the others. That is a joke, OK? It is a joke. We have to
lighten up the room.
[Laughter.]
Mr. Sablan. But that makes sense. The commonwealth status
in the Marianas was derived from looking at the Puerto Rico
status model. Puerto Rico and the Northern Marianas have a long
history, like I have alluded earlier. We were a part of Spain,
just prior to the Spanish-American War.
But prior to the covenant approval between the United
States and the Northern Mariana Islands, the political status
commission had to decide the future political status for all
the people of the Northern Mariana Islands. And this was no
easy feat for a group of Pacific Islanders who had been
colonies for hundreds of years, and by an act of political
self-determination, we chose a permanent relationship with the
United States.
We also had a plebiscite to decide whether we wanted to
vote for commonwealth status or reject it with the caveat to
participate in the determination of an alternative future
political status. We had one. Puerto Rico will have five or six
to reach that decision.
I strongly believe that the people of Puerto Rico should
similarly be given the opportunity to exercise their right to
establish a permanent, unalterable relationship with the United
States, or to become an independent country, controlling their
own political and economic affairs.
Puerto Ricans have voted in at least five plebiscites since
they ratified their local constitution in 1952. The most recent
in 2012 saw statehood winning a majority for the first time. In
view of this result, which saw statehood receiving 62 percent
of the vote and the current status being rejected by 54 percent
of voters, my colleague, Congressman Pierluisi, introduced H.R.
727, the Puerto Rico Statehood Admission Process Act.
H.R. 727 would authorize a federally-sponsored vote to be
held in Puerto Rico by the end of 2017, with a ballot
containing a single question: ``Shall Puerto Rico be admitted
as a state of the United States'' ? As a co-sponsor of the
Puerto Rico Statehood Admission Act, I am persuaded that the
island's territorial status is a cause of its economic
conditions.
The unequal treatment in Federal funding currently
experienced by Puerto Rico would be transformed into billions
of dollars every year under statehood, which would be used to
bolster and transform the Puerto Rican local economy for the
people of Puerto Rico.
Puerto Rico's status is also the reason its municipalities,
such as the Puerto Rico Electric Power Authority, cannot adjust
their debts under Chapter 9 of the Federal Bankruptcy Code if
they become insolvent. States can choose to allow the
municipalities to file for protection under Chapter 9; however,
Puerto Rico's government was not authorized to permit its
municipalities to seek Chapter 9 bankruptcy relief when Chapter
9 was established by Congress in 1982.
Mr. Chairman, I look forward to working with you to pursue
a solution to the unfair and unequal situation that our fellow
Americans in Puerto Rico face. It is high time we reached a
consensus on a path forward for Puerto Rico to permanently
resolve their political status. I thank you, Mr. Chairman.
[The prepared statement of Mr. Sablan follows:]
Prepared Statement of the Hon. Gregorio Kilili Camacho Sablan, a
Delegate in Congress from the Territory of the Northern Mariana Islands
Thank you Mr. Chairman. I want to begin by welcoming the witnesses
to the hearing, particularly those who traveled from the island of
Puerto Rico to be with us today. I want to especially welcome the
leaders of Puerto Rico's three major political parties as well as our
former Natural Resources Committee colleagues, Congressmen and former
governors, Luis Fortuno, Anibal Acevedo Vila and Carlos Romero Barcelo.
Today's hearing will examine the link between the current economic
conditions on Puerto Rico and the unresolved issue of the island's
political status. I believe such an examination is fitting given the
severe fiscal difficulties the island is facing. Currently the
government of Puerto Rico is $73 billion in debt and there are real
concerns that the central government or one of its instrumentalities
may soon default on its bond payments.
I am from the Northern Mariana Islands, which is a Commonwealth
that has a permanent relationship with the United States. The
commonwealth status in the Marianas was derived from looking at Puerto
Rico's status. Puerto Rico and the Northern Mariana Islands have a long
history. We were a part of Spain just prior to the Spanish-American
War, but prior to the covenant approval between the United States and
the CNMI, the Political Status Commission had to decide the future
political status for all the people of the Northern Mariana Islands.
This was no easy feat for a group of Pacific Islanders who had been
colonies for hundreds of years, and by an act of political self-
determination, we chose a permanent relationship with the United
States. We also had a plebiscite to decide whether we wanted to vote
for commonwealth status or reject it with the caveat to participate in
the determination of an alternative future political status.
I strongly believe that the people of Puerto Rico should similarly
be given the opportunity to exercise their right to establish a
permanent unalterable relationship with the United States or to become
an independent country controlling their own political and economic
affairs.
Puerto Ricans have voted in at least five plebiscites since they
ratified their local constitution in 1952. The most recent in 2012, saw
statehood winning a majority for the first time. In view of this
result--which saw statehood receiving 62 percent of the vote and the
current status being rejected by 54 percent of voters--my colleague,
Congressman Pierluisi introduced H.R. 727, the Puerto Rico Statehood
Admission Process Act. H.R. 727 would authorize a federally-sponsored
vote to be held in Puerto Rico by the end of 2017, with the ballot
containing a single question: ``Shall Puerto Rico be admitted as a
state of the United States? '' As a co-sponsor of the Puerto Rico
Statehood Admission Act, I am persuaded that the island's territorial
status is a cause of its economic conditions.
The unequal treatment in Federal funding currently experienced by
Puerto Rico would be transformed into billions of dollars every year
under statehood which would be used to bolster and transform the Puerto
Rican local economy.
Puerto Rico's status is also the reason its ``municipalities''--
such as the Puerto Rico Electric Power Authority, (PREPA)--cannot
adjust their debts under Chapter 9 of the Federal Bankruptcy Code if
they become insolvent. States can choose to allow its municipalities to
file for protection under Chapter 9, however Puerto Rico's government
was not authorized to permit its municipalities to seek Chapter 9
bankruptcy relief when Chapter 9 was established by Congress in 1982.
Mr. Chairman, I look forward to working with you to pursue a
solution to the unfair and equal situation that our fellow Americans in
Puerto Rico face. It is high time that we reach a consensus on a path
forward for Puerto Rico to permanently resolve their political status.
Thank you.
______
Mr. Young. I thank the gentleman. And now, I believe our
first panel has been seated.
We have the Honorable Pedro Pierluisi, Resident
Commissioner; Cesar Miranda, Attorney General for Puerto Rico;
and the Honorable Ruben Berrios, President of the Puerto Rican
Independence Party.
Honorable Commissioner, you are up.
STATEMENT OF PEDRO R. PIERLUISI, RESIDENT COMMISSIONER OF
PUERTO RICO, PRESIDENTE OF NEW PROGRESSIVE PART (PNP),
WASHINGTON, DC
Mr. Pierluisi. Thank you, Chairman Young, Mr. Ranking
Member, and members of the subcommittee. The facts are as
follows.
Puerto Rico is a territory. If it does not wish to remain a
territory, it can become a state or a sovereign nation, either
fully independent or with the compact of free association with
the United States. However, if Puerto Rico becomes a sovereign
nation, future generations of island residents would not be
American citizens.
My constituents have made countless contributions to this
Nation in times of peace and war, serving in every military
conflict since World War I. Many have made the ultimate
sacrifice. When they do, their casket is flown back to this
country, draped in the American flag. It takes real patriotism
to fight for a nation you love, but one that does not treat you
equally.
Puerto Rico has more U.S. citizens than 21 states, but my
constituents cannot vote for President, have no Senators, and
have a non-voting delegate in the House. Moreover, the
Constitution gives Congress license to treat territories worse
than states, and Congress often uses that license.
Territory status is the root cause of the crisis in Puerto
Rico, because Puerto Rico is treated unequally under Federal
programs. It is deprived of critical economic support. To
compensate, the Puerto Rico government has borrowed heavily,
which helps explain why the government and its
instrumentalities have $72 billion in debt. In recent years,
250,000 island residents have relocated to the states, and
these numbers are only growing. Once in the states they are
entitled to full voting rights, and equal treatment under the
law, rights they lack in Puerto Rico.
Let me mention two of the many ways that Puerto Rico's
status hurts the quality of life of my constituents. First,
Puerto Rico is treated unequally under Medicaid and Medicare.
The impact on our healthcare system and on our fiscal health
has been severe. Second, Congress has authorized each state
government to permit its insolvent municipalities to adjust
their debts under Chapter 9 of the Bankruptcy Code, but has not
authorized Puerto Rico to do so. Thus, territory status is a
significant reason why Puerto Rico has excessive debt, and the
sole reason why it lacks a critical tool to manage that debt.
I have introduced bills to give Puerto Rico equal treatment
under Federal health programs and Chapter 9. While I appreciate
that the governor of Puerto Rico has endorsed these efforts, it
is ironic that an anti-statehood administration is seeking
state-like treatment for the territory in key policy areas. I
seek equal treatment for Puerto Rico in all respects.
If you give us the same rights and responsibilities as our
fellow American citizens, and let us rise or fall on our
merits, we will rise. But if you continue to treat us like
second-class citizens, don't profess to be surprised when we
fall.
This is now the predominant view in Puerto Rico. In a 2012
referendum, a majority of voters rejected territory status, and
more voters expressed a desire for statehood than any other
option. At my initiative, Congress approved funding for a
federally-sponsored referendum. Once I have the opportunity, I
will use this funding to hold a vote on whether Puerto Rico
should be admitted as a state, just like Alaska and Hawaii did.
This is logical. Statehood won the 2012 referendum. So we
should now vote on statehood, itself.
This is also fair. Those who support statehood can vote
yes, and those who oppose it can vote no. This approach has
brought support in Congress. I have introduced a bill to
authorize a vote in Puerto Rico on whether the territory should
be admitted to the Union. If a majority of voters say yes,
Puerto Rico would become a state within 5 years. The bill has
109 co-sponsors from 39 states and territories, and more
bipartisan backing than 99 percent of bills filed this year.
Each co-sponsor refutes the single argument that the United
States would not accept Puerto Rico as a state.
Puerto Rico's status is intolerable, and my constituents
will no longer tolerate it. We want equality under the American
flag, and we will settle for nothing less. Thank you.
[The prepared statement of Mr. Pierluisi follows:]
Prepared Statement of the Hon. Pedro R. Pierluisi, Resident
Commissioner of Puerto Rico
Chairman Young, Mr. Ranking Member, and members of the
subcommittee: Puerto Rico has been a territory of the United States
since 1898. As this committee has made clear many times, if Puerto Rico
does not want to remain a territory, it can follow one of two paths.
The territory can become a state or it can become a sovereign nation,
either fully independent from the United States or with a compact of
free association with the United States that either nation can
terminate. If Puerto Rico becomes a sovereign nation, future
generations of island residents would not be American citizens.
Those are the options: remain a territory, become a state, or
become a sovereign nation.
As the members of this committee are aware, residents of Puerto
Rico have made countless contributions to this Nation in times of peace
and war, serving in every military conflict since World War I. They
fight today in Afghanistan and other dangerous locations, side-by-side
with young men and women from the states. Many of them have made the
ultimate sacrifice in battle. And when they do, their casket is flown
back to this country, draped in the American flag.
It takes a special kind of patriotism to fight for a nation that
you love, but one that does not treat you equally. Although Puerto Rico
is home to more American citizens than 21 states, my constituents
cannot vote for president, are not represented in the Senate, and have
one non-voting delegate in the House--a position I have held since
2009. Moreover, the Constitution gives Congress a license to treat
Puerto Rico worse than the states under Federal law, and Congress often
uses that license.
Every informed observer understands that territory status is the
root cause of the economic, social and demographic crisis in Puerto
Rico that you have been reading about in the newspapers. As the GAO
noted in a recent report requested by the former chairman of the full
Natural Resources Committee, Puerto Rico is treated unequally under
Federal spending and tax credit programs and is therefore deprived of
billions of dollars every year that would otherwise flow to our local
economy, which--not surprisingly--has been mired in a deep recession.
To compensate for the shortfall in Federal funding, the Puerto Rico
government has borrowed heavily in the bond market, which is the main
reason why the territory government and its instrumentalities have $72
billion in outstanding debt. In the last 4 years alone, upwards of
250,000 island residents have relocated to the states in search of
better economic opportunities for themselves and their families, and
these staggering numbers are only getting worse. When my constituents
arrive in the states, they are entitled to vote for their national
leaders and to equal treatment under Federal law--the same rights they
were denied while living in Puerto Rico. How any American with a
conscience could support this shameful situation is, I confess, beyond
my comprehension.
There are many concrete examples of how Puerto Rico's territory
status harms the quality of life in Puerto Rico, but allow me to
mention just two.
Puerto Rico has always been treated in discriminatory fashion under
Federal health programs. This is the result of action or inaction by
presidents and Members of Congress, both Democrat and Republican, over
many decades. The adverse impact on doctors, hospitals, insurance
providers and--most importantly--patients in the territory has been as
severe as it was predictable. This disparate treatment has also
decimated Puerto Rico's fiscal health, since the territory government
must cover the costs of services the Federal Government should be
covering--and that it would be covering if Puerto Rico were a state.
Thus, I have introduced a comprehensive bill to essentially provide
Puerto Rico with state-like treatment under Medicaid and Medicare.
Another example--Congress has empowered each state government to
authorize its ``municipalities'' to adjust their debts under Chapter 9
of the Federal Bankruptcy Code if they become insolvent. A state
government may choose to allow its municipalities to file for
protection under Chapter 9, or it may decline to do so. The power to
decide rests with the state government. However, for reasons that are
clear to nobody, Congress in 1984 chose not to permit the government of
Puerto Rico to authorize its municipalities to seek relief under
Chapter 9. In other words, Puerto Rico's territory status is the
primary reason why Puerto Rico has so much debt and is the sole reason
why Puerto Rico does not possess a critical tool that could help the
island manage this debt. I have introduced a bill in Congress to give
Puerto Rico state-like treatment under Chapter 9. It is opposed by a
handful of investment firms for specious and self-interested reasons,
but otherwise has remarkably broad support.
Now I appreciate that the governor of Puerto Rico has endorsed my
legislative initiatives with respect to both Federal health programs
and Chapter 9. I will continue to fight alongside him in pursuit of
these goals. We both want to help Puerto Rico because we both love
Puerto Rico. However, I don't know whether to laugh or cry at the irony
of the Governor's anti-statehood administration seeking state-like
treatment for Puerto Rico in these and other critical policy areas. The
fact is that politicians in Puerto Rico who defend or rationalize our
territory status are complicit in the terrible treatment this status
brings. That may be a tough statement, but it is a true statement.
What I desire for Puerto Rico is simple. I don't need to resort to
tortured legal or policy arguments to explain it. I don't seek special,
different or unique treatment. I don't ask to be treated any better
than the states, but I won't accept being treated any worse either. I
want only for Puerto Rico to be treated equally. Give us the same
rights and opportunities as our fellow American citizens, and let us
rise or fall based on our own merits. Because I know that we will rise.
To be clear, this is not only my personal view. To the contrary,
this is now the predominant view among the Puerto Rico public. In 2012,
the government of Puerto Rico sponsored a referendum in which a
majority of voters rejected Puerto Rico's current territory status and
more voters expressed a desire for statehood than for any other status
option, including the current territory status. In the wake of that
historic vote, I conveyed the results to you--my colleagues in
Congress--and to the Obama administration. I did this because, for a
territory to become a state, Congress must approve legislation known as
``an admission act'' and the President must sign that legislation into
law, just like any other bill.
At my initiative, the Obama administration in April 2013
requested--and Congress in January 2014 approved with bipartisan
support--an appropriation of $2.5 million to fund the first federally-
sponsored status referendum in Puerto Rico's history. We wrote the
provision, which is contained in Public Law 113-76, so that this
funding will remain available until it is used. While the law does not
prescribe the exact format of the ballot, leaving those details to the
Puerto Rico government, it does require the U.S. Department of Justice
to certify that the ballot and voter education materials are consistent
with U.S. law and policy. This will ensure that the ballot contains
only real status options, as opposed to fanciful proposals.
It is now clear that the governor of Puerto Rico will not use this
funding before his term in office ends next year--and I hope the
members of this subcommittee will ask the Governor's representative at
this hearing why not. When I am in a position to utilize this funding,
I will do so without hesitation. My proposal is to use the funding to
hold a simple yes-or-no vote on whether Puerto Rico should be admitted
as a state. This approach is logical and fair. First, it is deeply
rooted in precedent. Alaska and Hawaii each conducted federally-
sponsored yes-or-no votes prior to statehood. Second, because statehood
obtained the most votes in the 2012 referendum, it makes sense to now
hold a vote on statehood itself. Third, the format is inclusive. Those
who support statehood can vote ``yes'' and those who oppose it for any
reason can vote ``no.'' Fourth, the vote would yield a definitive
result that nobody could reasonably question. Politicians in Puerto
Rico who favor the status quo have perfected the dark art of seeking to
undermine the legitimacy of any vote they lose; the process I have
proposed will make it impossible for them to do so again.
This approach has broad support in Congress. In February, I
introduced H.R. 727, the Puerto Rico Statehood Admission Process Act.
Consistent with my philosophy, the bill would authorize a federally-
sponsored vote to be held in Puerto Rico by the end of 2017, with the
ballot containing a single question: ``Shall Puerto Rico be admitted as
a state of the United States? '' To conduct this vote, the Puerto Rico
government could use the $2.5 million that Congress already approved in
Public Law 113-76. If a majority of voters affirm their desire for
admission, the bill provides for an automatic series of steps to occur
that would culminate in Puerto Rico's admission as a state in the year
2021.
H.R. 727 is forceful and ambitious, because the days of half-steps
and half-measures on this issue are over. Yet the bill already has 109
co-sponsors from 39 states and territories, and more bipartisan support
than 99 percent of the nearly 3,000 bills that have been introduced in
Congress this year. Co-sponsors include the Chairman and Ranking Member
of this subcommittee; 7 of the 12 members of this subcommittee; the
Ranking Member of the full committee; all 10 Democrats and 4
Republicans from the critical state of Florida; and a majority of the
members of the Congressional Hispanic Caucus. Each co-sponsor helps
refute the false and cynical argument that the United States would not
accept Puerto Rico as an equal member of the American family. Each co-
sponsor endorses the proposition that, if a majority of my constituents
confirm in a federally-sanctioned vote that they want Puerto Rico be
admitted as a state, then Congress should act to implement that
democratically expressed desire on a reasonable but rapid timetable. In
my view, this is the only morally acceptable position, and I thank
those Members who have taken it. You are on the right side of history.
Chairman Young, thank you for scheduling this hearing and for
everything you have done over the years to support Puerto Rico's quest
for equality through statehood. I know that one day, not too far off,
Puerto Rico will follow in Alaska's footsteps.
______
Mr. Young. Well done. Cesar Miranda, Attorney General of
Puerto Rico, you are up.
STATEMENT OF CESAR R. MIRANDA RODRIGUEZ, ATTORNEY GENERAL OF
PUERTO RICO, TESTIFYING ON BEHALF OF GOVERNOR ALEJANDRO GARCIA
PADILLA, SAN JUAN, PUERTO RICO
Mr. Rodriguez. Thank you, Chairman Young.
Mr. Young. Turn that microphone on.
Mr. Rodriguez. Thank you, Chairman Young, members of the
subcommittee. My name is Cesar Miranda, I am the Secretary of
Justice of Puerto Rico. I am appearing today representing the
Governor of Puerto Rico. I am not representing the Popular
Democratic Party, but the Governor in his executive capacity.
We have been invited to discuss an issue over which there
is no consensus in Puerto Rico. Puerto Rico's political status
is a divisive matter, both in Puerto Rico and in this Congress.
I recognize the importance of this historical debate. However,
given today's fiscal and economic crisis in Puerto Rico, I
prefer to direct my testimony to address other matters of
urgent importance to our island.
The fiscal and economic situation in Puerto Rico has
reached a tipping point. We are in a state of fiscal emergency,
as we have no access to the capital markets, and our public
institutions face a liquidity crisis. The situation is truly
dire. Puerto Rico has been experiencing an unemployment crisis.
Unemployment remains twice that of the mainland, and the loss
of employment opportunity has cost an increasing number of
residents to move to the mainland. Nearly half of all residents
in Puerto Rico qualify for low-income health insurance
subsidies, and the average personal income per capita was only
$17,000 in Fiscal Year 2013.
Puerto Rico's unprecedented economic difficulties have
contributed to rising budget deficits that have turned into
large debts. Puerto Rico owes approximately $73 million in
debt, and it has no ability to refinance it.
I believe that there are certain issues that this Congress
can explore to address Puerto Rico's fiscal crisis and put
Puerto Rico on a path of long-term fiscal sustainability.
First, the Congress can approve H.R. 870, which was
introduced by Resident Commissioner Pierluisi earlier this
year. H.R. 870 would amend the U.S. Bankruptcy Code and extend
Chapter 9 to Puerto Rico. Extending Chapter 9 would provide
significant benefits to all involved. Chapter 9 would provide a
process that is understood by creditors, prospective lenders,
and suppliers. It would facilitate market access by offering
debtor-in-possession financing. There is no good reason to deny
Puerto Rico Chapter 9, in what has been proven time and again
to be a vital tool for recovering from dire economic
consequences. Detroit is the last of those examples.
Second, Congress can provide Puerto Rico with relief from
the Jones Act, which drives up the cost of all goods in Puerto
Rico and depresses the Puerto Rican economy. Congress could
even grant Puerto Rico a temporary extension of the Jones Act,
in order to evaluate its impact on the economy before granting
a permanent extension.
Third, Congress needs to fix future reductions in Federal
health care funding that will harm Puerto Rico residents. These
reductions are not in line with the funding treatment received
by the 50 states, and they threaten the health and welfare of
Puerto Ricans. It also threatens economic stability.
Specifically, I understand that a further reduction will occur
when the 2016 Center for Medicaid and Medicare Services rate
structure becomes effective. This would cut Medicare funding by
11 percent in Puerto Rico, while increasing by 3 percent in the
states on the mainland. This cut will compound the financial
difficulty for Puerto Ricans who pay the same Social Security
and Medicare taxes as residents.
There are some other examples in which Puerto Rico can be
assisted by Congress. There is widespread consensus in Puerto
Rico on the approval of H.R. 870 to amend the U.S. Bankruptcy
Code. In addition, there is consensus in crafting an extension
from the Jones Act, and amending the sunset provisions of
certain health care funding.
This basically summarizes my positions regarding my
appearance today.
[The prepared statement of Mr. Rodriguez follows:]
Prepared Statement of Cesar R. Miranda Rodriguez, testifying on behalf
of Governor Alejandro Garcia Padilla of Puerto Rico
Chairman Young, Ranking Member Ruiz, and members of the
subcommittee: My name is Cesar R. Miranda Rodriguez, and I am the
Secretary of Justice of Puerto Rico. I am the chief legal officer of
Puerto Rico and the chief executive of the Department of Justice (the
``DOJ''). Prior to my appointment as Secretary of Justice in January
2014, I served as Chief of Staff under former Governor Sila M. Calderon
and in many other posts as a public servant. I am appearing today
before this subcommittee representing the Governor of Puerto Rico.
We have been invited today to discuss an issue over which there is
no consensus, but quite the opposite either in Puerto Rico or in
Congress. The status of Puerto Rico is a debate in which we have been
perpetually immersed for well over a century. It has always been a
divisive matter in Puerto Rico as in Congress. Recognizing the
importance of such a historical debate but taking into consideration
the extreme fiscal and economic crisis that we are facing in Puerto
Rico, I honestly prefer to direct my participation to address other
matters of the utmost importance for our Island, in which there is a
common understanding and consensus.
The first of these issues is the approval of H.R. 870, which was
introduced by our Resident Commissioner. H.R. 870 would amend the U.S.
Bankruptcy Code to treat Puerto Rico like a ``state'' for purposes of
Chapter 9. Its approval is supported among all political parties in
Puerto Rico and among informed experts and intellectuals in the United
States. In addition to passing H.R. 870, and as I discuss below, there
are other uncontroversial measures Congress can take to assist Puerto
Rico, including crafting a limited exemption for Puerto Rico from the
Jones Act, fixing the automatic sunset provisions of health care
funding, and providing much-needed certainty on creditability of
certain taxes paid in Puerto Rico. These are just a few of the ways in
which Congress can assist Puerto Rico.
economic crisis in puerto rico
I would like to begin by emphasizing that the fiscal and economic
situation in Puerto Rico has reached a tipping point. The Legislative
Assembly has declared a fiscal emergency, the credit markets have
closed their doors, and many of Puerto Rico's public institutions face
liquidity crises. The situation is truly dire, and it is important to
tell why it is so.
Puerto Rico's economy is closely tied to that of the United States
but was disproportionately and adversely impacted by the U.S. financial
crisis and the ``Great Recession.'' The Commonwealth has experienced
high unemployment rates, steady population decline, loss of industry,
consecutive budget deficits, and truly unprecedented levels of debt and
unfunded pension obligations. A number of significant economic and
legal factors have contributed to this fiscal crisis. An example of
this is the repeal and phase-out by Congress of Section 936 of the
Internal Revenue Code, which, until its phase-out in 2005, provided tax
benefits for certain businesses (including large pharmaceutical
companies) operating in Puerto Rico. The elimination of these tax
benefits led to a significant loss of employment in Puerto Rico's
manufacturing sector, and generated strong headwinds for economic
growth. Other factors include the decline in the local housing sector,
the failure of a number of local banking entities, and the doubling in
oil prices between 2005 and 2012 (this posed a major problem for the
Commonwealth given its dependence on oil for virtually all of its power
generation).
The Commonwealth has also been experiencing an unemployment crisis.
In fact, unemployment remained above 15 percent for many years
following the financial crisis, suggesting continued weakness in Puerto
Rico's economy. Unemployment dropped to a still-elevated rate of 12.1
percent at the end of 2014 while unemployment in the rest of the United
States dropped to 5.6 percent. The loss of employment opportunities in
the Commonwealth has caused an increasing number of residents to seek
opportunities in the mainland. Many residents that are leaving are
those with the greatest earnings potential, while many who remain
strain existing resources at a time when the Commonwealth is least able
to meet such demands. In fact, nearly half of all residents in Puerto
Rico qualify for low-income health insurance subsidies, and the average
personal income per capita, including transfer payments, was
approximately $17,000 in Fiscal Year 2013.
Puerto Rico's unprecedented economic difficulties have contributed
to rising budget deficits at all levels of government, including at
Puerto Rico's public corporations. Historically, these entities have
relied on access to the credit markets, interim financing from the
Government Development Bank for Puerto Rico (the ``GDB''), and private-
sector banks to cover budget shortfalls and provide essential services.
Today, these entities have been closed out of the credit markets and
are unable to refinance any portion of their nearly $73 billion in
outstanding public debt. In addition, Puerto Rico's public pension
funds, though subject to a major overhaul during Fiscal Year 2014 that
reduced future annual cash-flow needs, still face significant unfunded
liabilities, which will require increased governmental contributions in
the coming years.
Governor Alejandro Garcia Padilla has taken unprecedented fiscal
measures in an effort to achieve long-term fiscal sustainability in
Puerto Rico. Within 2 years of taking office, for example, the Padilla
administration reduced budget deficits, imposed unprecedented cost-
control measures at the central government and public corporation
levels, established limits on government payroll (as of November 2014,
there were 92,842 government employees, compared to 139,640 in 2008),
implemented comprehensive pension reform, imposed loan origination
discipline at the GDB, reformed rates at certain public corporations,
and completed and is actively exploring public-private partnerships.
One critical component of achieving fiscal sustainability is
ensuring that Puerto Rico's governmental instrumentalities are self-
sufficient. In Puerto Rico, public services, including water and
wastewater services, electric power, and transportation are performed
by state-owned public corporations. The most critical public
corporations in Puerto Rico are: (1) the Puerto Rico Electric Power
Authority (often referred to as ``PREPA''), which provides
substantially all of the electricity to residents, businesses and
governmental units in Puerto Rico; (2) the Puerto Rico Aqueduct and
Sewer Authority (often referred to as ``PRASA''), which provides 97
percent of the water and 59 percent of the wastewater services to
residents in Puerto Rico; and (3) the Puerto Rico Highways and
Transportation Authority (often referred to as ``PRHTA''), which is
responsible for highway construction and maintenance on the island.
The fact that Puerto Rico is an island exacerbates its already high
cost of providing these services. In November 2014, for example,
utility customers in Puerto Rico paid more than twice the national
average per kilowatt hour for electricity. Nonetheless, these public
corporations have had chronic budget deficits in recent years
resulting, in part, from population and economic decline. In 2012-2013
alone, the combined deficit of PREPA, PRASA, and PRHTA was over $800
million. Public corporations have historically financed their deficits
by relying on capital market financings or the central government,
which has provided loans through the GDB or private sector banks. These
deficits, combined with borrowings for infrastructure projects, have
left these three public corporations with over $20 billion in debt.
prepa
I would like to provide additional detail on the fiscal crisis at
PREPA because it provides an example that illuminates some of the
challenges that Puerto Rico faces more generally in the absence of a
legal regime like Chapter 9.
PREPA supplies virtually all of the electricity in Puerto Rico and
carries a debt burden of over $9 billion, including approximately over
$1.1 billion that is due on or before July 1, 2015. PREPA has been
facing a financial crisis since the summer of 2014 when nearly $700
million in revolving credit lines was set to expire and PREPA was
unable to access the capital markets or secure financing from other
sources. In response, the Legislative Assembly adopted the Public
Corporation Debt Enforcement and Recovery Act (the ``Recovery Act'') to
provide a framework for a consensual resolution of PREPA's liquidity
and debt crisis that would have been negotiated between PREPA and its
creditors. Because Puerto Rico is precluded from invoking Chapter 9 of
the U.S. Bankruptcy Code, such a measure was seen as vital to bringing
the necessary parties to the negotiating table. Following enactment of
the Recovery Act, PREPA succeeded in executing forbearance agreements
with its revolving credit-line lenders and the insurers and bondholders
controlling more than 60 percent of PREPA's $8.3 billion of outstanding
power revenue bonds.
The forbearance agreements enabled PREPA to conserve cash, thereby
improving its liquidity and stabilizing its operations, while also
providing PREPA with much-needed time to develop a long-term recovery
plan. Under those agreements, PREPA was authorized to use funds for
ordinary operational expenses that would otherwise have been required
to pay debt service and was temporarily excused from making hundreds of
millions of dollars in payments into reserve accounts for the payment
of debt service. PREPA's ongoing ability to operate today is due in
large part to the relaxation of these financial obligations during the
forbearance period that may not have been possible but for the
existence of the Recovery Act. In fact, the forbearance agreements
expire at the end of June 2015, and PREPA faces imminent default and an
uncertain future beyond June. As the sole provider of electricity in
Puerto Rico, this is really not a tenable situation. Unfortunately,
many other government entities in Puerto Rico could find themselves in
similar positions in the future.
the recovery act
Research and experience makes clear that investors, creditors and
anyone doing business in or with Puerto Rico need to have more clarity
on how the Commonwealth's financial crisis might be resolved before
investing in or transacting business with Puerto Rico. The
establishment of an orderly and consensus-based process for addressing
outstanding debt at the public corporations is absolutely vital to
providing this clarity. Our public corporations are not eligible to
reorganize under Chapter 11 of the U.S. Bankruptcy Code because they
are governmental units, and they are not eligible to adjust their debts
under Chapter 9 because Puerto Rico is expressly--and inexplicably--
excluded from the U.S. Bankruptcy Code's definition of ``State'' for
purposes of Chapter 9 eligibility. Prior to the enactment of the
Recovery Act in June 2014, Puerto Rico was in the unique position of
having no means for authorizing a legal regime under which its public
corporations could adjust their debt or address creditor claims in an
orderly manner.
The Legislative Assembly's adoption of the Recovery Act in 2014 was
a response to the legislative gap in the U.S. Bankruptcy Code. The
Recovery Act was designed to allow public corporations to adjust their
debt in an orderly process--with creditor input and court supervision--
while protecting the collective interest of their constituents,
including bondholders and other creditors, as well Puerto Rico's
residents and businesses who depend on them for the essential services
they provide. The Recovery Act ensured that the provision of essential
public services to Puerto Rico's residents would not be interrupted in
the event of a fiscal emergency.
Immediately after the passage of the Recovery Act, two groups of
PREPA bondholders filed suit, seeking judgments declaring the Recovery
Act unconstitutional. On February 6, 2015, the U.S. District Court for
the District of Puerto Rico enjoined enforcement of the Recovery Act,
holding that the Recovery Act is unconstitutional because it is pre-
empted by Section 903 of the U.S. Bankruptcy Code. Specifically, the
court concluded that Puerto Rico cannot pass a law allowing its public
corporations to adjust their debts through a method of composition. The
Commonwealth and the GDB have appealed the ruling and the matter is
under advisement. It is not appropriate for me to comment on the
specifics of the appeal, or the reasons why we believe the Recovery Act
is lawful, but I can say that we are hopeful that the court will uphold
the legality of the Recovery Act as a means of addressing Puerto Rico's
fiscal crisis.
More recently, the Commonwealth's Resident Commissioner, the Hon.
Pedro Pierluisi, who joins me on the panel, introduced legislation that
would amend the U.S. Bankruptcy Code's definition of ``State'' to
include Puerto Rico for purposes of Chapter 9. See H.R. 870, 114th
Cong. Sec. 2 (2015). If enacted, the Commonwealth's political
subdivisions, public agencies, and instrumentalities would be treated
like every other municipality in the United States. There would no
longer be a need for the Recovery Act.
In the end, the practical and unfortunate result of the District
Court's decision enjoining enforcement of the Recovery Act is that
there is currently no available legal regime for Puerto Rico's public
corporations to adjust their debts through a consensus-based, court-
supervised process. In this respect, Puerto Rico is treated differently
than every state in the Nation.
the consequences of treating puerto rico differently under the
bankruptcy code are significant, but extending chapter 9 to puerto rico
provides significant benefits
The absence of any legislative tools to adjust the debts of Puerto
Rico's public corporations has exacerbated Puerto Rico's fiscal
challenges by creating an environment of uncertainty that makes it more
difficult to address these challenges. It has increased Puerto Rico's
cost of borrowing; it may require Puerto Rico to take extraordinary
liquidity measures to ensure the continued performance of essential
public services; it may encourage creditors to race to the courthouse
and exercise remedies that include attempting to appoint a receiver;
and it will ultimately depress economic growth in Puerto Rico, making
long-term investment and capital expenditure plans at the public
corporations impossible.
Extending Chapter 9 to Puerto Rico, however, would provide
significant benefits to all stakeholders.
First, Chapter 9 provides an orderly process for debt adjustment
that is understood by the capital markets, creditors, prospective
lenders, and suppliers. Specifically, it provides a framework that
requires the public corporation to negotiate in good faith, creating an
ideal environment to reach consensus under the supervision of an
experienced court. Chapter 9 has also been tested many times,
including, most recently, in Detroit, Michigan, Stockton, California,
and Jefferson County, Alabama, to name a few. These municipalities are
now on their way to recovery and renewed prosperity.
Second, public corporations in Chapter 9 would be permitted to
obtain debtor-in-possession financing and use cash collateral under
well-tested procedures, permitting the continuation of normal
operations and the provision of essential public services to Puerto
Rico's residents. Third, oversight by a U.S. Bankruptcy Judge with
expertise in insolvency matters will also ensure that all parties in
interest have recourse to an independent arbiter and no party is denied
its rights.
In short, the virtue of Chapter 9 can be seen in the successes of
its most recent graduates, including the city of Detroit, whose
adjustment proceedings lasted less than 18 months, and Stockton, whose
adjustment proceedings lasted less than 2 years. There is simply no
good reason to deny the residents and creditors of Puerto Rico what has
proven time and again to be a vital tool for recovering from dire
economic straits.
congress can take other measures to assist puerto rico in navigating
through this crisis
There are a number of other measures Congress can take to assist
Puerto Rico during this financial crisis. For example, Congress could
provide Puerto Rico with a limited exemption from the Merchant Marine
Act of 1920, which is more commonly known as the ``Jones Act,'' to
significantly reduce the cost of doing business and delivery services
in Puerto Rico. The Jones Act imposes significant restrictions on
shipping between U.S. ports, thereby significantly driving up the cost
of all goods in Puerto Rico and depressing the Puerto Rican economy.
The Jones Act requires that all goods shipped, or passengers conveyed,
by water between ports in the United States, including ports in Puerto
Rico, be carried in U.S.-flagged ships, which are primarily constructed
in the United States and owned and crewed by U.S. citizens and
permanent residents. Because Puerto Rico is an island economy, the
Jones Act disproportionately harms the local economy. Specifically, the
Jones Act severely limits the supply and increases the costs of
shipping services, imposing a substantial burden on local productivity
(this is particularly pronounced in Puerto Rico's energy sector--
including PREPA--because nearly all of the electricity is generated by
oil that is shipped to Puerto Rico). Congress could even grant a
temporary exemption from the Jones Act in order to evaluate its impact
on Puerto Rico's economy and assess the costs and benefits of a
permanent exemption.
Moreover, Congress needs to fix the significant reductions in
Federal health care funding that will harm Puerto Rico's residents in
the near future. Puerto Rico has begun experiencing significant
reductions in Federal health care funding. These reductions are not in
line with funding treatment received by the 50 states and they threaten
the health and welfare of Puerto Ricans, as well as Puerto Rico's
financial and economic stability. I understand that a further reduction
will occur when the 2016 Center for Medicaid and Medicare Services rate
structure becomes effective and cuts Medicare Advantage funding by 11
percent in Puerto Rico while increasing it by 3 percent on the
mainland. This cut compounds the difficulties that Puerto Ricans--who
pay the same Social Security and Medicare taxes as mainland residents,
but receive significantly lower reimbursement rates--face. It also
threatens the viability of Medicare Advantage on a going-forward basis,
and should Medicare Advantage collapse, patients may move to Mi Salud,
Puerto Rico's Medicaid program, which already receives 70 percent lower
reimbursement rates than any mainland state and faces a funding
shortfall within the next few years, when a grant provided under the
Affordable Care Act is exhausted.
Finally, Congress and the U.S. Department of the Treasury can
provide clarity on the creditability of certain taxes paid in Puerto
Rico pursuant to a local law known as Act 154 on Federal income tax
returns. Act 154, which was enacted in 2010, imposed a special
temporary excise tax and has become one of Puerto Rico's principal
sources of tax revenue. Act 154 revenues accounted for approximately 20
percent of Puerto Rico's General Fund revenues in 2012, 2013, and 2014.
The Act 154 tax base is very small (only 27 groups of affiliated
taxpayers paid the special temporary excise tax in Fiscal Year 2015),
and six of these groups accounted for approximately 75 percent of
collections. The GDB has noted that any action the U.S. Department of
the Treasury to reduce or eliminate the Federal income tax credit
available with respect to the Act 154 temporary excise tax is likely to
reduce Act 154 revenues.
In conclusion, I believe that we should focus our attention to
these matters of critical importance to our Island, around which there
is common understanding and consensus. There is widespread consensus on
the approval of H.R. 870, which was introduced by our Resident
Commissioner, to amend the U.S. Bankruptcy Code to treat Puerto Rico
like a ``state'' for purposes of Chapter 9. In addition, Congress can
take other measures, including crafting an exemption from the Jones
Act, amending the automatic sunset provisions of much-needed health
care funding, and providing certainty on creditability of certain taxes
paid in Puerto Rico. Of course, these are just a few of the ways in
which Congress can assist Puerto Rico, but they would be a good start.
______
Mr. Young. Thank you, sir. Ruben Berrios, former Senator,
Puerto Rican Senate Independence Party, you are up.
STATEMENT OF RUBEN BERRIOS, FORMER SENATOR IN THE PUERTO RICAN
SENATE, PRESIDENT OF THE PUERTO RICO INDEPENDENCE PARTY (PIP),
SAN JUAN, PUERTO RICO
Mr. Berrios. Mr. Chairman and members of the subcommittee,
the virtual bankruptcy of Puerto Rico's economy is a self-
evident reality. Puerto Rican voters have repudiated the
territorial status that is the root cause of our economic and
social problems. The territorial status was never democratic
and has now become tyrannical.
Internationally, the community of Latin American and
Caribbean states has recently reaffirmed its support for the
right of Puerto Rico to its self-determination and
independence. And yet Congress refuses to comply with its
decolonizing obligation toward Puerto Rico.
This subcommittee is well aware of Puerto Rico's status
problem. For decades it has held hearings on the issue, and
many in Puerto Rico can reasonably wonder whether this
oversight hearing pursues a legitimate legislative purpose, or
is merely a pro forma, partisan, quid pro quo. Only time will
tell.
I shall utilize this hearing to publicly propose a route
map toward the solution of Puerto Rico's status problem. The
relationship between Puerto Rico's territorial status and our
economic and social problems has been well summarized by
Senator Ron Wyden, Chairman of the Committee on Energy and
Natural Resources. I quote, ``Puerto Rico faces huge economic
and social challenges. . . . The lack of resolution of Puerto
Rico's status not only distracts from addressing these and
other issues, it contributes to them. As the most recent
reports from the President's Task Force on Puerto Rico's status
found--and I quote--`identifying the most effective means of
assisting the Puerto Rican economy depends on resolving the
ultimate question of status'.''
Senator Wyden further added, ``The present relationship
undermines our moral position in the world.''
To say that Puerto Rico should first decide what it wants,
as President Obama has proposed, is merely an excuse to evade
the legal responsibility of the United States as a colonial
power, particularly when the President insists that the
territorial relationship already repudiated by the Puerto Rican
electorate should be one of the options. Colonialism is the
problem, not the solution.
We, therefore, propose the following process to resolve
Puerto Rico's status problem. Puerto Rico and the U.S. Congress
should engage in a collaborative process of self-determination
for Puerto Rico.
In Puerto Rico, various proposals have been advanced to
initiate the process. The party I preside, for example, has
proposed a status assembly in which each status option,
proportionately represented, would formulate a proposal for its
desired non-colonial, non-territorial option, requiring a
response by the U.S. Government by a date certain. Ultimately,
only realistic, non-territorial options negotiated with the
U.S. authorities would be submitted to the Puerto Rican
electorate.
Unfortunately, the present government of Puerto Rico
refuses to move in this direction. However, Congress could jump
start a process directed toward the same end. Bipartisan
representatives of the congressional leadership, in
coordination with the executive branch, could convene
representatives of the different status alternatives to present
their respective decolonizing status proposals. In response,
Congress would then specify which alternatives, and under what
conditions it would be willing to consider. The Puerto Rican
people could then cast a meaningful vote for the available non-
colonial, non-territorial options.
If Congress takes no action, and the colonialist PPD
prevails in Puerto Rico's 2016 election, the democratic
bankrupt territory of extreme dependency will continue to breed
support for statehood. If the pro-statehood party prevails,
Congress will then be faced with a statehood petition as a
consequence of a statehood yes-or-no vote. That vote would be
totally uninformed as to the conditions that Congress would
impose, and driven principally by the widespread notion that
statehood represents an endless cornucopia of Federal funds.
You would then be faced not only with the economic crisis in
Puerto Rico, but with a political crisis of unforeseeable
consequences to the United States. The rational way to avoid
such a scenario would be to start a collaborative process of
self-determination.
Time is running out. To conclude, I must urge and demand of
the President of the United States the immediate release of
political prisoner Oscar Lopez Rivera, who has been in prison
for more than 34 years here in the United States. Thank you
very much.
[The prepared statement of Mr. Berrios follows:]
Prepared Statement of Ruben Berrios Martinez, President, Puerto Rican
Independence Party
Mr. Chairman and members of the subcommittee: The virtual
bankruptcy of Puerto Rico's economy is a self-evident reality.
Puerto Rican voters have repudiated the territorial status that is
the root cause of our economic and social problems. A territorial
status that was never democratic has now become tyrannical.
Internationally the community of Latin American and Caribbean
states (CELAC) which includes all the heads of states of the region has
recently reaffirmed its support for the right of Puerto Rico to its
self-determination and independence. A similar position has been
adopted by the U.N. Decolonization Committee.
And yet Congress refuses to comply with its decolonizing obligation
toward Puerto Rico.
What more is needed for Congress to act?
It is my duty as President of the Puerto Rican Independence Party
to utilize any forum available to demand an end to colonial rule.
Furthermore I shall utilize this hearing to publicly propose a route
map toward the solution of Puerto Rico's status problem.
The relationship between Puerto Rico's territorial status and our
economic and social problems is by now a recognized reality. In the
words of Senator Ron Wyden, Chairman of the Committee on Energy and
Natural Resources at an oversight hearing on August 1, 2013, ``Puerto
Rico faces huge economic and social challenges. Per capita income is
stuck at about half that the poorest U.S. state. The violent crime rate
is well above the national average and raising. The lack of resolution
of Puerto Rico's status, not only distracts from addressing these and
other issues, it contributes to them. As the most recent reports from
the president's Task Force on Puerto Rico's status found and I quote,
``identifying the most effective means of assisting the Puerto Rican
economy depends on resolving the ultimate question of status''.'' [The
emphasis is mine]
The real question before Congress is therefore what will you do to
bring about a resolution to Puerto Rico's undemocratic political
subordination?
To say that Puerto Rico should first decide what it wants, as
President Obama has proposed, is merely an excuse to evade the legal
obligations of the United States as a colonial power; particularly when
the President insists that the territorial relationship--already
repudiated by the Puerto Rican electorate--should be one of the
options. Colonialism is the problem, not the solution.
Furthermore for there to be a meaningful choice among viable
alternatives, the U.S. Government must clarify what the decolonizing
options are, what each would entail, and under what conditions it would
commit to a process to achieve them.
We therefore propose the following process to resolve Puerto Rico's
status problem: Puerto Rico and the U.S. Congress should engage in a
Collaborative Procedure for the Self-Determination of Puerto Rico.
It is the rational way out.
In Puerto Rico various proposals have been advanced to initiate the
process. The party I preside, for example, has proposed a Status
Assembly in which each status option proportionately represented would
formulate a proposal for its desired non-colonial, non-territorial
option requiring a response by the U.S. Government by a date certain.
In the demand for a response all delegations would stand united.
Ultimately only realistic non-territorial options negotiated with U.S.
authorities would be submitted to the Puerto Rican electorate.
Unfortunately the present government of Puerto Rico refuses to move
in this direction.
However, Congress could jump start a process directed toward the
same end. An appropriate mechanism could be established to operate
within a limited time frame. Bipartisan representatives of the
congressional leadership in coordination with the executive branch
would convene representatives of the different status alternatives to
present their respective decolonizing status proposals. In response
Congress would then specify which alternatives and under what
conditions it would be willing to consider. The Puerto Rican people
could then cast a meaningful vote for the available non-colonial, non-
territorial options. Naturally any alternative other than independence
involves a process of mutual self-determination.
If Congress takes no action and the colonialist PPD prevails in
Puerto Rico's 2016 election, the undemocratic bankrupt territory of
extreme dependency will continue to breed support for statehood. If the
pro-statehood PNP prevails Congress will then be faced with a statehood
petition as a consequence of a Statehood Yes or No vote which that
party has pledged to implement. That vote would be totally uninformed
as to the conditions that Congress would impose and driven principally
by the widespread notion that statehood represents an endless
cornucopia of Federal funds. You would then be faced not only with an
economic crisis in Puerto Rico, but with a political crisis of
unforeseeable consequences in the United States. The rational way to
avoid such a scenario would be to start a Collaborative Process of
Self-determination.
The choice is yours. Time is running out.
I have included an addendum which is a detailed exposition of the
relationship between Puerto Rico's territorial status and our economic
and social problems.
Addendum
La economia de Estados Unidos ha estado creciendo, luego de la
crisis de 2008, desde el tercer trimestre del ano 2009. Su desempleo,
que llego hasta un 10 por ciento, se ubica en alrededor de 5.5 por
ciento. En contraste, la economia de Puerto Rico, cuya ``recesion'' se
inicio oficialmente en marzo de 2006 -antes de la crisis financiera de
Estados Unidos y de otros paises- continua en franca contraccion. Este
desfase entre Puerto Rico y Estados Unidos hace patente el hecho de que
el agotamiento de la economia de nuestro pais no es un fenomeno ciclico
o pasajero sino que, como han senalado tantos economistas del patio
como extranjeros (entre otros el premio Nobel de Economia Joseph
Stiglitz), se trata de un problema estructural e institucional.
En sintesis, Puerto Rico carece de los instrumentos institucionales
(fiscales, monetarios, comerciales, regulatorios, etc.) para
desarrollarse sanamente. Por lo tanto, ante la crisis lo unico que hace
es manifestar su impotencia.
Los titulares de los periodicos destacan diariamente la indefension
politica, la contraccion economica, el descalabro social, el peso del
endeudamiento y la insuficiencia fiscal del gobierno. Ya los hechos son
mas elocuentes que las palabras.
Del ano 2006 al presente la ruta que ha transitado la economia de
Puerto Rico solo puede caracterizarse como catastrofica. Segun los
datos de la Junta de Planificacion el Producto Nacional Bruto sobre
bases reales se ha reducido en mas de 13 por ciento. Esta contraccion
se refleja dramaticamente en el mercado de empleo. Del ano fiscal 2006
al ano fiscal 2014 el numero de personas empleadas se redujo en 20 por
ciento. Puerto Rico cuenta con una de las tasas de empleo -la
proporcion de empleados respecto a la poblacion de 16 anos o mas- mas
baja del mundo. En el ano 2006 era de 43.2 por ciento. Eso es bajo. Hoy
no sobrepasa el 35 por ciento. En otras palabras, el 65 por ciento de
la poblacion de 16 anos o mas no esta empleada. Esto, aparte del
desempleo, se traduce en dos grandes problemas: dependencia y
desarrollo de la economia informal o subterranea, con el consecuente
azote de la criminalidad y de la creciente inseguridad social que todo
esto genera.
Estos problemas no deben despacharse como si fueran expresion de
una fase pasajera del mercado o reflejo de la crisis financiera en
otros paises. La contraccion economica comenzo en marzo de 2006 -hace
nueve anos-, mucho antes que la debacle financiera que precipitara la
recesion en la economia estadounidense y en otras economias. Ademas,
fue precedida por un largo periodo de relativo estancamiento, a partir
de la decada de 1970, que ni la Seccion 936, ni las transferencias
Federales ni el endeudamiento publico pudieron evitar. A este periodo
le precedio un tramo de alto crecimiento del enclave industrial en
funcion de privilegios fiscales que no pudo conjurar los altos niveles
de desempleo y que se acompano de un enorme flujo emigratorio y de una
creciente remision de ganancias hacia el exterior.
En el siglo 21 la emigracion masiva ha reaparecido con mayor
intensidad, hasta el extremo que la poblacion total del pais acusa
reduccion continua. Por otro lado, aunque resulte inconcebible, los
rendimientos de capital (ganancias, dividendos e intereses) remitidos
al exterior sumaron $36,052.2 millones en el ano fiscal 2014. Esto
refleja una mezcla perversa de exenciones tributarias y precios de
transferencia que han permitido la instalacion de enclaves economicos
cuyos beneficios no se traducen en desarrollo sustentable para el pais.
Ahora, la agudizacion de todos los problemas citados coincide con
un gobierno cuyos grados de libertad de operacion parecen reducidos al
minimo: sus finanzas ``agonizan'' y su margen de endeudamiento ha
llegado practicamente al limite. El escenario fiscal luce tragico:
deficit presupuestario, deuda insostenible, anuncio de recortes,
inseguridad de empleo, deterioro de servicios, impuestos improvisados,
sistemas de retiro en crisis, medidas de corto plazo (como la
transferencia de fondos del Fondo del Seguro del Estado al Fondo
General) que agravarian la situacion en el futuro inmediato y sume y
siga. Y todo esto acompanado por un sector corporativo publico,
encabezado por la Autoridad de Energia Electrica, igualmente lastrado
por deudas e insolvencia.
Ante tal panorama economico aun los defensores de la colonia han
reconocido que hay que realizar reformas institucionales, como es el
caso, por ejemplo, de las Leyes de Cabotaje y la Ley de Quiebras donde
se hace patente el hecho de que Puerto Rico es una colonia. Pero para
superar los graves problemas que Puerto Rico enfrenta no basta con
reformar una que otra ley. Puerto Rico necesita una completa caja de
herramientas politicas y economicas para llevar a cabo los profundos
cambios institucionales y estructurales que le permitan encarar sus
problemas efectivamente. La condicion indispensable para la
articulacion del nuevo ordenamiento institucional es pues, la
superacion del coloniaje a traves de la independencia que es la unica
que provee la caja de herramientas que necesitamos.
Vivimos en un mundo en el que los cambios institucionales y
tecnologicos se han acelerado. Estamos rodeados de nuevos arreglos
politicos y de nuevas redes de relaciones economicas cobijadas por
complejos tratados multilaterales, regionales y bilaterales. Puerto
Rico no puede permanecer al margen. Le va la vida.
La dimension politica y la economica estan inextricablemente
unidas. Mientras mas se intente eludir el problema del status de Puerto
Rico mas evidente se tornara la necesidad de enfrentarlo.
______
Mr. Young. I thank the gentleman. Are you ready? Questions?
I will recognize the Minority leader for questions.
Mr. Sablan. I will yield to----
Mr. Young. You have questions?
Mr. Sablan. I will yield to Mrs. Torres.
Mr. Young. Mrs. Torres, go ahead. You are getting closer.
You keep it up, we will be hugging soon.
Mrs. Torres. I know.
Mr. Young. Oh, that sounds good.
Mrs. Torres. Anything that gets me closer to you, Chairman,
would be a wonderful thing. And thank you for allowing me to
come before my colleagues.
My question would be to Mr. Miranda. Do you think that
Puerto Rico's territory status is a cause of Puerto Rico's
economic and fiscal problems, or just a contributing factor? Or
do you think that the issues are totally distinct?
Mr. Rodriguez. First, let me qualify the concept of
territorial status, that the present government does not accept
as so. And ``commonwealth'' has been defined in other legal and
constitutional relationships with the United States. But,
nonetheless, I do not want to expand too much on that. The
critical economic circumstances that we are facing in Puerto
Rico are the consequence of many years of perhaps overspending.
We have to admit that, in some cases, we should have been much
more careful. But, nonetheless, in some way the island has been
dealing with some difficulties in dealing with that sort of
economic condition.
For instance, every state has a right to resort to a law
that allows Chapter 9 to be implemented. Therefore, any
municipality in any state can resort to it. Somebody has said
that Puerto Rico wants to have a bail out. Puerto Rico is not
interested in having a bail out by approving H.R. 870, and
extending Chapter 9 to Puerto Rico.
Mrs. Torres. I have one more question, so let me stop you
there. My next question would be to Mr. Berrios. I want to make
sure I get both of my questions on the record. We can follow
up.
Puerto Ricans are leaving the island in huge numbers, and
they are immigrating to the states. They are not necessarily
leaving to other countries. In light of this, do you believe
Puerto Rico's economy would perform better as a sovereign
nation, or as a state?
Mr. Berrios. It is Mr. Berrios.
Mrs. Torres. Oh, Berrios.
Mr. Berrios. Yes.
Mrs. Torres. Disculpa.
Mr. Berrios. No hay problema. Of course, I think the island
economy will be much better off as a republic, because we would
then have the tools necessary and the powers necessary to
diversify our economy, to protect our production, to enter into
commerce with other nations, to buy in cheaper markets. For a
number of reasons--I could keep on enumerating them.
Now in Puerto Rico, we have been under depressive
conditions since 2006. We have gone down 13 percent in our
gross domestic product--13 percent. We have shrunk. And since
1970, we have been practically stagnated. This political status
does not produce prosperity for the people of Puerto Rico, and
we need the necessary tools to enter into the world market,
keep up with the commerce with the United States, but have in
our hands the means, as every other nation in the world does,
including the United States, to promote its own economy. And
the only way to do that is through the powers of independence.
Mrs. Torres. As a sovereign nation?
Mr. Berrios. As a sovereign nation, of course. I would pose
the following rhetorical question to you--If independence is so
bad, why do we have more than 200 and some-odd independent
countries, including the United States, and only one territory?
Mrs. Torres. Thank you, sir. I am not here to answer
questions, I am here to ask them.
Mr. Young. Thank you. Ms. Radewagen, you are up.
Mrs. Radewagen. Thank you, Mr. Chairman.
I, too, want to welcome the panel of distinguished
witnesses, the first panel.
I have a question for Congressman Pierluisi. Some pro-
statehood advocates in Puerto Rico argue that Puerto Rico
already voted for statehood in 2012, and should not have to
vote again. You have pointed out the following: when Alaska and
Hawaii were territories, they each held votes sponsored by the
local government in which voters expressed a desire for
statehood. Ultimately, Congress approved an Admission Act for
Alaska in July 1958, and an Admission Act for Hawaii in March
1959. Those Acts of Congress provided for admission to occur
once a majority of voters affirmed in a federally-sponsored
vote that they desired statehood.
So you are essentially proposing the same procedure for
Puerto Rico as was used in Alaska and Hawaii, right?
Mr. Pierluisi. You are absolutely right, Madam
Congresswoman. That is exactly what we are doing. We are
following the path of Alaska and Hawaii. In both former
territories, there were locally organized plebiscites--if I
recall correctly, in Alaska, about 57 percent of the population
supported statehood. And many years later, they finally got it.
Alaska finally became a state.
But when Congress decided to legislate it, the admission of
Alaska, it was conditioned upon a vote by the people of Alaska,
basically ratifying the admission. And the vote happened, and
to no surprise, then a much bigger majority of voters in Alaska
supported the admission, and became a state.
The same happened in Hawaii. In Hawaii, if my recollection
serves me right, the plebiscite result was about 67 percent or
so. And years later, the same process happened. It was,
coincidental, very close to the time when Alaska came in----
Mr. Young. Would the gentleman cease for a moment? Whoever
has that cell phone in this room, you better shut it off, or I
will ask you to leave. It is impolite to have a cell phone on
at any time.
You may proceed.
Mr. Pierluisi. So, why am I proposing an up-or-down vote on
the admission of Puerto Rico as a state? Simple. In 2012, a
majority of the people of Puerto Rico, 54 percent, rejected the
current status. And more people voted for statehood than any
other option, including the current status. Given that
scenario, the next logical step should be a vote on statehood.
We had a yes or no in 2012, with respect to the current
territory. Why not have one with respect to statehood? Anybody
supporting statehood could vote yes.
My colleagues here, probably in all likelihood, would vote
no, for whatever reasons. If you support independence for
Puerto Rico, you would vote no. If you want Puerto Rico to be a
sovereign nation with a compact of association with the United
States, you could vote no.
So that is what I am proposing. It is fair. Nobody can say
they would be excluded. All the voters in Puerto Rico could
express themselves. And that is my position. Thank you.
Mrs. Radewagen. Thank you, Mr. Chairman. I yield back.
Mr. Young. My good lady friend from Guam.
Ms. Bordallo. Thank you very much, Mr. Chairman, and I
thank you for your leadership on addressing these issues that
are so very important to the territories.
I welcome our former colleagues, the governors and the
mayors and the other leaders from Puerto Rico. It is very nice
to have you here with us in this very important hearing. I also
commend Mr. Pierluisi, who has worked diligently to advance
self-determination efforts, and who champions Puerto Rico's
issues here in Congress.
Like our brothers and our sisters in Puerto Rico, the
people of Guam aspire to determine our political future, and
fully exercise our right to self-determination. I commend
Puerto Rico's local leadership for their efforts to determine
their political status, and I have urged local leaders on Guam
to make similar efforts, so that we can move forward with our
self-determination.
But this process is two-fold. Congress holds the
institutional obligation to address the political status of
Puerto Rico and the other territories under Article 4 of the
Constitution. So I urge this committee to give due
consideration to the views of the people of Puerto Rico on this
issue.
My first question is to you, Mr. Pierluisi. You have argued
that Puerto Rico's economic challenges make self-determination
even more urgent now. You are an ardent advocate for statehood
for Puerto Rico. If statehood vote were selected by the voters,
and Congress approves it, how could statehood address Puerto
Rico's difficult economic situation, which is the case now?
Mr. Pierluisi. Well, the fact is that Puerto Rico has been
lagging the states now for over four decades. Ever since the
1970s, Puerto Rico's unemployment, on average, has been 4 or 5
percent more than on the mainland. Ever since the 1970s, our
growth has been lagging the one in the mainland. We have been
behind. Income per capita, the GDP per capita in Puerto Rico,
consistently has been about one-third the average in the
states, and one-half the one for the poorest state,
Mississippi.
So, it is pretty obvious to me--and let me add one thing,
an additional fact which is very important. The debt that we
are talking about, $72, $73 billion, it piled up under the
current status. So it is pretty obvious to me that the common
element here is that the current status is not working as a
platform for Puerto Rico's economic development, for our
quality of life.
To add insult to injury, our island is losing population
like never before: 250,000 American citizens hopping on a plane
and moving to the states to have the rights and the
opportunities and the jobs they don't find in Puerto Rico.
Actually, they are voting with their feet--because once they
move to the states, they can vote for the President, they can
elect Members of Congress, and they have equal rights in
Federal programs, which we don't have in Puerto Rico.
Now, why would statehood be good for Puerto Rico? Well,
let's talk about Hawaii and Alaska. In both Hawaii and Alaska
you had growth, additional growth, once they became states.
Let's talk about the fact that Puerto Rico's status, by its
very nature, is not stable. It is insecure. There is political
risk in Puerto Rico. So statehood is a permanent status. It is
a stable status which will be very attractive, in terms of
attracting additional investment to the island.
When we talk about Federal funding, because of the
disparities we face, Puerto Rico would be receiving billions of
additional funding that would flow into our economy if we
become a state.
The bill I have introduced proposes basically a 4-year
transition period, because the parity in Federal programs would
happen gradually, as well as the taxes that would have to apply
in Puerto Rico. You could phase them in, as well. So this
wouldn't happen overnight, but I am sure that, once we put
Puerto Rico on the path to statehood, we will grow, we will
have a better quality of life, and our people will stay in
Puerto Rico.
Ms. Bordallo. Thank you very much. Mr. Chairman, I have
another question. Are we going to make a second round?
Mr. Young. I will let you ask it now.
Ms. Bordallo. Good. Thank you, Mr. Chairman. This one is
for Mr. Miranda.
Last year, Congress appropriated $2.5 million to Puerto
Rico for a new plebiscite to resolve Puerto Rico's political
status. Now I understand that the DOJ must approve the
expenditure plan, ensuring that the plan is compatible with the
Constitution and laws and policies of the United States. Has a
plan been submitted? And would such a plan be compatible with
the U.S. laws and policies?
Mr. Rodriguez. The plan seems compatible with the U.S. law,
as you just said. My understanding is that there was a process
for defining the status that we are going to be participating
on a referendum. That definition had to be approved by the
Secretary--by the Attorney General of the United States.
Where the due process stands now I really do not know, but
I understand that at some point the Governor of Puerto Rico was
getting involved in some conversations with the Department of
Justice to address that point, and to have organized the
process in Puerto Rico for that event to take place. I cannot
assure you at this moment what is the actual state of that
initiative that was very much welcome in Puerto Rico.
Ms. Bordallo. Thank you very much for the information, and
I yield back, Mr. Chair.
Mr. Young. Do you want to ask questions? I recognize the
Ranking Member.
Mr. Sablan. Thank you very much, Mr. Chairman. And welcome
again, everyone.
Now, this panel, let me get something straight. This panel
consists of the heads of three political parties in Puerto
Rico. Is that correct? Mr. Pierluisi is the President of the
New Progressive Party; the Minister of Justice was the Popular
Democratic Party; and Mr. Berrios is the President of Puerto
Rico Independence Party? Is that correct?
Mr. Rodriguez. Yes, Mr. Chairman, but let me clarify. I am
appearing here as a representative of the Governor in his
executive functions. The Governor is also the President of the
Popular Democratic Party in Puerto Rico, but I am not
representing him on that particular position. So, therefore, I
am not here representing the Popular Democratic Party. I am
here appearing just as a representative of the Governor in his
executive level.
Mr. Sablan. So what, then, are you doing here, if you
didn't get invited? We invited the President of the Popular
Democratic Party.
Mr. Rodriguez. I understand that----
Mr. Sablan. Why are you here?
Mr. Rodriguez. I am here because the Governor was invited
in two different categories. He was invited as Governor, and he
was invited as President of the Popular Democratic Party.
Mr. Sablan. We made the invitation. We should know who we
invited--and I think maybe you misunderstood, but we certainly
don't misunderstand who we invited. Can I ask you a political
question, then?
Mr. Rodriguez. You invited the Governor of Puerto Rico, and
I am appearing here, representing the Governor of Puerto Rico
in his capacity as governor, not in his capacity as president
of the Popular Democratic Party.
Mr. Sablan. I am confused now, because my questions are
directed to you----
Mr. Rodriguez. You can direct the question to me, and I can
decide if there is a----
Mr. Sablan. You don't have to decide when to answer, sir.
If you came here, I am assuming you came here as the head of a
party. But you don't just come here--I mean this is by
invitation only.
Mr. Rodriguez. I understand that.
Mr. Sablan. So let me ask you--because the Governor was
invited to testify. You agree with that, at least, right? About
Puerto Rico's political status, and the connection between that
party, the island's territorial status, and its economic
problems--and let me ask you something, because--let me make it
very clear. You want Chapter 9 for Puerto Rico, right? You
think it benefits Puerto Rico----
Mr. Rodriguez. I view Chapter 9 of the bankruptcy law for
Puerto Rico----
Mr. Sablan. You agree with that, right?
Mr. Rodriguez. As the Attorney General, I assure you that
that will be----
Mr. Sablan. That Chapter 9 is allowed for states.
Mr. Rodriguez. Well----
Mr. Sablan. States--the 50 states have the privilege of
Chapter 9----
Mr. Rodriguez. Right. That is----
Mr. Sablan. So you don't want to be a state, but you want
what belongs to a state.
Mr. Rodriguez. Well, I will tell you.
Mr. Sablan. All right.
Mr. Rodriguez. That could happen. Puerto Rico, as a
commonwealth, can be treated differently from states. But,
again, there are many other rights exercised by states that are
also being granted to Puerto Rico. So why is there a difference
regarding Chapter 9?
Mr. Sablan. That is not just Puerto Rico----
Mr. Rodriguez. I do not understand that difference----
Mr. Sablan. That is not exclusive to Puerto Rico, that is
also to the other territories, including the Northern Marianas.
But you want something that is a privilege extended to the 50
states, and you want that for Puerto Rico, but you don't want
Puerto Rico to be a state.
You are holding on also--I understand your government----
Mr. Rodriguez. No, excuse me one second----
Mr. Sablan [continuing]. You are holding on to $2.5 million
that we appropriated for a plebiscite, a straight up or down
question on whether Puerto Rico should favor statehood, Puerto
Ricans favor statehood. You haven't had that plebiscite. We
gave you the money, so it is no longer a question of money. So
why don't you have that plebiscite?
Mr. Rodriguez. I explained, sir, that I am appearing here
just----
Mr. Sablan. Mr. Chairman, he is not going to answer my
question. I yield back.
Mr. Young. Thank you. Mr. Grijalva--I've got the Ranking
Member and the Ranking Member. Which one is the rankest? He is
the rankest?
Mr. Grijalva. We are both----
Mr. Young. OK, you are both rankest? All right, Mr.
Grijalva.
Mr. Grijalva. Thank you, Mr. Chairman. Very kind of you.
And thank you for holding the hearing, and welcoming all the
witnesses and former colleagues that are here with us today.
And the sponsor of two pieces of legislation, our colleague on
the committee, Mr. Pierluisi, who has worked long and hard in
dealing with both the economic reality and challenges that are
facing Puerto Rico now, as well as a piece of legislation that
calls for a vote on the status and the statehood status--the
Puerto Rico Statehood Admission Act, using the money that was
appropriated previously, as the source for the election cost
and the promotion of that.
The other one I think is very important, the submitted H.R.
870, because it is about equal treatment. And until the other
issue, in terms of status and jurisdiction are settled, I think
it is an important piece of legislation, because it talks about
status. The 11 percent cut in Medicare only on the island, that
is not an appropriate response to the economic crisis. Allowing
Chapter 9 bankruptcy for state-owned--whether it be power or
other authorities, and allowing the government-owned companies,
as well as municipalities, to use Chapter 9, as would be the
availability to any community or publicly-owned company here on
the mainland.
So I want to thank the gentleman for that. I have a long,
beautiful statement--10 pages--Mr. Chairman, that I will submit
for the record.
Mr. Young. I gladly have you submit it for the record.
Mr. Grijalva. Thank you.
[The prepared statement of Mr. Grijalva follows:]
Prepared Statement of the Hon. Raul Grijalva, Ranking Member, Committee
on Natural Resources
Thank you, Mr. Chairman, and thank you for holding this hearing. I
want to welcome all of the witnesses, particularly our former
colleagues, Governors Fortuno, Acevedo Vila and Romero. Today's hearing
will look at the relationship between Puerto Rico's political status
and the economic challenges they are facing.
The Island of Puerto Rico has been a territory of the United States
since 1898. In all that time, the island's economy has seen its ups and
downs. It became one of the great post-war economic success stories as
a manufacturing powerhouse with a thriving middle class. But in the
1990s the Puerto Rican economy slowed with the repeal of the popular
possession tax credit, which allowed U.S. corporations to defer paying
U.S. income taxes on income earned in Puerto Rico. Since 2006, the
economy has been in and out of recession. Today the unemployment rate
is around 14 percent; 45 percent of the population lives below the
Federal poverty line; and there's a fiscal crisis--a scramble to
restructure debts of $73 billion. The Puerto Rico Electric Power
Authority (PREPA) is said to be close to defaulting on approximately
$8.6 billion in municipal bond debt.
Compounding the crisis is the fact that the territory has been
losing population at a level not seen in decades. According to the
Washington Post, ``Puerto Rico lost 54,000 residents--1.5 percent of
its population--between 2010 and 2012 alone. Since recession struck in
2006, the population has shrunk by more than 138,000 to 3.7 million,
with the vast majority of the outflow headed to the mainland.''
Additionally, because doctors practicing in Puerto Rico receive
much smaller Medicare and Medicaid reimbursement rates than their
counterparts on the U.S. mainland, the territory is facing a medical
crisis. The Center for Medicaid and Medicare Services' (CMS) plans an
11 percent cut in Medicare Advantage reimbursements because of the rate
formula. This has caused a steady drain of doctors on the island. This
funding gap and exodus of trained professionals is expected to grow
larger.
Representative Pierluisi believes that as long as Puerto Rico
remains a territory--without equal treatment under Federal programs,
forced to borrow heavily to make up the difference and without the
ability to vote for the national leaders who regulate our economy--the
island will not be in a position to overcome its economic problems. He
has introduced H.R. 727, the Puerto Rico Statehood Admission Act, to
address the question of the island's status.
He has also introduced a second bill, H.R. 870, to amend the U.S.
Bankruptcy Code to enable Puerto Rico to authorize PREPA and other
Puerto Rico government-owned corporations to adjust their debts under
plans filed as debtors in Chapter 9 of the Bankruptcy Code. Governor
Garcia Padilla and Congressman Pierluisi are in agreement that swift
passage of H.R. 970 would go a long way in easing the pressure of
default on PREPA and the other Puerto Rican government-owned
corporations.
Mr. Chairman, I join the New York Times and other major
publications in calling on Congress to pass H.R. 870 to allow Puerto
Rican government-owned companies, as well as municipalities, to use
Chapter 9.
Thank you again, Mr. Chairman. I yield back the balance of my time.
______
Mr. Young. Are you through?
Mr. Grijalva. I am through and I yield back. Thank you.
Mr. Young. Now Dr. Ruiz.
Dr. Ruiz. Thank you so much, Mr. Chairman. Mr. Chairman,
our territories are a part of our Nation. Their residents are a
part of our Nation. And, in fact, by an Act of Congress, they
are American citizens. And yet, too often, our territories are
left behind in major Federal legislation. The result of this
inequality comes in the form of health disparities, severe
income inequality, and in some cases, substandard living
conditions.
For example, territory residents who have paid into the
Medicare system do not have access to the same benefits they
would be due as a state. The statistics on the disparities in
Puerto Rico specifically are appalling. According to Puerto
Rico's Medical Licensing and Studies Board, the number of
physicians in Puerto Rico has dropped by 13 percent in the last
5 years, contributing to the severe primary health professional
shortage in 34 medical under-served areas across Puerto Rico.
Compared to the states, Puerto Rico has less than half the
per capita rate of emergency medicine physicians, which
oftentimes serve as the individual's last safety net resource.
And the reimbursement rate for physicians practicing on the
island is said to go down even further, exacerbating these
disparities. The people of Puerto Rico deserve to have access
to the health care services that they have paid for, and
deserve the opportunity to lead a healthy, full life. So I
would like to ask you a question if we have enough time.
This question is for my colleague, Representative
Pierluisi. How does Puerto Rico's territory status specifically
harm the health and wellness of Puerto Rico's residents?
Mr. Pierluisi. Thank you so much, Mr. Ruiz. And I will try
to be brief and get to the point.
Actually, the situation we are facing is very similar when
we talk about all the territories. The life of a territory is
the life of American citizens in most--I understand that in
American Samoa we are talking about nationals--unfortunately
so. But we do not get equal treatment in Federal programs,
including in Federal health programs. And that translates into
worse quality of life for our people, particularly our
vulnerable population.
What happens, for example, in the Medicaid program is that
for years the U.S. Government was assuming roughly about 18 to
20 percent of the cost of Puerto Rico's Medicaid program, up to
the Affordable Care Act. When the Affordable Care Act came
about, I worked hard, as well as my fellow delegates from the
territories, so that the Federal Government would enhance the
funding we get. But we are still short at the moment, Puerto
Rico basically--the U.S. Government is assuming 50 percent of
the cost of our Medicaid program, but not resembling your
Medicaid program.
In Puerto Rico, to give you an example, we afford health
insurance to people up to roughly 80 percent of the U.S.
poverty level. In the mainland, as you know, the Medicaid
expansion is getting up to 134 percent of poverty level. So the
Federal Government is not giving us, not even parity, equal
treatment, for the population we have under the 100 percent of
poverty level. To me, that is atrocious. It is unacceptable.
These are American citizens, vulnerable American citizens, and
the U.S. Government is not even funding----
Dr. Ruiz. So you have 1 minute. What is the solution?
Mr. Pierluisi. The solution--I have a bill before this
Congress proposing to fix all these disparities we have in
Medicaid, Medicare, which you refer to, in a pragmatic,
realistic way.
Let's say that just the Medicaid disparity is fixed. You
are talking about roughly $1.2 billion that the government of
Puerto Rico, is spending right now that the Federal Government
would be spending. When we talk about fiscal issues in Puerto
Rico, that, in and of itself, would solve the budget deficits
that Puerto Rico has been dealing with, and would allow Puerto
Rico to make the necessary contributions through its state
pension system.
So, talk about the life of a territory. We are always
lacking Federal funding, not to talk about lacking voting
rights because, as I have said before, we don't vote for the
President. Puerto Ricans have only me, a Resident Commissioner.
I can debate, I can speak, but I cannot vote on the Floor--and
I represent 3.5 million American citizens. That is not
democratic, that is embarrassing.
So that is the situation. It definitely would help for you,
for the Congress, to treat Puerto Rico fairly--at the very
least, in Federal health programs.
Dr. Ruiz. Well, as a physician, I care very much in
reducing those disparities, and ensuring that the citizens in
Puerto Rico have the opportunity to live a life of wellness and
a long, prosperous life, as well. Thank you.
Mr. Young. Thank you, sir.
Mr. LaMalfa.
Mr. LaMalfa. I have no questions.
Mr. Young. Commissioner, in your proposal with the new
plebiscite--you say you have 5 years. On that plebiscite, what
would happen if you had the plebiscite, and if the people of
Puerto Rico voted for statehood that was automatic, then?
Mr. Pierluisi. There are two pieces of legislation at
issue. You have the appropriation that we approved, providing
$2.5 million for a federally-sponsored plebiscite in Puerto
Rico. The legislation speaks of having a vote to resolve the
status issue, and it requires that the Attorney General of the
United States basically bless whatever option is posed before
the electorate. We don't want to waste time. We want to make
sure that whatever the people vote on is something real,
something possible.
Mr. Young. What I am leading up to----
Mr. Pierluisi. Yes.
Mr. Young. The present legislation doesn't have--that is
not finite. If they vote for it, there is another step. What if
we were able to put something in the legislation so if they
vote for it you become a state?
Mr. Pierluisi. That is what H.R. 727 does. My bill, which
has 108 co-sponsors--including me, 109--basically has a two-
step process. You have an up-or-down vote on the admission of
Puerto Rico as a state. And if a majority of the people support
the admission, then it triggers the transition into the
admission.
Mr. Young. OK.
Mr. Pierluisi. Depending on when the vote takes place, what
the bill provides for is the admission of Puerto Rico, at the
latest, in January 2021. We would be voting for President in
the elections of November 2020, and we would be electing our
Members of Congress in November 2020. Until then, Congress
would be conforming the laws, Federal laws, so that Puerto Rico
receives the same treatment states do.
Mr. Young. This is a question for the total panel. And,
like I said, I have been involved in this for a long time,
because we were the leaders of the state recently, and then
Hawaii, and then, of course, I hope Puerto Rico.
When we first got started in 1994, I warned at that time
that status quo would not prevail and, in fact, you would be in
economic problems. If we don't do something in the Congress, 20
years from now--I will start with you, Commissioner--where do
you see Puerto Rico?
Mr. Pierluisi. Quality of life is deteriorating incredibly
fast. I see a bright future for Puerto Rico, because of the
potential, the capacity of our people. But we cannot keep
losing them. The current status is not providing them with the
necessary quality of life, the necessary jobs and
opportunities.
Congressman Ruiz was talking about doctors. By the way, the
top surgeons in Texas, there are lots of Puerto Ricans there.
And in Florida, they are all over. Not to talk about engineers,
scientists. They are all over the states. The diaspora, we
call. And we are losing them. Why are we losing them? Because
they are American citizens, and the only thing they have to do
to get a better quality of life is to hop on a plane and move
to a state.
Mr. Young. OK.
Mr. Pierluisi. What are we aspiring to--to become a state.
Mr. Young. The question was, if nothing occurs, you see a
devastated island.
Mr. Pierluisi. Yes.
Mr. Young. OK.
Mr. Pierluisi. Yes, the permanent solution to Puerto Rico's
economic problems, social problems, is equal rights, is
equality. All nations who have equal rights have prospered.
Mr. Young. OK. I am just--the gentleman from the Governor's
office?
Mr. Rodriguez. We see a brighter future for Puerto Rico. We
are facing a very difficult financial situation. Actually, a
crisis. Nonetheless, I understand that we have the capabilities
to come across and bring the island to a brighter condition. We
need the help that I mentioned before. We need to have an
instrument to deal with the debt that we are carrying now. That
is why we support extending bankruptcy Chapter 9 to Puerto
Rico. That is a fact.
But besides that, I understand that all the capabilities
are there. All the instruments are there in Puerto Rico. If we
reorganize our debt and we can comply with our compromises,
with holders of our debt, certainly Puerto Rico can come across
and enter into a state of parity.
Mr. Young. All right. Senator?
Mr. Berrios. Well, the question is quite easy to answer
with just the past products of the archives of the United
States. The same downward spiral that started in 1970, and
which has deepened to the present crisis since 2006, will
continue. That will mean more dependence, more and more
dependence, because Puerto Rico cannot exercise the potential
of its productive capacity. And that will mean that the type of
argument you have heard today for statehood, that is more and
more and--billions of Federal funding as the Resident
Commissioner said. Yet you will see more people aspiring for
statehood for the wrong reasons.
Puerto Rico would then be on the verge of potentially
becoming a ghetto state, and that is not the type of future I
foresee for my land. We need the political powers, in order to
develop our own economy and have a friendly relationship with
the United States and with the rest of the world, not more and
more dependency--more votes for statehood, because people
believe statehood is just what the Resident Commissioner said,
billions of dollars in funding.
Who aspires to that? We then have 80 percent living off
food coupons or food checks, instead of 50 percent? That is the
future of Puerto Rico if Congress doesn't act soon with more or
less what I have proposed. Let's talk about this. Let's enter
into the mutual collaboration process to find a way out for
your benefit, and for our benefit.
Mr. Young. I thank the panel. You have done well. I will
tell you again, I personally don't believe--I have said all
along, and don't get upset with me--if you are not going to be
a state, you should become an independent nation. Either one.
But the status quo is not working. We have watched this thing.
I said 21 years ago, I had the only vote on the House Floor
on Puerto Rico--by one vote, by the way. I have watched the
downward spiral. And these are great Americans, and to have
this occur--I am just sitting here thinking, if something
doesn't happen, if we don't do something, there is a
possibility of revolution in Puerto Rico, because you can't
have a group of people that has American status and not have
the rights that all other Americans have, and have a poverty
level which is increasing.
This is a challenge to Congress. And the reason we are
having these hearings is trying to get somebody to start
talking about it, because this is a black eye on American soil.
And we are going to continue to do that.
I want to thank the panel. You are excused.
Mr. Berrios. Thank you very much.
Mr. Young. Now we will call up the second panel. I have
never seen so many fine, honorable governors in my life. I love
it--the Honorable Luis Fortuno; the Honorable Carlos Romero,
one of my dear friends, both of them were; the Honorable
Acevedo Vila; and the Honorable Carmen Yulin Cruz, who is a
mayor; and Dr. Miriam Ramirez, former Puerto Rican State
Senator.
And you all know the rules of the game. As soon as you all
sit down and quit talking, we will start.
[Pause.]
Mr. Young. Is everybody situated? You photographers get
moving.
Because you are lined up this way, I am going to call on
the Honorable Carlos Romero. Carlos, welcome. I can remember
when I was in the Minority and you were in the Majority. You
fought this battle then, as you are fighting it now. We may
have different ideas, but I hope the people of Puerto Rico
appreciated your dedication to a cause, and your word--
crucially important.
So, you are up, you are first, you know the rules. I am
pretty lenient, but you do what you have to do.
Mr. Barcelo. Thank you.
Mr. Young. Turn that microphone on.
STATEMENT OF CARLOS ROMERO BARCELO, FORMER GOVERNOR OF PUERTO
RICO 1977-1985 (PNP), SAN JUAN, PUERTO RICO
Mr. Barcelo. Mr. Chairman, members of the committee, good
afternoon.
Mr. Chairman, I want to thank you on behalf of my fellow
Puerto Rican Americans, who, as American citizens, demand equal
rights and equal participation in the democratic process and
the government of our Nation with our fellow citizens in the 50
states, for all your efforts and support to our long-time quest
for equality.
Before we continue, I would like to ask you to ask
yourselves these questions, and ask all the Members of Congress
and the Senators to ask themselves these three questions: Do
you believe in our Constitution and in our Nation's republican
form of government? Do you believe, as our Constitution
declares, that all men are created equal? And, do you believe
that all U.S. citizens should have the right to vote and the
right to representation at all levels of government?
If you answered yes to the third question, you should
support and join our efforts to enact a bill for admission of
Puerto Rico as a state.
I have dedicated 52 years of my adult life in a quest for
equality for the people of Puerto Rico. We have been
disenfranchised American citizens for 98 years. We have been
denied our right to participate in our Nation's democracy, and
we have been denied any meaningful participation in our
Nation's government. We have also been denied the same economic
opportunities which have been available to our fellow citizens
in the 50 states. We are, as a matter of fact, the world's last
colony, with more than 1 million inhabitants. Under our
Constitution, we are a U.S. territory. But in international,
geopolitical terms, we are a colony.
In spite of the fact that we have been denied equality and
participation in our Nation's democratic process ever since we
were granted U.S. citizenship in 1917, more than 500,000 Puerto
Rican Americans have served in our Nation's armed forces, and
tens of thousands have shed their blood and lost life and limbs
in defense of democracy, and in defense of our Nation. Puerto
Rican Americans have more than earned their right to equal
participation in our Nation's democratic process, as well as
the right to vote for our President and to elect Senators and
Representatives to Congress.
We are tired and increasingly upset to have to plead for
equality. We are tired and increasingly upset to have to plead
and beg for equal terms in Federal grants for education for our
children. We are tired of pleading and begging for equal terms
in Federal health care grants to provide health services to our
medically indigent. We are tired of pleading and increasingly
upset to have to beg for equal terms and Federal grants to help
families with insufficient income to support their children.
And we are tired and increasingly upset of being told that we
don't qualify for Federal funding because we don't pay Federal
income taxes.
How can Congress raise the issue of our non-payment of
Federal income taxes when you know that we don't have the power
to impose Federal income taxes on income earned in Puerto Rico?
Only Congress has that power. And why doesn't Congress impose
Federal income taxes on income earned in Puerto Rico? Because
Congress knows that if they were to impose Federal income taxes
on us without granting us equal voting rights and equal rights
to elect Senators and Representatives to Congress, Congress
would be invalidating our Nation's famous ``No taxation without
representation'' battle cry to end the colonial relationship
with Great Britain.
Yes, we are tired and increasingly upset by being denied
the right to vote for our President, and the right to elect two
Senators and Members of Congress that we would be entitled to
as a state. And, we are particularly upset when we see our
President and our Nation's Congress spending billions of
dollars and sending our Nation's young men and women into
harm's way, to bring democracy to countries such as Iraq and
Afghanistan, where they don't understand it and don't want it.
At the same time, they have kept and are still keeping 3.6
million U.S. citizens disenfranchised, discriminated against,
and denied equality under the laws of the Nation for no less
than 98 years.
It is no wonder that the United States is losing
credibility and moral authority to preach democracy and to talk
about strengthening democracy throughout the world. Our Nation
is being ridiculed for its hypocrisy in spending billions of
dollars and putting its young men and women in harm's way to
bring democracy to people who don't want it or don't understand
it, while at the same time they deny participation in the
Nation's democratic process to 3.6 million American citizens
because they live in Puerto Rico.
I have enclosed with my statement a disc containing some
very insightful and satirical criticism of our Nation's
hypocrisy with Puerto Rican Americans made by British comedian
John Oliver. You will not only be enlightened by it, you will
also enjoy it very much. And I also made a short editor--3
minutes and 30 seconds, that will be available also.
Yes, we must stop begging for equality and demand it loud
and clear and belligerently, if need be. It is way past the
time when Congress and the President should have put an end to
our disenfranchisement and to our being denied equal
opportunities under the laws of our Nation. How can anyone who
claims to believe in democracy stand idly by without putting an
end to the discrimination and the unacceptable inequality
between the 3,600,600 American citizens who live in Puerto Rico
and the 360 million fellow citizens in the 50 states?
Whether we demand equality or not, it is the Congress and
the President's duty, as leaders of the world's greatest
democracy, to put an end to this inequality and denial to
participate in our Nation's democracy.
We have decided to ask for admission as a state. In
November 2012, we held a referendum in Puerto Rico where the
people were asked to vote whether they wanted to remain as a
U.S. territory or not. Fifty-four percent of the voters said
no, and 46 percent said yes. The referendum ballot had a second
question to give the voters three options, to wit: statehood,
sovereign commonwealth, or independence. A solid majority of 61
percent voted in favor of Puerto Rico being admitted as a
state.
The solid majority vote for statehood in 2012 cannot be
ignored. This Congress must address the issue and consider
enacting a bill to provide for the admission of Puerto Rico as
a state. The bill should establish the conditions and the
process, as well as the fiscal and economic arrangements that
must be implemented for Puerto Rico to be admitted as a state.
The plebiscite, or referendum, to be held would allow the
American citizens who reside in Puerto Rico the opportunity to
accept or deny the offer. The ballot would be a simple yes-or-
no vote. All those who oppose statehood could vote no, so they
cannot complain that they were not offered an option to
exercise the right to vote.
Of the 37 territories admitted to the Union since the 13
colonies joined to establish the United States of America, not
a single one was disenfranchised for as long a period of time
as we have been for 98 years. Not a single territory of the 37
admitted to the Union were deprived of equal economic
opportunities and benefits for as long as we have. Not a single
territory of the 37 territories who were admitted had as many
citizens killed or wounded in the Nation's wars as we have had
in the 98 years since we became American citizens.
The awareness of the importance and the benefits of being a
state of the Union has become more obvious to Puerto Rican
Americans as they suffer the effects of a worsening economic
depression. As they increasingly feel they no longer have
reasonable opportunities to get a job or get ahead economically
in the island, they are leaving Puerto Rico to look for
substantially better opportunities in Florida, Texas, Georgia,
New Jersey, New York, Connecticut, Pennsylvania, Massachusetts,
Illinois, Ohio, and many other states. As a result, more and
more Puerto Ricans realize that our island's economic future
lies in becoming the 51st state.
We don't want our sons and daughters, our brothers and
sisters, our grandchildren, our family and our friends to leave
Puerto Rico. We want them to stay and enjoy the same
opportunities available to our fellow citizens in the 50
states.
Puerto Ricans have also become more cognizant of the
importance of having the right to vote for the President, and
to elect Senators and Representatives to Congress in order to
participate in our Nation's sovereignty. The value to our
dignity, to our economic development, and to our self esteem in
having two Senators and at least five Members of Congress is
much more widely understood and sought after than ever before.
Ruben Berrios, the President of the Independence Party,
claimed that we needed more political power. Definitely we need
more political power, and definitely two Senators and five or
six Congressmen have much more power than the President of
Puerto Rico as an independent nation.
That, and much more is what millions of American citizens
in Puerto Rico have been denied for 98 years. The time has
come, not to beg or plead, but to demand equality. The time has
come for Congress and the President to stop looking for excuses
and enact a bill to admit Puerto Rico as a state, to be
submitted to a vote in Puerto Rico.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Barcelo follows:]
Prepared Statement of Carlos Romero Barcelo, Former Governor of Puerto
Rico
Mr. Chairman, members of the committee, good afternoon. Mr.
Chairman I want to thank you, on behalf of all my fellow Puerto Rican
Americans who, as American citizens, demand equal rights and equal
participation in the democratic process and the government of our
Nation with our fellow citizens in the 50 states of the Union, for all
your efforts and support to our longtime quest for equality.
Before we continue, I would like you to ask yourselves the
following questions:
1. Do you believe in our Constitution and in our Nation's republican
form of government?
2. Do you believe as our Constitution declares, that, ``all men are
created equal'', and
3. Do you believe that all U.S. citizens should have the right to
vote for their President and to elect Senators and
Representatives to Congress?
If you answered yes to the third question, you should support and
join our efforts to enact a Bill for Admission of Puerto Rico as a
state.
I have dedicated 52 years of my adult life in a quest for equality
for the people of Puerto Rico. We have been disenfranchised American
citizens for 98 years. We have been denied our right to participate in
our Nation's democracy and we have been denied any meaningful
participation in our Nation's government. We have also been denied the
same economic opportunities which have been available to our fellow
citizens in the 50 states. We are, as a matter of fact, the world's
last colony with more than 1 million (1,000,000) inhabitants. Under our
Constitution, we are a U.S. Territory, but in international
geopolitical terms, we are a colony.
In spite of the fact that we have been denied equality and
participation in our Nation's democratic process ever since we were
granted U.S. citizenship in 1917, more than 500,000 Puerto Rican
Americans have served in our Nation's armed forces and tens of
thousands have shed their blood and lost life and limbs in defense of
Democracy and defense of our Nation. Puerto Rican Americans have more
than earned their right to equal participation in our Nation's
democratic process, as well as their right to vote for our President
and to elect Senators and Representatives to Congress.
We are tired and increasingly upset to have to plead for equality;
we are tired and increasingly upset to have to plead and beg for equal
terms in Federal grants for education of our children; we are tired of
pleading and begging for equal terms in Federal health care grants to
provide health services to our medically indigent; we are tired of
pleading and increasingly upset to have to beg for equal terms in
Federal grants to help families with insufficient income to support
their children, and we are tired and increasingly upset at being told
that we don't qualify for equal funding because we don't pay Federal
income taxes.
How can Congress raise the issue of our non-payment of Federal
income taxes when you know that we don't have the power to impose
Federal income taxes on income earned in Puerto Rico. Only Congress has
that power. And why hasn't Congress imposed Federal income taxes on
income earned in Puerto Rico? Because Congress knows that if they were
to impose Federal income taxes on us without granting us equal voting
rights and equal rights to elect Senators and Representatives to
Congress, Congress would be invalidating our Nation's famous ``No
taxation without representation'' battle cry to end the colonial
relationship with Great Britain.
Yes, we are tired and increasingly upset by being denied the right
to vote for our President and the right to elect two Senators and the
number of Members of Congress that we would be entitled to as a state.
And, we are particularly upset when we see our President and our
Nation's Congress spending billions of dollars and sending our Nation's
young men and women into harm's way, to bring democracy to countries,
such as Iraq and Afghanistan, where they don't understand it, nor want
it. At the same time, they have kept, and are still keeping, 3.6
million U.S. citizens, disenfranchised, discriminated against and
denied equality under the laws of the Nation for no less than 98 years.
It is no wonder that the United States is losing credibility and
moral authority to preach democracy and to talk about strengthening
democracy throughout the world. Our Nation is being ridiculed for its
hypocrisy in spending billions of dollars and putting its young men and
women in harm's way to bring democracy to people in Iraq and
Afghanistan who do not understand it nor want it, while they deny
participation in the Nation's democratic process to 3.6 million
American citizens because they live in Puerto Rico. I have enclosed
with my statement a disk containing some very insightful and satirical
criticism of our Nation's hypocrisy with Puerto Rican Americans made by
British Comedian John Oliver. You will not only be enlightened by it,
you will also enjoy it.
Yes! We must stop begging for equality and demand it loud and
clear; and belligerently, if need be. It is way past the time when
Congress and the President should have put an end to our
disenfranchisement and to our being denied equal opportunities under
the laws of our Nation.
How can anyone who claims to believe in democracy stand idly by
without putting an end to the discrimination and the unacceptable
inequality between the 3.6 million American citizens who live their 360
million fellow citizens in the 50 states. Whether we demand equality or
not, it is the Congress and President's duty, as leaders of the world's
greatest democracy, to put an end to this inequality and denial to
participate in our Nation's democracy.
We have decided to ask for admission as a state. On November 2012,
we held a referendum in Puerto Rico where the people were asked to vote
whether they wanted to remain as a U.S. Territory or not, and 54
percent of the voters said no and 46 percent said yes. The referendum
ballot had a second question which gave the voters three (3) options,
to wit: Statehood, Sovereign Commonwealth, or Independence. A solid
majority of 61 percent voted in favor of Puerto Rico being admitted as
a state.
The solid majority vote for statehood in 2012 cannot be ignored.
This Congress must address the issue and consider enacting a bill to
provide for the admission of Puerto Rico as a state. The Bill should
establish the conditions and the process, as well as the fiscal and
economic arrangements that must be implemented for Puerto Rico to be
admitted as a state. The plebiscite or referendum to be held would
allow the American citizens who reside in Puerto Rico the opportunity
to accept or deny the offer. The ballot would be a simple Yes or No
vote. All those who oppose statehood could vote No, so they cannot
complain that they were not offered an option to exercise their right
to vote.
Of the 37 territories admitted to the Union since the thirteen (13)
colonies joined to establish the United States of America, not a single
one was disenfranchised for as long a period of time as we have been
for 98 years. Not a single territory of the 37 admitted to the Union
were deprived of equal economic opportunities and benefits for as long
as we have. Not a single territory of the 37 territories which were
admitted had as many of its citizens killed or wounded in the Nation's
wars as we have had in the 98 years since we became American citizens.
The awareness of the importance and of the benefits of being a
state of the Union has become more obvious to Puerto Rican Americans as
they suffer the effects of a worsening economic depression. As they
increasingly feel they no longer have reasonable opportunities to get a
job or get ahead economically in the island; they are leaving Puerto
Rico to look for substantially better opportunities in Florida, Texas,
Georgia, New Jersey, New York, Connecticut, Pennsylvania,
Massachusetts, Illinois, Ohio and many other states. As a result, more
and more Puerto Ricans realize that our island's economic future lies
in our becoming the 51st state.
We don't want our sons and daughters, our brothers and sisters, our
grandchildren, our family and our friends to leave Puerto Rico, we want
them to stay and enjoy the same opportunities available to our fellow
citizens in the 50 states.
Puerto Ricans have also become more cognizant of the importance of
having the right to vote for the President and to elect Senators and
Representatives to Congress in order to participate in our Nation's
sovereignty. The value to our dignity, to our economic development and
to our self-esteem having two (2) Senators and at (5) Members of
Congress is much more widely understood and sought than ever before.
That, and much more is what millions of American citizens in Puerto
Rico have been denied for 98 years. The time has come, not to beg or
plead, but to demand equality! The time has come for Congress and the
President to stop looking for excuses and enact a Bill to admit Puerto
Rico as a state, to be submitted to a vote in Puerto Rico.
______
Mr. Young. Thank you, Carlos. I have to say you said it
very well--couldn't be said better. I did give you a little
more time. I don't want the rest of you to get the idea I can
be that lenient, but I might. Depends on how well you are
doing. See, I was interested in what he had to say.
Mr. Barcelo. Thank you, Chairman. I know you have always
been very supportive, and I remember the day in the House when
we won by one vote.
Mr. Young. Yes, right.
Luis, former Governor, former colleague. Welcome aboard.
STATEMENT OF LUIS G. FORTUNO, FORMER GOVERNOR OF PUERTO RICO,
2009-2011 (PNP), WASHINGTON, DC
Mr. Fortuno. Thank you, Mr. Chairman. It is a pleasure to
see you and so many other friends, and I thank you for your
leadership on this issue.
The focus of today's hearing is on point, because the
economic outlook of Puerto Rico is directly linked to the
historical necessity of a permanent, constitutionally-defined
political status. The current economic crisis is a cruel
manifestation that territorial status is not a sustainable
model for the political economy of America's last large and
populous territory.
Real people are enduring harsh suffering because Puerto
Rico's development is being suppressed by a century of even
more severe constraints on growth than 32 other territories
experienced before transitioning to a statehood economy. The
dire situation that has developed under the commonwealth regime
is demonstrated by graphs that I have provided to this
subcommittee.
With the exception of a year and a half between 2011 and
2012, Puerto Rico's economy has been in negative territory
during the last 9 years. The situation has turned critical
during the last 30 months. We must reverse this accelerating
decline and restore fiscal discipline, so that people can go
back to work and families can recover optimism and prosperity.
But, Puerto Rico's full potential for economic success and
job creation will not be realized until economic uncertainty
generated by the island's unresolved political status is
replaced by stability and full participation in the U.S.
national economy. The 3.5 million U.S. citizens of Puerto Rico
get it. That is why a 54 percent majority voted to end the
current status in the plebiscite of 2012.
With voter turnout exceeding 78 percent, more than 61
percent of voters chose statehood over separate sovereign
nation, with or without a treaty of free association. Results
certified by the Puerto Rico Elections Commission confirmed
that the total number of votes cast for statehood was greater
than the total vote for the current status. That means the
current status was defeated on the first ballot question, while
statehood won a strong majority on the second ballot question.
There is no legal basis for assigning a meaning to blank
ballots on the second question in the 2012 vote, while there is
a historical precedent for a federally-sponsored vote to
confirm the results of the 2012 plebiscite. That is why
Congressman Pierluisi's bill, will empower voters either to
confirm or reverse the 2012 vote for statehood.
H.R. 727 is fully consistent with the purpose of the 2014
bipartisan legislation in which Congress allocated $2.5 million
for a new status vote. Its objective can be accomplished
pursuant to the Pierluisi bill, under which the U.S. Attorney
General still must certify the ballot question is legally valid
under Federal law.
Yet, instead of open democratic self-determination, the
ideological faction clinging to the status quo insists on
obstructing the will of the people, as clearly expressed in the
2012 plebiscite. The defenders of the status quo can't even
agree on a legally valid non-territorial status themselves.
The status proposals made in the past by the commonwealth
party have not been constitutionally valid, and there is no
indication that this time it will be any different. Meanwhile,
as time passes, a steady and indeed unprecedented stream of
U.S. citizens, denied both self-determination and equal
economic opportunity in the territory, continue the exodus to
acquire equal rights secured under our Constitution only
through residence in a state.
But vast relocation within our national borders should not
be required for U.S. citizens in a territory to attain equal
rights. People know that in America equality includes
government by consent, and in the United States that means
voting rights in Federal elections secured only for residents
of a state under our Constitution.
The real meaning of the 2012 vote is that decades of false
doctrine on political status options have ended. A majority of
your fellow citizens in Puerto Rico now understand that the
most sacred fundamental rights of citizenship can be secured
permanently and constitutionally only by citizenship in a state
of the Union. This modern-day diaspora is a direct reflection
of the inequities of the current territorial status and a
direct response to the lack of action by Congress to address
this flaw in our democratic way of life.
Every month, thousands of American citizens relocate from
the island, leaving their homes and families behind, in search
of equal opportunities, equal rights, and economic freedom that
can only be attained in one of the 50 states. That is why
supporters of statehood are not afraid to put the status we
support to the test of an up-or-down vote. The most logical and
democratic way for Congress to know where we stand as Americans
is to allow us an up-or-down vote to confirm or overturn the
2012 results.
Thank you, and it is great seeing you again, Mr. Chairman.
[The prepared statement of Mr. Fortuno follows:]
Prepared Statement of the Hon. Luis G. Fortuno, Former Governor of
Puerto Rico
Chairman Young, Ranking Member Ruiz and other members of this
subcommittee: The focus of today's hearing is on point, because the
economic outlook for Puerto Rico is directly linked to the historical
necessity of a permanent, constitutionally defined political status.
The current economic crisis is a cruel manifestation that
territorial status is not a sustainable model for the political economy
of America's last large and populous territory. Real people are
enduring harsh suffering because Puerto Rico's development is being
suppressed by a century of even more severe constraints on growth than
32 other Federal territories experienced before transitioning to a
statehood economy.
The dire situation that has devolved under the commonwealth regime
is demonstrated by graphs from reports released by the Puerto Rico
Government Development Bank that I have provided to this subcommittee
(Exhibit A). With the exception of a year and a half between 2011 and
2012, Puerto Rico's economy has been in negative territory during the
last 9 years. Said situation has turned critical during the last 30
months. We must reverse this accelerating decline and restore fiscal
discipline so that people can go back to work and families can recover
optimism and prosperity.
But there can no longer be any illusions about one transcendental
truth. Puerto Rico's full potential for economic success and job
creation will not be realized until economic uncertainty generated by
the island's unresolved political status is replaced by stability and
full participation in the U.S. national economy.
The 3.5 million U.S. citizens of Puerto Rico get it. That is why a
54 percent majority voted to end the current status in the plebiscite
of 2012. With voter turnout exceeding 78 percent, more than 61 percent
of voters chose statehood over separate sovereign nationhood, with or
without a treaty of free association.
Results certified by the Puerto Rico Elections Commission confirm
that the total number of votes cast for statehood (834,191) was greater
than the total vote for the current status (828,077). That means the
current status got an up or down vote and was defeated on the first
ballot question, while statehood won a strong majority on the second
ballot question.
There is no legal basis for assigning a meaning to blank ballots on
the second question in the 2012 vote, while there is historical
precedent for a federally-sponsored vote to confirm the results of the
2012 plebiscite. That is why Congressman Pierluisi's bill (H.R. 727)
will empower voters either to confirm or reverse the 2012 vote for
statehood.
H.R. 727 is fully consistent with the purpose of the 2014
bipartisan legislation in which Congress allocated $2.5 million for a
new status vote. Its objective can be accomplished pursuant to the
Pierluisi bill, under which the U.S. Attorney General still must
certify the ballot question is legally valid under Federal law.
Yet, here we are in 2015, and instead of open democratic self-
determination, the ideological faction clinging to the status quo
insists on obstructing the will of the people as so clearly expressed
in the 2012 plebiscite. The simple truth is that defenders of the
status quo can't even agree on a legally valid non-territorial status
definition. The status proposals made in the past by the commonwealth
party have not been constitutionally valid, and there is no indication
that this time it will be any different.
Meanwhile, as time passes, a steady and indeed unprecedented stream
of U.S. citizens, denied both self-determination and equal economic
opportunity in the territory, continue the exodus to acquire equal
rights secured under our Constitution only through residence in a
state.
But mass relocation within our national borders should not be
required for U.S. citizens in a territory to attain equal rights.
People know that in America equality includes government by consent,
and in the United States that means voting rights in Federal elections
secured only for residents of a state under Article I and Article II of
the Constitution.
Thus, the real meaning of the 2012 vote is that decades of false
doctrine on political status options have ended. A majority of your
fellow citizens in Puerto Rico now understand that the most sacred
fundamental rights of citizenship can be secured permanently and
constitutionally only by citizenship in a state of the Union. This
modern-day diaspora is a direct reflection of the inequities of the
current territorial status and a direct response to the lack of action
by Congress to address this flaw in our democratic way of life. Every
month, thousands of American citizens relocate from the island, leaving
their homes and families behind, in search of equal opportunities,
equal rights and economic freedom that can only be attained in one of
the 50 states of the Union.
That is why supporters of statehood are not afraid to put the
status we support to the test in an up or down vote. As fate would have
it, the most logical and democratic way for Congress to know where we
stand as Americans is to allow an up or down vote to confirm or
overturn the 2012 results.
* The opinions expressed in this testimony are my own and do not
necessarily represent the opinions of Steptoe & Johnson, LLP, its
employees or clients.
Attachment: Exhibit A
EXHIBIT A
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Young. I thank you, Governor. And you are good at this.
You learned something here. Five minutes, right on the button.
[Laughter.]
Mr. Young. Acevedo Vila, former Governor of Puerto Rico,
former Commissioner, you are up.
STATEMENT OF ANIBAL ACEVEDO VILA, FORMER GOVERNOR OF PUERTO
RICO, 2005-2009 (PPD), SAN JUAN, PUERTO RICO
Mr. Vila. Thank you, Mr. Chairman. Thank you for the
invitation.
I will start by saying the title of this hearing is quite
revealing, since these procedures are not to analyze any
pending legislation, and there is no prospect of legislative
action in the near future.
On the other hand, the fact that this hearing combines the
political relationship between Puerto Rico and the United
States and the economic situation in the island is quite
revealing, too. As far as I can remember, this is the first
time any institution of any of the branches of the Federal
Government have implicitly or explicitly recognized the
important linkage between these two areas.
I have written and submitted a well thought-out document
and a factually accurate testimony about the current economic
crisis in Puerto Rico and what it means for our political
status. I invite you to read it carefully. But since this
committee has allowed me only 5 minutes to talk about such a
critical point in time for our people, I am going to use my
time today to request something of you, and make a plea for my
people and my island. And I am sure that, from it, the
subcommittee can draft a proper agenda of business to give
adequate attention to our current economic situation.
While Puerto Rico first produced sugar and then soldiers,
the United States told the world we were working together.
While Puerto Rico provided thousands of our limited acres for
military training and an open economy where American businesses
flourish and prospered, you told the world we work together. We
have gotten to where we are today together. Yes? A lot of the
good and the bad were done by our own hands. But a lot of the
good and the bad were done by your hands, too. Yes, it doesn't
matter how you characterize it. The truth is that we have been
in this together.
Now Puerto Rico is in a deep crisis that is threatening
essential government services, including safety, education, and
health care. Our economy has closed the door to hundreds of
thousands of Puerto Ricans that have left their families and
homes behind. But, contrary to the good old days, this time the
U.S. Government is keeping distance. In this crisis, you say
now we are not together.
I have no problem accepting our fault in the current
crisis. But to pretend it is 100 percent our fault is incorrect
and immoral. The economic crisis was worsened by the
elimination by Congress of Section 936 of the Internal Revenue
Code, and by fiscal policies and actions and lack of actions by
the U.S. Government and of this Congress.
Our budget bubble happened at the same time that yours,
under a monetary policy that fostered billions of dollars of
unpayable debt. The Federal Reserve recognized its hand in the
2000 mortgage crisis, and set the money printing press to
`high' to solve it. But we have been left behind in the call.
Let me tell you, Congressmen and Congresswomen, in this
crisis we are together. We worked together getting it, and work
together in the consequences. Together, we will suffer the
dislocations of uncontrollable migration. Together we will be
hit by rising social programs and needs. Together we will face
financial litigation by ravenous creditors looking for every
penny, and with not even a law to organize the process.
No matter what you may think or want to believe, we are in
this together. Actually, there is a Supreme Court case solved
in 2007, which I quote in detail in my written testimony and it
is included as an annex, that specifically addresses this issue
in state--that in a situation where a U.S. territory faces
economic insolvency, the U.S. Government is responsible and
might be liable.
I have no doubt that we can solve our crisis and can come
out of it stronger, if you realize that we are still together
and come to the table to work with us. One-sided solutions
won't work, whether they come from your side or ours.
I request of you a joint resolution of Congress, asking the
Treasury Department and the Federal Reserve to roll up their
sleeves and do more than just give advice. They need to get
involved and be part of the solution. They have the power and
the tools and the responsibility to do it. We are willing to
sacrifice, but we need a fighting chance. No country, no state,
no jurisdiction has gotten out of a crisis like ours without a
bankruptcy law, a central bank intervention, or help from
outside.
Call our relation a bilateral compact or a colonized
territory. At this time it all means one thing: we are in this
together. Thank you.
[The prepared statement of Mr. Vila follows:]
Prepared Statement of Anibal Acevedo Vila, Former Governor of Puerto
Rico
I want to thank this subcommittee and its Chairman for holding this
hearing and for the invitation to testify. The first time I testified
before the full Committee on Natural Resources was back in 1997 when I
first became president of the Popular Democratic Party. A few years
after that, I became a member of the House and of the committee and, as
you know, later I was elected Governor of Puerto Rico. One thing is
clear with the passing of all those years, there has been no action
from Congress to deal with the status of Puerto Rico. And regarding the
economic situation of the Island, the actions taken by Congress in the
last 20 years have badly hurt our economy. It's clear we are in a worst
situation today and that, yes, the United States has failed the people
of Puerto Rico despite us being together for so long.
While Puerto Rico first produced sugar and then soldiers, the
United States and our island worked together. While Puerto Rico
provided thousands of our limited acres for military training and an
open economy where American businesses flourished and prospered, you
told the world we worked together. We have gotten to where we are
today, together. A lot of the good and the bad were done by our own
hands moreover a lot of the good and the bad were done by your hands,
too. Now, Puerto Rico is in a deep crisis that is threatening essential
government services, including safety, education and health care. But
contrary to the good old times, this time the U.S. Government is
keeping its distance.
I must say the title of this hearing is quite revealing. First, it
is evident this hearing is not to analyze any pending legislation
before this subcommittee, and therefore there's no prospect of actual
legislative action in the near future. On the other hand, the fact that
the hearing combines the issue of the political relationship between
Puerto Rico and the United States and the economic situation in the
island is quite revealing, too. As far as I can remember, this is the
first time any institution of any of the branches of the Federal
Government have implicitly or explicitly recognized the important
linkage between these two areas.
For the last 2 years I have written and spoken about these two
issues. I have submitted for the record a PDF file of a book I
published in English in August of last year. I invite you to read it
carefully, but I'll briefly explain my conclusions and commendations:
1. It is long past overdue a deep revision of the economic
relationship between Puerto Rico and the United States. For
many years this subcommittee and the full committee have
approached the issue of that relationship from a political
perspective, but that has taken us nowhere other than to
this major economic crisis in our modern history. The
problems between Puerto Rico and the United States are
economic as well as political.
2. After many decades of economic progress, the island is running
out of time and the U.S. Government and its people need to
know it's their problem too, because we are in this
crossroads together.
3. The economy has been in recession for more that 8 consecutive
years; government has been running deficits for more than
20 years and the government debt service of a debt
surpassing $70 billion is unbearable. As I explain in more
detail in my book, with the way things are moving, the day
Puerto Rico will have to default in its payment of the debt
is fast approaching and Puerto Ricans know that. A recent
poll made public shows that 57 percent of the people are
convinced ``the debt, as it stands today, cannot be paid,
the government should tell so to the bond holders, and a
negotiation to restructure the debt should start.''
4. This crisis is affecting the capability of the government of
Puerto Rico to provide basic services to the people,
including health.
5. If the government of Puerto Rico is not able to provide those
services, it will become a problem for the U.S. Government.
If Puerto Ricans continue leaving the island, that will
become a U.S. problem. If Puerto Rico can't pay its debts,
it will definitely become (and almost is) a U.S. problem.
And as I will briefly explain here, the U.S. Government
might even have a legal responsibility for that $70 billion
debt.
Although Puerto Rico bears a great part of the blame for its
economic crisis, the United States is also responsible for it. It's not
only the elimination of Section 936 of the IRS Code in the 1990s
without giving Puerto Rico another tool to compensate for that loss.
It's also the indiscriminate application of Federal laws and
regulations to our Island. The United States is the strongest and most
developed economy of the world while Puerto Rico is still a developing
economy. To impose the economic rules and standards of the most
developed economy of the world upon a developing economy is a recipe
for disaster.
The most recent report on Puerto Rico of the Federal Reserve Bank
of New York (July 2014), specifically mentions as elements that hinder
our economic growth, the application of the Federal minimum wage and
the Jones Act to Puerto Rico, which are both clear examples of economic
variables beyond our control. In fact, the Chairman of the Natural
Resources Committee, Congressman Rob Bishop, has publicly expressed
concerns about the negative economic impact the application of certain
EPA rules can have in Puerto Rico due to our high costs of energy and
the need we have to move toward more natural gas.
As someone said sometime ago, ``it's the economy, stupid.''
Regarding Puerto Rico's $72 billion public debt, there is also a
shared responsibility. All that debt was originally incurred when
Puerto Rico had a positive credit rating by the American credit
agencies, and was all originally sold in the strongly regulated Federal
municipal bond market. The years in which the amount of money being
borrowed exploded, was during the time the Federal Reserve Bank carried
out its expansive monetary policy with near zero interest rates. To
that same extent, the crisis of the banking system in the United
States, which almost collapsed in 2008, had a similar origin. In our
case, if we were incurring in too much debt, it was in part because the
Feds kept the interest rates artificially low, which in turn opened the
appetite in Wall Street for higher yielding bonds from Puerto Rico, all
under the watchful eyes of the various Federal credit rating agencies.
I firmly believe the United States has to be part of the solution
to Puerto Rico's economic and debt crises. I firmly believe we are in
this together, and not as a legal argument, but because there is a
shared responsibility. But at the end of the day, it might be the legal
responsibility that will move the United States to action. The U.S.
Supreme Court might decide that the U.S. Government is responsible for
Puerto Rico's debt.
Let's understand how that debt was incurred. Puerto Rican bonds are
regulated by Federal law (Section 745 of title 48 of the United States
Code). Our bonds have been marketed based on a Federal law, playing by
the Federal rules. This provision was adopted in 1917 as part of the
plenary powers of Congress over the territory of Puerto Rico. Congress
ordered the other states not to tax our bonds, something that clearly
Congress has no power to do with regards to specific state bonds.
For the last 25 years or more, the official position of the U.S.
Department of Justice, the House and Senate committees with
jurisdiction over Puerto Rico and the White House reports of both
presidents, George W. Bush and Barack Obama, have established that even
after the establishment of the Commonwealth of Puerto Rico in 1952,
Puerto Rico is still a non-incorporated territory. The most recent
report from the White House specifically states: ``under Commonwealth
option, Puerto Rico would remain, as it is today, subject to the
Territory Clause of the U.S. Constitution'' (March 2011). Therefore, it
could be argued the powers that Congress had to establish Section 745
in 1917 granting triple tax exemption to our bonds, are the same powers
they have today to keep that exemption and impose it upon the 50
states. All this legal and financial history is a clear indication the
U.S. Government has a shared responsibility over our debt.
In January 8, 2007, the U.S. Supreme Court ruled on the case of
Limtiaco v. Camacho (549 U.S. 483 (2007)). The issues are quite
particular, but the rationale of the decision is very interesting.
There was a ``local'' dispute between the Governor of Guam and his
attorney general regarding a bond issuance and whether it was an
infringement of a debt limitation disposition included in the Federal
Organic Act of Guam. The Governor obtained a declaration from the Guam
Supreme Court that the issuance of bonds to fund the territory's
continuing obligations, authorized by Guam's legislature, was not in
violation of debt limitation disposition contained in the Organic Act
of Guam, contrary to the contention of Guam's attorney general. The
U.S. Court of Appeals for the Ninth Circuit dismissed the attorney
general's appeal. The U.S. Supreme Court reversed. It is the last
paragraph of the Court's opinion, written by Justice Thomas, that
brings some light to the Federal Government's responsibility in regards
to the debt of a territory:
``It may be true that we accord deference to territorial courts
over matters of purely local concern. This case does not fit
that model, however. The debt-limitation provision protects
both Guamanians and the United States from the potential
consequences of territorial insolvency. Thus, this case is not
a matter of purely local concern.''
For many years during my political life I have argued against the
definition of Commonwealth as a territory. That was my main argument
when I first testified before this committee back in 1997.
Nevertheless, the official position of this committee and the U.S.
Government is that we are still a territory. If that is the case, taken
together with cited Section 745, there is a strong argument the United
States might bear ``the potential consequences'' of Puerto Rico's
insolvency and that the $72 billion debt ``is not a matter of purely
local concern.'' The Federal Government cannot say that we ``remain, as
it is today, subject to the Territory Clause of the U.S. Constitution''
in order to deny Puerto Rico the powers to solve our economic and
social crisis, and now turn around and say they have no responsibility
regarding our debt because the debt crisis is a ``a matter of purely
local concern.''
You cannot have your cake and eat it too.
THE CLOCK IS TICKING. The government of Puerto Rico has entertained
many important economic, fiscal and government reform initiatives. They
were urgent and needed, but the crisis is beyond all that. If the U.S.
Government and its people do not realize soon Puerto Rico is a problem
that needs to be addressed with new thinking and new approach, the
United States will soon wake up with a new domestic crisis with
international ramifications.
I have no doubt that we can solve our crisis and come out of it
stronger if you realize that we are still together and come to the
table to work with us. One-sided solutions won't work whether they come
from your side or ours.
That's why I request a joint resolution of Congress requesting the
Treasury Department and the Federal Reserve to roll up their sleeves
and do more than just give us advice. They need to get involved and be
part of the solution. They have the power and the tools to help us. We
are willing to sacrifice, but we need a fighting chance. No country, no
state, no jurisdiction has gotten out of a crisis like ours without a
bankruptcy law, a central bank intervention or help from outside.
Call our relation a bilateral compact or a colonized territory. At
this time, it all means one thing: we are in this together.
Thank you for inviting me and don't hesitate to contact me if you
want a deeper discussion.
______
Mr. Young. Thank you, Governor.
Carmen, the Mayor of San Juan. Beautiful town, great
people. Haven't had the privilege of meeting you yet. Thank
you. You are welcome.
STATEMENT OF CARMEN YULIN CRUZ SOTO, MAYOR OF SAN JUAN, 2013-
PRESENT (PPD), SAN JUAN, PUERTO RICO
Ms. Soto. Thank you very much, Chairman and members of the
committee, for the opportunity. Puerto Rico has enjoyed, in the
past, a commonwealth status responsible for catapulting our
economic development. But the world has changed. That which
once made us successful now lacks the necessary tools to handle
today's reality. Ultimately, any viable political status must
provide the necessary economic tools to engage and sustain an
equitable economic growth while strengthening our democracy.
Puerto Rico has been denied these tools far too long, and
as long as our options are defined by the powers of this
Congress, we will always be at your mercy. The measure of our
success will always be limited by the vastness of your control
over our affairs.
I admit, as did the Governor, that our current financial
situation has a healthy dose of shared responsibility. For
years, we engaged in chronic patterns of unhealthy
indebtedness, while you denied us or took away the few tools we
have at our disposal. Sir Winston Churchill once said, ``Give
us the tools to win this war.'' It is profoundly evident that
our political status will determine the tools we have at our
disposal to wage and win the economic war we are immersed in.
Far too long you have benefited from our inability to reach
a consensus in the status question. No more--you can no longer
use that as an excuse to neglect your responsibility.
Paraphrasing Gandhi--``The time has come for you to recognize
that you are masters in somebody else's land.'' The time has
come for you to put in motion a true self-determination process
which ensures all voices and all options have equal access to
the formulation and implementation of the status resolution
issue.
I come before you as one of the 454,768 Puerto Ricans who,
in November 2012, voted to transform the present commonwealth
relationship into a non-territorial, non-colonial, free
associated state, to request that Congress include said option
in any status-defining process in a manner which is
distinguishable from other status options.
Said new status is based on the recognition of the
sovereignty of the people of Puerto Rico and our inalienable
right to choose whichever form of government we see fit. The
ELA Soberano will be forged on a compact of association in
accordance with international law. We aspire, as the majority
of Puerto Ricans, to guarantee for present and future
generations the common bond of U.S. citizenship.
Of course, any serious self-determination process--and I
must clarify I am personally in favor of a status assembly--
will take time. However, there are matters which may be
addressed immediately.
One, we must ensure Resident Commissioner Pedro Pierluisi's
bill to include Puerto Rico in Chapter 9 of the U.S. bankruptcy
law is swiftly approved, so that we have the legal capability
to restructure our obligations and pay them in a manner
consistent with the well-being of our people. We recently tried
to deal with this issue and the Federal court ruled against us.
I fully support this bill.
Two, give us the authority to enter into commercial
agreements with other countries, as well as partially or fully
exempt us, just as the Virgin Islands next to us, from the yoke
placed upon us by the Jones Act.
You have the power to help Puerto Rico. Now you must
exercise it. You have the moral obligation to end the trite
pilgrimage of Puerto Ricans looking for the status question to
be resolved. You must move forward. I assure you, you will be
met by an alliance of relentless people who know how--who have
in the past and will in the future, once again, overcome
adversity. Thank you very much, Mr. Chairman.
[The prepared statement of Ms. Soto follows:]
Prepared Statement of Carmen Yulin Cruz Soto, Mayor of San Juan, Puerto
Rico
I want to thank the Chairman and members of this subcommittee for
today's invitation to share my views regarding Puerto Rico's political
status and economic outlook. My name is Carmen Yulin Cruz Soto and I
currently serve as Mayor of San Juan, Puerto Rico.
Puerto Rico has enjoyed a Commonwealth status responsible for
catapulting our economic development. But the world has changed; that
which once made us successful now lacks the necessary tools to handle
today's reality. Ultimately, any viable political status must provide
the necessary economic tools to engage in sustained and equitable
economic growth while strengthening our democracy.
Puerto Rico has been denied these tools far too long and as long as
our options are defined by the powers of this Congress, we will always
be at your mercy. The measure of our success will always be limited by
the vastness of your control over our affairs.
I admit, our current financial situation has a healthy dose of
shared responsibility. For years, we engaged in chronic patterns of
unhealthy indebtness, while you deny us--or have taken away--the few
tools we have at our disposal. Sir Winston Churchill once said: ``Give
us the tools to win this war.'' Have no doubt we are in the midst of an
economic war. It is profoundly evident that our political status will
determine the tools we have at our disposal to wage and win that war.
Far too long you have benefited from our inability to reach a
consensus in the status question. No more: you can no longer use that
as an excuse to neglect your responsibility. Paraphrasing Gandhi: ``the
time has come for you to recognize that you are masters in somebody
else's land.'' The time has come for you to put in motion a true self-
determination process which ensures all voices and all options have
equal access to the formulation and implementation of the status
resolution issue.
I come before you as one of the 454,768 Puerto Ricans who on
November 2012 voted to transform the present Commonwealth relationship
into a non-territorial, non-colonial Free Associated State to request
that Congress includes said option in any status defining process in a
manner that is distinguishable from the present territorial
Commonwealth, as well as from statehood and independence.
Said new status is based on the recognition of the sovereignty of
the people of Puerto Rico and our inalienable right to choose whichever
form of government we see fit.
The ELA SOBERANO will be forged on a compact of association in
accordance with International Law. The definition presented to voters
on 2012 stated that ``(s)uch agreement would provide the scope of the
jurisdictional powers that the People of Puerto Rico agree to confer to
the United States and retain all other jurisdictional powers and
authorities.'' We aspire, as the majority of Puerto Ricans, to
guarantee, for present and future generations, the common bond of U.S.
citizenship.
Any serious self-determination process will take time; however
there are matters which may be addressed immediately:
1. Ensure Resident Commissioner Pedro Pierluisi's bill to include
Puerto Rico in Chapter 9 of the U.S. Bankruptcy Law is
swiftly approved so that we have the legal capability to
restructure our obligations and pay them in a manner
consistent with the well-being of our people. We recently
tried to deal with this issue and the Federal Court ruled
against us. I fully support this bill.
2. Give us the authority to enter into commercial agreements with
other countries as well as partially or fully exempt us
from the yoke placed upon us by the Jones Act.
You have the power to help Puerto Rico now; exercise it! You have
the moral obligation to end the trite pilgrimage of Puerto Ricans
looking for the status question to be resolved; move forward.
I assure you, you will be met by an alliance of relentless people
who know how and will in the future once again to overcome adversity.
Thank you.
______
Mr. Young. I thank the good mayor. Now we have Miriam
Ramirez, M.D., former Puerto Rican State Senator.
STATEMENT OF MIRIAM J. RAMIREZ, M.D., FORMER PUERTO RICO STATE
SENATOR, 2001-2004 (PNP), FOUNDER, PUERTO RICANS IN CIVIC
ACTION, ORLANDO, FLORIDA
Ms. Ramirez. Yes, Mr. Chairman. It has been a privilege to
know you and count on your solid and courageous support to
advance our struggle to achieve equal rights for the almost 4
million disenfranchised citizens in Puerto Rico.
Decades ago you responded with your full support when more
than 350,000 Puerto Ricans petitioned Congress for statehood.
Today, you are again giving us an opportunity to obtain our
equal rights and obligations as U.S. citizens of this great
Nation.
In my testimony here in Washington, on May 22, 1986,
Congressman Morris Udall was the Chairman. And I mentioned our
full rights as citizens being the fundamental reason for the
poor economic performance of Puerto Rico. Today I want to focus
my testimony on the negative consequences of the Federal tax
regime that has kept Puerto Rico labeled as a foreign
jurisdiction for almost a century.
I have been hearing people here talking about the dire life
in Puerto Rico, how bad it is. But did you know it is only for
a group of people? Because we have a big percentage of people
in Puerto Rico who relocate from the United States, and can
live in Puerto Rico tax-free from Puerto Rico and for the
Federal Government. I hate to get away from my testimony. I
will continue reading it, but I am just too passionate about
this issue.
In 1996, I have been hearing here about how, after Section
936 was eliminated, the former Section 936 firms used Puerto
Rico's foreign tax status and converted to controlled foreign
corporations (CFCs)--corporate welfare. However, the CFCs in
Puerto Rico are not obligated to create local jobs or to
generate any real investment in order to benefit from the
Federal tax deferral. Using transfer pricing abuses, the CFCs
in the island are causing the U.S. Treasury to lose billions in
Federal tax revenue without creating jobs and investment in the
island.
The Senate Permanent Subcommittee on Investigations
identified one company in Puerto Rico--just one--that has come
public that benefits from a tax saving of $22 million a year
per employee, and they have about 170 employees. And most of
them--I don't have the statistics--are on part-time jobs. The
U.S. taxpayer is also maybe paying for some of this money that
is coming and creating this dependence in Puerto Rico.
Also, to exploit the special Federal tax code of Section
933, the pro-statehood administration adopted--the former one--
two laws in 2012, Act 20 and Act 22, to entice millionaires who
reside in the 50 states to relocate to Puerto Rico by taxing
their corporate profits from exported services at a flat 4
percent rate, and allowing those profits to be paid out to
these owners free of Puerto Rico income tax. Bring them here
and ask them how they feel living in Puerto Rico is.
Thus, the CFC regime in Puerto Rico has become a
significant drain of tax revenue, and a formidable opponent of
statehood for Puerto Rico. Keeping Puerto Rico as a foreign
country, as we are coded in the IRS, inside the United States,
undermines the U.S. Federal tax base, and creates unfair
competition against local communities in the 50 states and in
Puerto Rico. But the truth is that Puerto Rico is governed by
the CFC regime and the economic power of the super-billionaires
who relocate without paying taxes.
But that is not the only damage they do. They have the most
powerful public relations army in the world, ready to lobby and
fight against anything that endangers this outrageous tax
evasion scam. The worst concern for them is that Puerto Rico
becomes a state of the Union, so they throw their lobbyists out
here. And you will have, enclosed in my written testimony, a
letter from one of the lobbyists, precisely after the
plebiscite, demeaning the results of them.
This is the reason that I find it impossible to fight
against the CFCs if we want to achieve statehood. We have to
make the CFCs part of the political status solution. Mr.
Chairman, I propose that a statehood bill, with the defining
terms of admission, and a 20-year transition period for
maintaining the CFCs in Puerto Rico, come out of your
committee.
There is a precedent for previous statehood bills to
include temporary tax benefits, and a transition period was
included in Senate Bill 712 of 1990.
Please do not hold any more plebiscites with the various
options, we have been there and done that. We now put the ball
in your side of the court. Define the admission terms and ask
our people.
And, Mr. Sablan, we are paying for Mr. Cesar Miranda's
testimony, even though he is reporting for the Governor. He is
reporting for one of the status options, so we are basically
paying for that.
[The prepared statement of Ms. Ramirez follows:]
Prepared Statement of Miriam J. Ramirez, MD, Former Puerto Rico State
Senator
Honorable Chairman Young and members of the committee: My name is
Miriam Ramirez, I am a medical doctor, former Senator of the New
Progressive Party in Puerto Rico, and founder of a non-partisan
grassroots movement, called Puerto Ricans in Civic Action, which
gathered more than 350,000 individually signed petitions for statehood
and delivered them to Congress in the 1980s.
Mr. Chairman, it is has been a privilege to know you and count on
your solid and courageous support to advance our struggle to achieve
equal rights for the almost 4 million disenfranchised U.S. citizens in
Puerto Rico. Decades ago you responded with your full support when more
than 350,000 Puerto Ricans petitioned Congress for statehood. Today you
are again giving us an opportunity to obtain our equal rights and
obligations as U.S. citizens of this great Nation.
In my testimony to this committee on May 22, 1986, when Congressman
Morris Udall was the chairman, the focus of the hearing was the lack of
economic growth and welfare dependency in Puerto Rico. Back then I
identified our lack of full rights as U.S. citizens as the fundamental
reason for the poor economic performance of Puerto Rico, compared to
other states. Today I want to focus my testimony on the negative
consequences of the Federal tax regime that has kept Puerto Rico
labeled as a ``foreign'' jurisdiction for almost 100 years.
There are two Federal tax acts which have defined Puerto Rico's tax
identity since it became a U.S. territory in 1898. The first law--the
Revenue Act of 1921--classified Puerto Rico as a ``foreign country''
for tax purposes. The second law, enacted by Congress in 1996,
eliminated Section 936 of the tax code, which was used then to promote
new manufacturing jobs and investments in Puerto Rico.
What happened in Puerto Rico after 1996? The former Section 936
firms used Puerto Rico's ``foreign'' tax status to obtain the benefits
of tax deferral, converting to Controlled Foreign Corporations (CFCs).
Unlike the former Section 936 program, however, the CFCs in Puerto Rico
do not have to create jobs and generate real investments to benefit
from Federal tax deferral. Worse, the U.S. Treasury does not produce
reports that inform Congress whether the CFCs create jobs and real
investment in Puerto Rico. Today we know they don't.
The CFC regime in Puerto Rico has become a significant drain of tax
revenue and a formidable opponent of statehood for Puerto Rico. Using
transfer pricing abuses, the CFCs in the Island are causing the U.S.
Treasury to lose billions in Federal tax revenue without creating jobs
and investment in the Island. One company in Puerto Rico was identified
by the Senate's Permanent Subcommittee on Investigations with tax
savings of $22 million per employee, and only generated 177 employees.
Other details of this tax abuse are presented in the Appendix.
Keeping Puerto Rico as a ``foreign'' country inside the United
States undermines the U.S. Federal tax base and creates unfair
competition against local communities in the 50 states. For example, in
2010 the Puerto Rico government imposed a 4 percent excise tax on CFCs
in Puerto Rico in order to pay for a significant reduction in income
taxes at the local level. Normally, excise taxes cannot be used as
foreign tax credits that reduce the U.S. tax liability dollar for
dollar. However, in the case of the Puerto Rico's 4 percent excise tax
on the U.S. CFCs, the IRS took the position that it would not challenge
if U.S. corporations claim a U.S. foreign tax credit. In contrast,
taxes imposed in the 50 states can be deducted when calculating Federal
income tax, provided they are attributable to the conduct of the
corporation's business. Effectively, the U.S. Treasury subsidized
Puerto Rico's 4 percent excise tax increase almost dollar for dollar.
This unrecorded tax expenditure is not available in the 50 states.
Politically, the CFCs are effectively in control of our major
political parties and their governing agenda. Whenever the people put
pressure for a process of self determination, millions of dollars
appear out of nowhere to campaign against statehood, since it will be
the death knoll for the CFC scam.
There are hundreds of CFCs in Puerto Rico that make enormous
campaign donations to the political leaders in Puerto Rico, many of
whom are here today in this hearing. I have concluded it is impossible
to fight the CFCs if we want to achieve statehood in Puerto Rico. We
have to make the CFCs part of the political status solution.
Mr. Chairman, I propose that the statehood bill for Puerto Rico
that comes out of your committee include a 20-year transition for
maintaining the CFCs in Puerto Rico. There is a precedent for adding
temporary tax benefits in statehood bills and a transition period was
included in the Senate Bill 712 in 1990.
There is another tax provision that goes back almost 100 years that
is keeping Puerto Rico back, preventing us from receiving the full
benefits of U.S. citizenship, namely Section 933 of the Internal
Revenue Code (IRC).
As you know, Mr. Chairman, Congress in 1917 granted U.S.
citizenship to individuals born in Puerto Rico. Thus, a person born in
Puerto Rico is subject to the U.S. tax laws. However, Section 933 of
the IRC exempts from U.S. taxation the Puerto Rico-source income
obtained by bona fide residents of Puerto Rico.
To exploit this special Federal tax status, the ``pro-statehood''
administration of former Governor Fortuno adopted two laws in 2012. Act
20 entices millionaires who reside in the 50 states to locate to Puerto
Rico by taxing their corporate profits from exported services at a flat
4 percent rate and allowing those profits to be paid out to the owners
free of Puerto Rico income tax.
Act 22 grants new Puerto Rico residents a 0 percent rate on locally
sourced interest and dividends as well as all capital gains accrued
after they become residents, in order to attract hedge fund managers
and active traders. So far 509 tax refugees have been granted Act 22
status and another 600 will get it this year, according to the Puerto
Rico's Department of Economic Development & Commerce.
This egregious legislation is effectively eroding the Federal and
state income tax base and converting Puerto Rico into a tax haven in
the U.S. backyard. We are despised by the Members of the U.S. Congress
of New York, California, Connecticut and other states where these
millionaires used to live. This is what our political leaders, of both
major parties, have turned Puerto Rico into--a tax haven in the U.S.
backyard for a few hundred millionaires.
Mr. Chairman, the citizens of Puerto Rico are outraged by these
shameful tax benefits given to a few hundred millionaires, while the
rest of us have been subject to multiple tax increases by the present
Administration in the last 3 years. We ask Congress to end this tax
abuse, and eliminate Section 933 of the Internal Revenue Code
immediately.
Some observers in the past have expressed the opinion that the
residents of Puerto Rico are better off because Federal income tax laws
do not apply in the Island. This opinion is not correct for two
reasons:
1. The Federal income tax provides job incentives that are lacking
in Federal direct spending programs. For example, the
exclusion of Puerto Rico residents from the Federal income
tax has prevented almost 60 percent of working families
from receiving the Federal Earned Income Tax Credit
(EITCs). The Federal income tax could be used as an
effective tool to increase Puerto Rico's 40 percent labor
force participation rate, which is the lowest in the United
States.\1\
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\1\ See Caribbean Business, ``The real story behind Puerto Rico's
low 40.6% labor-participation rate,'' May 10, 2011.
2. The introduction of the Federal income tax, with the
administrative support of the Internal Revenue Service,
would increase the effectiveness of the local tax
administration in Puerto Rico. Local tax auditors in the
Department of Hacienda have experienced a 50 percent
decrease in the last 6 years, at the time when the
underground economy in Puerto Rico has grown to about 25
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percent of the market economy.
Previous congressional studies have already shown the benefits of
participating in the Federal tax system. For example, GAO in 1996 found
that if IRC tax rules are applied to residents of Puerto Rico, the
average EITC earned by eligible taxpayers would be $1,494, taxpayers
would owe around $623 million in Federal income tax before taking into
account the earned income tax credit (EITC), and the aggregate amount
of EITC would total $574 million. About 59 percent of the population
filing individual income tax returns would earn some EITC, and 41
percent of the households filing income tax returns would have positive
Federal income tax liabilities, greater than the EITC received. Thus,
the introduction of the Federal income tax in Puerto Rico for
individuals would generate a wealth transfer from higher-income
individuals who would pay Federal income taxes, to lower-income earners
who would receive a refundable credit.\2\
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\2\ Government Accountability Office, Tax Policy, Analysis of
Certain Potential Effects of Extending Federal Income Taxation to
Puerto Rico, GGD-96-127.
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Mr. Chairman, this is the right moment to draft legislation to
resolve the political status of Puerto Rico, and include Puerto Rico in
the U.S. tax code, with all the responsibilities and privileges of U.S.
citizens. This historic change can be achieved by deleting Section 933
of the Internal Revenue Code, and defining corporations incorporated in
Puerto Rico as U.S. Corporations, for tax and other purposes.
With Puerto Rico's full inclusion in the tax code, Congress can
stop transfer pricing abuses and create effective tax benefits that
generate real jobs and promotes tangible investments in Puerto Rico
through specific legislation that treat U.S. citizens in the Island in
a manner similar to other communities in the 50 states. There is a real
opportunity to draft effective legislation for Puerto Rico that creates
a direct link between each dollar of Federal tax benefits to a job,
similar to the Earned Income Tax Credit that have benefited residents
in the 50 states since 1975. In addition, Federal tax benefits to
generate real investments in Puerto Rico can be designed similar to the
provisions in Enterprise Zone acts and the Promise Zones legislative
proposals of President Obama.
Bringing back Puerto Rico as a full partner into the Federal tax
system would carry significant benefits to the People of Puerto Rico
and the U.S. Treasury, but are not possible without your strong
commitment to carry them through to the final budget agreement. As you
know, there are formidable moneyed interests that benefit from using
Puerto Rico as a tax heaven, and they would not give up the hugely
inefficient tax deferral benefits without a fight. The almost 4 million
disenfranchised U.S. citizens in Puerto Rico count on your support to
secure our equal rights and responsibilities.
the status issue: the 2012 plebiscite and statehood
Regarding the status issue, as you well know, statehood won the
2012 plebiscite. In that same election, with the same officials, in the
same voting areas, with the same requirements. People voted for the
Governor, the Resident Commissioner, Legislators, Mayors who were
elected and sit in their positions. No one challenged their victories
or re-interpreted them.
However, I should not have been surprised when the results were
challenged by the spokespersons and hired guns from the economic powers
that rule the island, among them a well-known Republican corporate
lobbyist who sent out a statement to Congress and others (Attached)
against the results of statehood's win. It is not the first time he
does this, but then who wouldn't, if you're getting paid to the tune of
>$2.745 million, just from Puerto Rico. I am sure there is even more
$$$ to fight attacks against offshore corporations from their
``corporate clients'' with vested interest in keeping their business
free of tax in the U.S. ``FOREIGN'' colony of U.S. Citizens in Puerto
Rico.
Mr. Chairman, we thank for your support, and ask that Congress does
not hold any more plebiscites on status.
We ask that you present a Puerto Rico statehood admission bill with
the above terms and others that are considered fair, and ask the U.S.
citizens in Puerto Rico to vote if they agree to Congress' terms and
conditions.
I am submitting a draft admission act prepared by my constitutional
counsel, Attorney Roberto Santana, which also includes what I call the
Costas amendment, in honor of Attorney Luis Costas who first educated
me on these issues. To get the CFC's on our side, (or rather off our
backs), award the Corporations special tax incentives for a period of
20 years in the transition process. Then Congress and the people of
Puerto Rico would negotiate the details of the transition process,
which may or may not be submitted again to the people for final
approval.
This is the way we designed it in the original Young bill.
C'MON FELLOW AMERICAN CITIZENS HERE IN CONGRESS!! LET'S DO THIS!
APPENDIX 1
Draft of Bill to Include Puerto Rico as Part of the United States
26 Sec. 7701. Definitions
(a) When used in this title, where not otherwise distinctly
expressed or manifestly incompatible with the intent thereof----
. . .
(4) Domestic
The term ``domestic'' when applied to a corporation or partnership
means created or organized in the United States or under the law of the
United States, or of any State, or Puerto Rico unless, in the case of a
partnership, the Secretary provides otherwise by regulations.
. . .
(9) United States
The term ``United States'' when used in a geographical sense
includes only the States, the District of Columbia and Puerto Rico.
PUERTO RICO--A ``FOREIGN'' TAX HAVEN IN THE U.S. BACKYARD
This brief describes the unexpected results of two Federal tax acts
which have defined Puerto Rico's tax identity since it became a U.S.
territory in 1898. The first law--the Revenue Act of 1921--classified
Puerto Rico as a ``foreign country'' for tax purposes. The second
piece--the Small Business Job Protection Act of 1996 Act--eliminated
the main Federal tax incentive, known as Section 936, that the U.S.
Congress used to promote new manufacturing jobs and investments in
Puerto Rico until 1996.
What remained untouched after 1996 was Puerto Rico's ``foreign''
tax label, which was embraced by former Section 936 firms in order to
obtain the benefits of tax deferral, converting to Controlled Foreign
Corporations (CFCs). Unlike the former Section 936 program, however,
the CFCs in Puerto Rico do not have to create jobs and generate real
investments to benefit from tax deferral, and the U.S. Treasury does
not have formal indicators to measure their cost effectiveness. This
brief takes a first step to restore accountability and transparency for
the CFCs in Puerto Rico, providing the evidence to assess growing CFC
Federal tax benefits at a time of decreasing jobs and investments in
Puerto Rico.
Section 1--Controlled Foreign Corporations (CFCs) in Puerto Rico
Puerto Rico has been an unincorporated territory of the United
States under the jurisdiction of the U.S. Congress since the Spanish-
American War of 1898.\3\ Although major U.S. taxes apply in Puerto Rico
as in the 50 states, e.g. Social Security taxes, for income tax
purposes the U.S. Congress has excluded Puerto Rico since 1921 from the
definition of ``United States''.\4\ As a result, although Puerto Rico
belongs to the United States and most of its residents are U.S.
citizens, the income earned in Puerto Rico is considered ``foreign-
source income'' and Puerto Rico corporations are considered
``foreign.'' This category includes the CFCs with a U.S. parent entity,
which are analyzed in this brief.
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\3\ The Web site www.puertoricoreport.com provides summaries of
Federal commissions that examined Puerto Rico's territorial status
subject to Congressional powers.
\4\ IRC Sec 7701(a)(9) defines the term ``United States'' in a
geographical sense to include ``only the States and the District of
Columbia.'' In contrast, The Revenue Act of 1916 (Part III, Sec. 15),
defines the word ``State'' or ``United States'' to include any
Territory, the District of Columbia, Porto Rico, and the Philippine
Islands. The Revenue Act of 1921 (Title I, Sec. 1), excludes Porto Rico
and the Philippines from the definition of the ``United States.''
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The 1921 Revenue Act also created the predecessor of the IRC
Section 936, which became the preferred alternative to operate a U.S.
subsidiary in the Island because it possessed two ideal features of a
tax haven: Puerto Rico-source income was spared 100 percent of the U.S.
Federal tax and it was subject to a minuscule P.R. tax, right inside
the U.S. borders.\5\
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\5\ See Joint Committee on Taxation, An Overview of Special Tax
Rules Related to Puerto Rico and an Analysis of the Tax and Economic
Policy Implications of Recent Legislative Opinions, (JCX-24-06), June
23, 2006.
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U.S. electronic and pharmaceutical firms with significant
intangible assets tried to maximize their tax benefits in Puerto Rico,
engaging in transfer pricing practices which spawned important court
cases and scathing U.S. Treasury reports. In order to curtail the
abuses of Section 936 firms, Congress in 1993 tied tax benefits to
payroll and depreciation expenses, in an effort to channel more of the
Section 936 benefits to the U.S. citizens residing in Puerto Rico.
Finally, the U.S. Congress replaced Section 936 with a temporary
Section 30A credit, and initiated a 10-year phase out of existing 936
subsidiaries. This momentous decision has created a massive conversion
of Section 936 U.S. corporations to CFC status, and left U.S. Treasury
without a congressional reporting mandate and performance indicators to
assess the tax effectiveness and efficiency of CFCs in Puerto Rico.
The CFC conversions have triggered a significant increase in CFC
activity in Puerto Rico, shown in Tables 1 to 5:
There was a 122 percent increase in the reported Earnings
and Profits (E&P) of CFCs in Puerto Rico, to $6.6 billion
in 2008, which is the most recent year of available CFC
data (Table 1).
The average tax rate of CFCs in Puerto Rico was 3.9
percent in 2008, which was 10.2 percent lower than the
average tax rate by CFCs operating in the world in 2008
(Table 2).
The U.S. corporations with CFCs in Puerto Rico received in
just 3 years $3.5 billion of tax benefits, relative to the
35 percent tax rate of U.S. domestic firms (Table 3).
There was a wide variation in tax rates across industries.
Manufacturing CFCs in Puerto Rico had a 2.3 percent tax
rate, compared to the 14.9 percent tax rate of CFCs in
finance (Table 4).
The distribution of the tax benefits of CFCs is most
likely highly concentrated in a few specific firms with
significant intangible patents, trademarks and copyrights.
Congressional investigators found that one CFC reported $4
billion in profits, and provided 177 direct jobs, or $22.5
million per job.
IRS and Congressional investigations have started to uncover
significant transfer pricing abuses that lie behind the growing trend
in earnings of U.S. CFCs in Puerto Rico. As early as 1997, the IRS
designated Section 936 conversions to CFCs as a Tier I issue, with high
potential compliance risks.\6\ In 2011 IRS sent notices of deficiency
to Medtronic for $958 million and to Boston Scientific for $452 million
over their Section 936 conversions to CFC status.\7\
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\6\ See Audit Guidelines Related to Section 936 Conversion Issues
in www.irs.gov.
\7\ See Puerto Rico Tax Break Shifts to Cayman Islands, in
www.bloomberg.com, and docket number 006944-11 in www.taxcourt.gov.
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In 2012 the staff of the U.S. Senate Permanent Subcommittee on
Investigations analyzed the complex layers of tax haven subsidiaries
created by Microsoft to minimize its tax on sales of products
manufactured in Puerto Rico and sold in the United States. According to
the congressional report, in 2011 the CFC of Microsoft in Puerto Rico
reported $4 billion in profits, and provided 177 direct jobs earning an
average salary of $44,000 a year, or $22.5 million per person. This
example shows the low ineffectiveness of a specific CFC in Puerto Rico.
Ideally, the U.S. Treasury should conduct an in-depth examination of
the whole program of CFC tax incentives in Puerto Rico, as was done of
the Section 936 tax program.
Table 1: Assets, Receipts, Earnings & Profits, and Taxes of CFCs in
Puerto Rico
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Source: IRS Statistics of Income (SOI) Bulletin, ``Controlled
Foreign Corporations'', Table 3, Summer 2008, Winter 2011, Winter 2013.
Note: Data are based on the SOI corporate sample. Since 2004 this
sample is far more inclusive than earlier SOI studies of CFCs.
Table 2: Average tax rates of CFCs in Puerto Rico and in other
countries
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Note: Average tax rate is defined as income tax divided by E&P
before income taxes.
Source: IRS Statistics of Income Bulletin, ``Controlled Foreign
Corporations'', Summer 2008, Winter 2011, Winter 2013.
Table 3: Tax benefits of operating in Puerto Rico as CFC, compared to
operating as a U.S. domestic firm, annually and average figures in
latest 3 years
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Note: Author's calculation, based on data reported in IRS
Statistics of Income Bulletin, ``Controlled Foreign Corporations'',
Summer 2008, Winter 2011, Winter 2013.
Table 4: Average tax rates of CFCs in Puerto Rico in 2008
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Note: Average tax rate is defined as income tax divided by E&P
before income taxes.
Source: IRS Statistics of Income Bulletin, ``Controlled Foreign
Corporations'', Summer 2008, Winter 2011, Winter 2013.
Given the trend in Federal tax benefits received by CFCs operating
in Puerto Rico, it is appropriate to assess how this Federal tax
program has contributed to the economic well-being of the almost 4
million U.S. citizens in Puerto Rico. Measures of effectiveness and
efficiency of the tax benefits of manufacturing CFCs are discussed in
the next section of this brief.
Section 2--Measuring the cost effectiveness of the CFCs in Puerto Rico
CFCs were introduced in 1921 in Puerto Rico ``primarily to help
U.S. corporations compete with foreign firms in the Philippines.'' \8\
There is no question that for U.S. multinationals the benefits of tax
deferral can be significant, since indefinite deferral of U.S. tax
liability generates a complete tax exemption on the foreign-source
income. As was shown in Section 1 of this brief, tax deferral is a
powerful tax tool to enhance the financial capacity of U.S.
multinationals to compete against all firms, especially the domestic
U.S. firms that pay the 35 percent maximum Federal corporate tax rate.
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\8\ Joint Committee on Taxation, JCX-24-06, op. cit., page 50.
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However, utilizing the 1921 tax law criterion--``help U.S.
businesses to compete in foreign countries against foreign firms''--is
not appropriate for determining the CFC benefits in Puerto Rico for
three reasons: the Island is a territory of the United States, almost
all of its 3.7 million residents are U.S. citizens, and the 423 CFCs in
Puerto Rico represent less than 1 percent of the 83,642 CFCs in the
World.
Congress did introduce a different objective when it enacted
Section 936 tax benefits for Puerto Rico, namely, ``to assist the U.S.
possession in obtaining employment producing investments by U.S.
corporations.'' \9\ In order to obtain a precise estimate of tax
benefits per employee it is necessary to obtain firm-specific tax and
jobs data, which is not available to the public.
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\9\ Joint Committee on Taxation, JCX-24-06, op. cit., page 50.
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An imprecise estimate of tax benefits per employee is obtained with
U.S. Bureau of census data of manufacturing establishments in Puerto
Rico, which are owned by CFCs and others. For example, in 2008 there
were 2,064 manufacturing establishments with 106,132 employees in
Puerto Rico, shown in Table 5. Estimates of the average CFC earnings
before income taxes of manufacturing establishments range from $12,739
(if all jobs are assigned to the CFCs) to $25,477 per employee (if 50
percent of the jobs are assigned to CFCs) in 2008. These averages, in
contrast to the $22 million per job earned by Microsoft Puerto Rico in
2011, show that the distribution of the tax benefits of CFCs is most
likely highly concentrated in a few specific firms with significant
intangible patents, trademarks and copyrights.
Table 5: Manufacturing Operations in Puerto Rico, Tax Benefits of CFCs
and Jobs, 2008
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Sources: (1) U.S. Bureau of Census, County Business Patterns,
published annually. (2) Federal tax benefits estimated using IRS SOI
Bulletin, ``Controlled Foreign Corporations'', published in even years.
Keeping Puerto Rico as a ``foreign'' country inside the United
States undermines the U.S. Federal tax base and creates unfair
competition against local communities in the 50 states. For example, in
2010 the Puerto Rico government imposed a 4 percent excise tax on CFCs
in Puerto Rico in order to pay for a significant reduction in income
taxes at the local level. Normally, excise taxes cannot be used as
foreign tax credits that reduce the U.S. tax liability dollar for
dollar. However, in the case of the Puerto Rico's 4 percent excise tax
on the U.S. CFCs, the IRS took the position that it would not challenge
if U.S. corporations claim a U.S. foreign tax credit. In contrast,
taxes imposed in the 50 states can be deducted when calculating Federal
income tax, provided they are attributable to the conduct of the
corporation's business. Effectively, the U.S. Treasury subsidized
Puerto Rico's 4 percent excise tax increase almost dollar for dollar.
This tax expenditure is not available in the 50 states.
How do these estimated Federal cost estimates compare to another
Federal credit that is directly linked to job creation, namely, the
Earned Income Tax Credit (EITC), is discussed in the next section of
this brief.
Section 3--Incorporating Puerto Rico Residents into the Federal Income
Tax System and I.R.C. Section 933
Congress in 1917 granted U.S. citizenship to individuals born in
Puerto Rico. Thus, a person born in Puerto Rico is subject to the U.S.
tax laws. However, Section 933 of the IRC exempts from U.S. taxation
the Puerto Rico-source income obtained by bona fide residents of Puerto
Rico. Some observers have expressed the opinion that the residents of
Puerto Rico are better off because Federal income tax laws do not apply
in the Island. This opinion is not correct for two reasons:
1. The Federal income tax provides job incentives that are lacking
in Federal direct spending programs. For example, the
exclusion of Puerto Rico residents from the Federal income
tax has prevented almost 60 percent of working families
from receiving the Federal Earned Income Tax Credit
(EITCs). The Federal income tax could be used as an
effective tool to increase Puerto Rico's 40 percent labor
force participation rate, which is the lowest in the United
States.\10\
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\10\ See Caribbean Business, ``The real story behind Puerto Rico's
low 40.6% labor-participation rate,'' May 10, 2011.
2. The introduction of the Federal income tax, with the
administrative support of the Internal Revenue Service,
would increase the effectiveness of the local tax
administration in Puerto Rico. Local tax auditors in the
Department of Hacienda have experienced a 50 percent
decrease in the last 6 years, at the time when the
underground economy in Puerto Rico has grown to about 25
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percent of the market economy.
Previous congressional studies have already shown the benefits of
participating in the Federal tax system. For example, GAO in 1996 found
that if IRC tax rules are applied to residents of Puerto Rico, the
average EITC earned by eligible taxpayers would be $1,494, taxpayers
would owe around $623 million in Federal income tax before taking into
account the earned income tax credit (EITC), and the aggregate amount
of EITC would total $574 million. About 59 percent of the population
filing individual income tax returns would earn some EITC, and 41
percent of the households filing income tax returns would have positive
Federal income tax liabilities, greater than the EITC received. Thus,
the introduction of the Federal income tax in Puerto Rico for
individuals would generate a wealth transfer from higher-income
individuals who would pay Federal income taxes, to lower-income earners
who would receive a refundable credit.\11\
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\11\ Government Accountability Office, Tax Policy, Analysis of
Certain Potential Effects of Extending Federal Income Taxation to
Puerto Rico, GGD-96-127.
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conclusion
This brief has demonstrated the importance of incorporating Puerto
Rico back into the United States for income tax purposes. This
fundamental change is necessary to protect the U.S. tax base from the
abuses in the ill-defined CFC regime in Puerto Rico. Furthermore, the
inclusion of individual taxpayers into the Federal income tax regime
would allow families in the Island to receive significant incentives
that are likely to increase Puerto Rico's low labor force participation
rate, and restore economic growth in the Island.
* * * * *
DRAFT ADMISSION ACT
Prepared by Attorney Roberto Santana
Admission of State
Section 1
AN ACT
To provide for the admission of the Commonwealth of Puerto Rico
into the Union
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That, subject to the
provisions of this Act, Congress consents that the territory properly
included within and rightfully belonging to the territory of Puerto
Rico, officially known and hereinafter referred to as the
``Commonwealth of Puerto Rico,'' may be erected into a new State, with
the consent of the existing Government in order that the same may by
admitted as one of the States of this Union on an equal footing with
the other States in all respects whatever, subject to the affirmative
vote of the eligible voters of the Commonwealth of Puerto Rico
accepting the terms and conditions of this Act.
Territory
Section 2
The official name of the State of Puerto Rico shall remain to be
``Commonwealth of Puerto Rico'' and the newly admitted State shall
consist of all its islands, together with their appurtenant reefs and
territorial waters, including but not limited to the main island of
Puerto Rico, and the islands of Vieques, Culebra, Mona, Monito,
Ratones, Caja de Muertos, Palomino, Palominito, Luis Pena, Lobos,
Icacos, Isleta Marina and other smaller islands, atolls and reefs
presently under the jurisdiction of the Commonwealth of Puerto Rico and
including a ten and thirty five hundreths of a mile (10.35) mile
Exclusive Economic Zone (EEZ) which is the sea zone over which the
Commonwealth of Puerto Rico has special rights over the exploration and
use of marine resources and stretching from the seaward edge of the
Commonwealth of Puerto Rico's territorial sea out to 10.35 nautical
miles from its coast and including the territorial sea and the
continental shelf beyond the 10.35 nautical mile limit.
Constitution
Section 3
Congress finds that the Constitution of the Commonwealth of Puerto
Rico is republican in form; it is not repugnant to the Constitution of
the United States and the principles of the Declaration of Independence
and is the functional equivalent of a state constitution.
Agreement with United States
Section 4
The Commonwealth of Puerto Rico and its people, by the affirmative
vote of the eligible voters of the Commonwealth of Puerto Rico
accepting the terms and conditions of this Act do agree and declare
that they forever disclaim all right and title to any lands or other
property not granted or confirmed to the State or its political
subdivisions by or under the authority of this Act, the right or title
to which is held by the United States or is subject to disposition by
the United States, and to any lands or other property, (including
fishing rights); that all such lands or other property, belonging to
the United States shall be and remain under the absolute jurisdiction
and control of the United States until disposed of under its authority,
except to such extent as the Congress has prescribed or may hereafter
prescribe. Provided, That nothing contained in this Act shall
recognize, deny, enlarge, impair, or otherwise affect any claim against
the United States, and any such claim shall be governed by the laws of
the United States applicable thereto; and nothing in this Act is
intended or shall be construed as a finding, interpretation, or
construction by the Congress that any law applicable thereto
authorizes, establishes, recognizes, or confirms the validity or
invalidity of any such claim, and the determination of the
applicability or effect of any law to any such claim shall be
unaffected by anything in this Act: And provided further, That no taxes
shall be imposed by said State upon any lands or other property now
owned or hereafter acquired by the United States, except to such extent
as the Congress has prescribed or may hereafter prescribe.
Title to Property; Land Grants; Reservation of Lands; Public School
Support; Submerged Lands
Section 5
The Commonwealth of Puerto Rico and its political subdivisions,
respectively, shall have and retain title to all property, real and
personal, within the Commonwealth of Puerto Rico or any of the
subdivisions. Except as provided herein, the United States shall retain
title to all property, real and personal, to which it has title,
including public lands. Provided that:
(a) Except as provided in subsection (c) of this section, the
Commonwealth of Puerto Rico and its political subdivisions, as the case
may be, shall retain title of its properties before the passing of this
Act and its subdivisions in those lands and other properties in which
the Territory and its subdivisions now hold title.
(b) Except as provided in subsection (c) and (d) of this section,
the United States grants to the Commonwealth of Puerto Rico, effective
upon its admission into the Union, the United States' title to all the
public lands and other public property, in the Island of Vieques after
certification by the secretary of the Interior that any and all of such
lands have been cleaned of all debris and unexploded ordinance used by
the Armed Forces of the United States in training of the Military,
title to which is held by the United States immediately prior to the
Commonwealth of Puerto Rico's admission into the Union. The grant
hereby made shall be in lieu of any and all grants provided for new
States by provisions of law other than this Act, and such grants shall
not extend to the Commonwealth of Puerto Rico.
(c) Any lands and other properties that, on the date Puerto Rico is
admitted into the Union, are set aside pursuant to law for the use of
the United States under any (1) Act of Congress, (2) Executive order,
(3) proclamation of the President, or (4) proclamation of the Governor
of Puerto Rico shall remain the property of the United States subject
only to the limitations, if any, imposed under (1), (2), (3), or (4),
as the case may be.
(d) Any public lands or other public property that is conveyed to
the Commonwealth of Puerto Rico by subsection (b) of this section but
that, immediately prior to the admission of said State into the Union,
is controlled by the United States pursuant to permit, license, of
permission, written or verbal, from the Commonwealth of Puerto Rico or
any department thereof may, at any time during the five years following
the admission of Puerto Rico into the Union, be set aside by Act of
Congress or by Executive Order of the President, made pursuant to law,
for the use of the United States, and the lands or property so set
aside shall, subject only to valid rights then existing, be the
property of the United States.
(e) Within five years from the date Commonwealth of Puerto Rico is
admitted into the Union, each Federal agency having control over any
land or property that is retained by the United States pursuant to
subsections (c) and (d) of this section shall report to the President
the facts regarding its continued need for such land or property, and
if the President determines that the land or property is no longer
needed by the United States it shall be conveyed to the Commonwealth of
Puerto Rico.
(f) The lands granted to the Commonwealth of Puerto Rico by
subsection (b) of this section and public lands retained by the United
States under subsections (c) and (d) and later conveyed to the State
under subsection (e), together with the proceeds from the sale or other
disposition of any such lands and the income therefrom, shall be held
by said State as a public trust for the support of the public schools
and other public educational institutions, for the betterment of the
conditions of Puerto Ricans. Such lands, proceeds, and income shall be
managed and disposed of for one or more of the foregoing purposes in
such manner as the constitution and laws of said State may provide, and
their use for any other object shall constitute a breach of trust for
which suit may be brought by the United States. The schools and other
educational institutions supported, in whole or in part, out of such
public trust shall forever remain under the exclusive control of said
State; and no part of the proceeds or income from the lands granted
under this Act shall be used for the support of any sectarian or
denominational school, college, or university.
(g) As used in this Act, the term `lands and other properties'
includes public lands and other public property, and the term `public
lands and other public property' means, and is limited to, the lands
and properties that were ceded to the United States by Spain under the
Treaty of Paris of 1898, or that have been acquired in exchange for
lands or properties so ceded.
(h) All laws of the United States reserving to the United States
the free use or enjoyment of property which vests in or is conveyed to
the Commonwealth of Puerto Rico or its political subdivisions pursuant
to subsection (a), (b), or (e) of this section or reserving the right
to alter, amend, or repeal laws relating thereto shall cease to be
effective upon the admission of the Commonwealth of Puerto Rico into
the Union.
(i) The Submerged Lands Act of 1953 (Public Law 31, Eighty-third
Congress, first session; 67 Stat. 29) and the Outer Continental Shelf
Lands Act of 1953 (Public Law 212, Eighty-third Congress, first
session, 67 Stat. 462) shall be applicable to the Commonwealth of
Puerto Rico, and the said State shall have the same rights as do
existing States thereunder. (As amended Pub. L. 86-624, Sec. 41, July
12, 1960, 74 Stat. 422, Pub. L. 95-372, Title II, Sec. 202, 92 Stat.
634; Apr. 7, 1986, Pub. L. 99-272, Title VIII, Sec. 8002, 100 Stat.
148)
Assumption of Public Debt
Section 6
For the purposes of furthering the development of the new State,
and the expansion of its economy, and in exchange of the citizens of
the Commonwealth of Puerto Rico acquiring as taxpaying citizens of the
United States their corresponding share of the National Debt of the
United States, the Public Debt of the Commonwealth of Puerto Rico, as
of the date of Admission, is hereby acquired by the Treasury of the
United States and shall be paid according to its terms and as it
becomes due.
Presidential Certification
Section 7
Upon enactment of this Act, it shall be the duty of the President
of the United States, not later than 30 days thereafter, to certify
such fact to the Governor of the Commonwealth of Puerto Rico and to the
presidents of the Senate and of the House of Representatives of Puerto
Rico. Thereupon, (1) the legislature of the Commonwealth of Puerto Rico
shall enact legislation to provide for the vote by the eligible voters
of the Commonwealth of Puerto Rico as defined by law to accept or
reject the terms and conditions of this Act, by simple majority vote,
which referendum will take place not later than 180 days after the
Presidential Certification made pursuant to this section and (2) The
State Elections Commission of Puerto Rico is authorized to provide for
a vote on the admission of Puerto Rico into the Union as a State within
one hundred and eighty days from the date of the Presidential
Certification made pursuant to this section, in accordance with rules
and regulations determined by the Commission, including qualifications
for voter eligibility. The ballot shall ask the following question:
``Shall Puerto Rico be admitted as a State of the United States
pursuant to the Act of Congress dated [the date of this Act]?
Yes ___ No ___.''
The funds made available pursuant to Public Law 113-76 may be used
to conduct the vote.
The Governor of the Commonwealth of Puerto Rico is hereby
authorized and directed to take such action as may be necessary or
appropriate to insure the submission of said proposition to the people.
The return of the votes cast on said referendum shall be made by the
election officers directly to the State Elections Commission, which
entity shall certify the results to the Governor. The Governor shall
certify the results of said referendum, as so ascertained, to the
President of the United States, the Speaker of the House of
Representatives, and the President Pro Tempore of the Senate.
Election, Certification, Proclamation,
Laws in Effect
Section 8
(a) Upon the affirmative vote of the eligible voters of the
Commonwealth of Puerto Rico accepting the offer of Statehood, the
Governor of the Commonwealth of Puerto Rico shall call for the holding
of a Primary Election for Federal office and a General Election to
elect such federal elected official, on dates to be fixed by the
Governor of the Commonwealth of Puerto Rico. Provided, that the
elections for Federal office shall not be held later than the date
already legislated by the laws of the Commonwealth for the holding of
the next regular General Elections that are held on November on the
same year as that of the Presidential Elections of the United States
and at such elections there shall be elected 2 Senators and 5
Representatives, each of whom shall first take office on the first day
of the next Congress commencing immediately after said election. The
Legislature of Puerto Rico shall delineate and enact the corresponding
congressional districts. The officers required to be elected as
provided in this section shall be chosen by the eligible voters of the
Commonwealth of Puerto Rico. Such elections shall be held, and the
qualifications of voters thereat shall be, as prescribed by the
Constitution of the Commonwealth of Puerto Rico for the election of
members of the State legislature. The Legislature of Puerto Rico shall
delineate and enact the corresponding congressional districts. The
returns thereof shall be made and certified in such manner as the
constitution and laws of the Commonwealth of Puerto Rico may prescribe.
The Governor of the Commonwealth of Puerto Rico shall certify the
results of said elections to the President of the United States, the
Speaker of the House of Representatives, and the President Pro Tempore
of the Senate.
(b) In the election of Senators from Puerto Rico pursuant to this
section, the 2 Senate offices shall be separately identified and
designated, and no person may be a candidate for both offices. No such
identification or designation of either of the offices shall refer to
or be taken to refer to the terms of such offices, or in any way impair
the privilege of the Senate to determine the class to which each of the
Senators elected shall be assigned.
(c) The President of the United States, once notified by the
Governor of the election of the federal officials prescribed pursuant
to this section, upon certification of the returns of the election of
the officers required to be elected as provided herein, shall thereupon
issue his proclamation announcing the results of said election as so
ascertained. Upon the issuance of said proclamation by the President,
the Commonwealth of Puerto Rico shall be deemed admitted into the Union
as provided in this Act.
(d) Until Puerto Rico is so admitted into the Union, all of the
officers of the Commonwealth of Puerto Rico, including its Resident
Commissioner, shall continue to discharge the duties of their
respective offices. Upon the issuance of said proclamation by the
President of the United States and the admission of the Commonwealth of
Puerto Rico into the Union, the officers elected at said election, and
qualified under the provisions of the constitution and laws of said
State, shall proceed to exercise all the functions pertaining to their
offices in or under or by authority of the government of said State,
and officers not required to be elected at said initial election shall
be selected or continued in office as provided by the constitution and
laws of said State.
(e) The State Elections Commission of Puerto Rico shall certify the
election of the Senators and Representative in the manner required by
law, and the said Senators and Representative shall be entitled to be
admitted to seats in Congress and to all the rights and privileges of
Senators and Representatives of other States in the Congress of the
United States.
(f) Upon admission of the Commonwealth of Puerto Rico into the
Union as herein provided, all of the territorial laws then in force in
the Commonwealth of Puerto Rico shall be and continue in full force and
effect throughout said State except as modified or changed by this Act,
or by the Constitution of the State, or as thereafter modified or
changed by the legislature of the State. All of the laws of the United
States shall have the same force and effect within said State as
elsewhere within the United States. As used in this paragraph, the term
``territorial laws'' includes (in addition to laws enacted by the
Legislature of Puerto Rico) all laws or parts thereof enacted by
Congress, the validity of which is dependent solely upon the authority
of Congress to provide for the government of prior to the admission of
the Commonwealth of Puerto Rico into the Union, and the term ``laws of
the United States'' includes all laws or parts thereof enacted by
Congress that (1) apply to or within Puerto Rico at the time of the
admission of the Commonwealth of Puerto Rico into the Union, (2) are
not ``Territorial laws'' as defined in this paragraph, and (3) are not
in conflict with any other provisions of this Act.
House of Representatives Membership
Section 9
(a) The Commonwealth of Puerto Rico upon its admission into the
Union shall be entitled to the number of Representatives mentioned in
Section 8 of this Act until the taking effect of the next
reapportionment, and such Representatives shall be in addition to the
membership of the House of Representatives as now prescribed by law:
Provided, That such temporary increase in the membership shall not
operate to either increase or decrease the permanent membership of the
House of Representatives as prescribed in the Act of August 8, 1911 (37
Stat. 13) nor shall such temporary increase affect the basis of
apportionment established by the Act of November 15, 1941 (55 Stat.
761; 2 U.S.C., section 2a), for the Eighty-third Congress and each
Congress thereafter.
(b) Effective on the date on which a Representative from Puerto
Rico first takes office in accordance with this subsection, the Office
of the Resident Commissioner to the United States, as described in
section 36 of the Act of March 2, 1917 (48 U.S.C. 891 et seq.), is
terminated.
Continuation of Civil Cases and
Criminal Proceedings
Section 10
No writ, action, indictment, cause, or proceeding pending in the
United States District Court for the District of Puerto Rico on the
date when said Territory shall become a State, and no case pending in
an appellate court upon appeal from the United States District Court
for the district of Puerto Rico at the time said Territory shall become
a State, shall abate by the admission of the Commonwealth of Puerto
Rico into the Union, but the same shall be transferred and proceeded
with as hereinafter provided.
All civil causes of action and all criminal offenses which shall
have arisen or been committed prior to the admission of said State, but
as to which no suit, action, or prosecution shall be pending at the
date of such admission, shall be subject to prosecution in the
appropriate State courts or in the United States District Court for the
District of Puerto Rico in like manner, to the same extent, and with
like right of appellate review, as if said State had been created and
said courts had been established prior to the accrual of said causes of
action or the commission of such offenses; and such of said criminal
offenses as shall have been committed against the laws of the Territory
shall be tried and punished by the appropriate courts of said State,
and such as shall have been committed against the laws of the United
States shall be tried and punished in the United States District Court
for the District of Puerto Rico.
Appeals
Section 11
All appeals taken from the United States District Court District of
Puerto Rico to the Supreme Court of the United States or the United
States Court of Appeals for the First Circuit, previous to the
admission of Puerto Rico as a State, shall be prosecuted to final
determination as though this Act had not been passed. All cases in
which final judgment has been rendered in such district court, and in
which appeals might be had except for the admission of such State, may
still be sued out, taken, and prosecuted to the Supreme Court of the
United States or the United States Court of Appeals for the First
Circuit under the provisions of then existing law, and there held and
determined in like manner; and in either case, the Supreme Court of the
United States, or the United States Court of Appeals, in the event of
reversal, shall remand the said cause to either the Puerto Rico Supreme
Court, or the United States District Court for the District of Puerto
Rico, as the case may require: Provided, That the time allowed by
existing law for appeals from the district court for said Territory
shall not be enlarged thereby.
Continuation of Cases
Section 12
All causes pending or determined in the United States District
Court for the District of Puerto Rico at the time of the admission of
Puerto Rico as a State shall continue under the jurisdiction of the
United States District Court for the District of Puerto Rico for final
disposition and enforcement in the same manner as is now provided by
law with reference to the judgments and decrees. All other causes
pending or determined in the State Courts of the Commonwealth of Puerto
Rico at the time of the admission of Puerto Rico as a State shall
continue under the jurisdiction of the State Courts of the Commonwealth
of Puerto Rico. All final judgments and decrees rendered in the United
States District Court for the District of Puerto Rico may be reviewed
by the Supreme Court of the United States or by the United States Court
of Appeals for the First Circuit in the same manner as is now provided
by law with reference to the judgments and decrees in existing United
States district courts.
Retention of Jurisdiction and Appeals in
State Court
Section 13
Jurisdiction of all cases pending or determined in the General
Court of Justice of the Commonwealth of Puerto Rico shall devolve upon
and be exercised by said court and, as such, it shall retain custody of
all records, dockets, journals, and files pertaining to such cases. All
appeals taken from the Supreme Court of Puerto Rico to the Supreme
Court of the United States, previous to the admission of Puerto Rico as
a State, shall be prosecuted to final determination as though this Act
had not been passed. All cases in which final judgment has been
rendered in such court, and in which appeals might be had except for
the admission of such State, may still be sued out, taken, and
prosecuted to the Supreme Court of the United States under the
provisions of then existing law, and there held and determined in like
manner; and in either case, the Supreme Court of the United States, in
the event of reversal, shall remand the said cause to the Puerto Rico
Supreme Court as the case may require: Provided, That the time allowed
by existing law for appeals from the Supreme Court of Puerto Rico shall
not be enlarged thereby.
Federal Reserve Act; Amendment
Section 14
The next to last sentence of the first paragraph of section 2 of
the Federal Reserve Act (38 Stat. 251) as amended, is hereby amended by
inserting after the word `Hawaii' the words `or Puerto Rico.'
Maritime Matters
Section 15
Nothing contained in this Act shall be construed as depriving the
Federal Maritime Board of the exclusive jurisdiction heretofore
conferred on it over common carriers engaged in transportation by water
between any port in the Commonwealth of Puerto Rico and other ports in
the United States, or possessions, or as conferring on the Interstate
Commerce Commission jurisdiction over transportation by water between
any such ports.
Taxation
Section 16
Upon the effective date of the Admission of the Commonwealth of
Puerto Rico as the 51st State of the Union, those individuals and
corporations then currently enjoying tax status and tax benefits
existing under Puerto Rico Income, Gift and Estate Tax Statutes and the
U.S. Internal Revenue Code on that date, shall continue in that status
and with those benefits for a period of twenty (20) years from that
effective date of Admission. The U.S. Internal Revenue Service shall
promulgate such Rules and Regulations as may be deemed necessary and/or
convenient in order to carry out this Statutory Provision.
Repeal
Section 17
All parts of the Puerto Rican Federal Relations Act, Pub. L. No.
81-600, 64 Stat. 3 19 (1950) (codified at 48 U.S.C. Sec. Sec. 731b-731e
(1994)) (``Public Law 600'') and any remaining sections in effect of
the Act of Apr. 12, 1900, 31 Stat. 77 (``Foraker Act'') and of the Act
of Mar. 2, 1917, 39 Stat. 961, as amended, (``the Puerto Rican Federal
Relations Act,'' also popularly known as the ``Jones Act''), which are
in conflict with the provisions of this Act, are hereby repealed.
United States Citizenship
Section 18
Nothing contained in this Act shall operate to confer United States
citizenship, nor to terminate citizenship heretofore lawfully acquired,
nor restore citizenship heretofore lost under any law of the United
States or under any treaty to which the United States may have been a
party.
Separability
Section 19
If any provision of this Act, or any section, subsection, sentence,
clause, phrase, or individual word, or the application thereof to any
person or circumstance is held invalid, the validity of the remainder
of the Act and of the application of any such provision, section,
subsection, sentence, clause, phrase, or individual word to other
persons and circumstances shall not be affected thereby.
General Amendment and General Repeal
Section 20
All Acts or parts of Acts referring to ``the 50 states'' shall be
amended to read ``the 51 states'' and all such Acts or parts of Acts
referring to the Islands and Territories of Guam, American Samoa,
Northern Mariana Islands, Puerto Rico and the Virgin Islands shall be
amended to exclude the words ``Puerto Rico,'' whether such Acts or
parts of Acts were passed by the legislature of Puerto Rico or by
Congress.
All Acts or parts of Acts in conflict with the provisions of this
Act, whether passed by the legislature of Puerto Rico or by Congress,
are hereby repealed.
______
Mr. Young. Thank you, Miriam.
I will recognize the Ranking Member, and he is going to
yield to the good lady from Guam.
Mr. Sablan. Yes, I am going to yield to the dean of those
Members of Congress who don't have a vote. She is our dean.
[Laughter.]
Mr. Young. Don't knock it.
Ms. Bordallo. Thank you very much to our Ranking Member,
Mr. Sablan, from the CNMI.
Mr. Chairman, there are four of us up here, territorial
delegates. One is missing. I think she belongs--oh, she just--
that is right. We are now complete. Five of us. And let me say
this, and I want to go on record as saying that the life of a
territorial delegate in the U.S. Congress is the most
frustrating job you would have ever expected it to be. When
your colleagues are going over to vote, you are standing there
watching them. And they say, ``Why don't you go to vote?''
I said, ``Well, we don't vote.'' Oh, that is right. So,
ladies and gentlemen, I sympathize in everything that is being
said here. Guam is in the same boat. We don't have 3 or 4
million people; we are very small. But when you are not able to
vote for the U.S. President, as a citizen, and you cannot vote
for amendments and final passage in the U.S. Congress, yet we
sit in the committees, that is a frustrating position. And I
have been here 13 years; I know all about it.
Now, the Governor, in his opening testimony, he asked three
questions. My answer to those three questions is yes, yes, yes.
You are absolutely right. Or--no? Would it have been no? What
was the question again, Governor? It was yes, right?
Mr. Barcelo. Yes. It was a yes.
Ms. Bordallo. It was a yes. OK.
Mr. Barcelo. It was a yes.
Ms. Bordallo. I want to be sure that I am on the right
side.
[Laughter.]
Ms. Bordallo. Thank you, Governor. Yes, yes, yes. All
right.
I do have a question here for Mr. Vila. I am interested in
your views on the idea of mutual consent. As I understand it,
mutual consent between the United States and Puerto Rico is
still being discussed among the people of Puerto Rico, as part
of an opinion for political status. How would mutual consent be
formulated to satisfy objections that it is unconstitutional,
or to meet any objections by the Department of Justice?
Mr. Vila. In my written statement, and in the documents
that I included, I go a little bit deeper on that. I think that
approach is not the right one. And I do say with total honesty
and respect, I think that so far we have been discussing this
from a political, legal view. I think it is about time just to
discuss the economic relationship between Puerto Rico and the
United States.
I firmly believe that statehood, economically, is not the
alternative, and we can go into deeper discussion on that. It
is in my written statement, I don't want to waste your time.
But I firmly believe it is not a good solution for Puerto Rico
or for the United States either. I firmly believe independence
is not the right economic answer to our situation, and I firmly
believe doing nothing, the status quo, is also not the
alternative.
I believe that we need to sit down and come up with a new
economic arrangement. What is the problem? The problem is that
Puerto Rico is, and has always been, a developing economy. But
then we have to play by the rules of the most developed economy
in the world, which is the U.S. economy. And when you apply the
rules of the most developed economy to a developing economy,
you have the problem we have. And if we become a state, it will
be even worse, because you will apply the tax rules of the most
developing economy to a still developing economy.
So, in that sense, my approach is let's reach an agreement
on a new kind of economic relationship, and then, based on
that, let's reach an agreement in what the mayor called, ELA
Soberano, estado libre asociado soberano, a new political
arrangement, clearly non-colonial and non-territorial.
Ms. Bordallo. Thank you very much.
Mr. Chairman, thank you for being so supportive of our
issues. And, Ranking Member Sablan, thank you for the time.
Mr. Barcelo. Mr. Chairman, could I----
Mr. Young. You have 21 seconds, then I have to let her ask
questions.
Mr. Barcelo. Could I address, myself, to some of the things
that he has mentioned about the economy?
Mr. Young. We will get that next time.
Mr. Barcelo. OK.
Mr. Young. Madam Vice Chair.
Mrs. Radewagen. Thank you, Mr. Chairman. I too want to
welcome the panel of very distinguished public servants. I see
Governor Romero, who was a colleague of my dad when they served
together as Governors of American Samoa and Puerto Rico,
respectively; Governor Luis Fortuno, a former Member of this
body and a colleague on the RNC. Warm welcome to all of you.
When I spoke in this committee room at a hearing earlier
this year, I used the term ``colonialism by another name.''
Well, a three-judge panel gave it another name: ``Cultural
imperialism.'' That Federal court of appeals just rejected the
argument lawyers made in a case claiming the national
citizenship clause in the Constitution applies in American
Samoa and all other unincorporated U.S. territories.
So once again, the courts have confirmed that U.S.
nationals in American Samoa and U.S. nationals from Puerto Rico
and the three other unincorporated territories are required to
relocate to a state of the Union to secure full and equal
rights and duties of U.S. citizenship. That means full and
equal rights of national citizenship, including the fundamental
right of government by consent through voting rights in the
Federal elections are guaranteed only through citizenship in a
state, rather than a territory.
So, for residents of all five unincorporated territories
who don't move to a state, the status of a U.S. national in
American Samoa and a U.S. citizen in a territory is
constitutionally the same, with only those rights under the
Constitution and Federal law confirmed by Congress and Federal
statutes enacted under the territorial power.
I have a question for Governor Fortuno. Given the
predicament for the territories and for Congress due to the
twisted saga of unincorporated territory status, do you agree
that the best path forward is for Congress to support self-
determination for each territory, based on status options that
are legally valid, politically feasible, and compatible with
the freely expressed wishes of a majority in votes held
whenever each territory decides to seek a change of status?
Also, would you care to comment on the consistent Federal
court rulings that confirm full and equal rights of U.S.
national citizenship that include that Federal voting rights
are attainable only through state citizenship, and what it
means for those citizens in Puerto Rico who democratically have
expressed a desire for new status with equal rights of national
citizenship that includes Federal voting rights?
Mr. Fortuno. Thank you, and I commend you for raising this
very important question. And, it is an honor to see you sitting
up there on the dais.
As you very well state, there is a situation that was
court-created of a so-called unincorporated territory. And what
it means is that it grants Congress carte blanche to
essentially do whatever it wants with the U.S. citizens
residing in the territories. Initially, it was only applicable
to territories with non-citizens. But it has been extended and
applied to territories where American citizens reside, American
citizens that actually have served with valor and courage in
every single war, in our case, since 1917.
The only way to address this situation whereby our
constitutional rights are never the same if we live in a
territory is to either move to one of the 50 states or become a
state. In order to attain that, there ought to be, in my
opinion, number one, a process by which majority rules in the
territory, in terms of the terms that are acceptable, but also
in terms that are acceptable to Congress, because Congress has
the ultimate word in this matter. And that is why H.R. 727
makes a lot of sense.
Mrs. Radewagen. Thank you.
Thank you, Mr. Chairman. I yield back.
Mr. Young. Resident Commissioner, you are up.
Mr. Pierluisi. Yes. Thank you, Chairman. Listening to
Governor Acevedo Vila, and former Member of Congress, I just
want to raise a question to see if you can explain to me what
kind of status you envision in Puerto Rico's future? What is
your specific position on status? Because I, frankly, do not
get it.
And I will be respectful. You know very well the way
Congress works. Congress approves bills every day we are in
session that apply or not to Puerto Rico, based on its power
under the territory clause of the U.S. Constitution. The
Supreme Court of the United States, ever since the beginning of
the 20th century, decided that Puerto Rico is an unincorporated
territory, meaning that Puerto Rico could become either a state
or a nation. Two choices: statehood or nationhood.
Yet we are a territory. We have our own constitution--good
constitution, by the way. We are called a commonwealth. But, as
you well know, that is the situation. Any day here, they can
deal with us and we have no vote. We have a say, but no vote.
Now, looking at the future, what do you want Puerto Rico to
be? Do you want Puerto Rico to be recognized as a sovereign
nation, and then strike getting to a compact or treaty with the
United States providing for the economic benefits you were
talking about? Is that what you want? Or do you want Puerto
Rico to continue being a territory as it is, and then keep
trying to get better treatment in the laws that Congress
approves on a daily basis?
Mr. Vila. Resident Commissioner, I just said that, for me,
status quo is not the alternative, and doing nothing is not the
alternative. I also said that what we need to get to is a new
economic relationship which is described in many of my essays.
One of them is included as an annex to my written statement.
In that sense, what I think we need to establish is a new
relationship based on a compact in which we clarify the powers
of Congress and we clarify the powers the people and the
government of Puerto Rico will have.
To me, this is a political will situation, not a legal
question. Actually, I ask any of you to look into the U.S.
Constitution and read to me the clause where it talks about
unincorporated territory. It is nowhere. It is nowhere. The
Constitution only talks about territories.
But when the U.S. Government came to the realization that
they had Puerto Rico--back then Philippines, many of the
territories--but that they were not on the path toward
statehood, they had a political situation. And then a new
theory came to accommodate that new reality, and now we are
called unincorporated territories. But that is not in the
Constitution. That is nowhere in the Constitution.
So, to me, what we need is to reach a political will for
the new economic relationship. And I firmly believe that the
best alternative for the people of Puerto Rico and for the
United States is what we have called sovereign commonwealth,
estado libre asociado soberano, where you clarify the powers of
Congress, and you clarify the powers of the people of Puerto
Rico. For me, the most important one has to do with economic
development.
Mr. Pierluisi. Would that be a territory, or would that be
a sovereign nation in association with the United States?
Mr. Vila. A new relationship, the same way that, before,
there were only territories, and then, after that, it was
accepted to have unincorporated territories. I think what we
have to reach is a political and economic agreement, and then
we will deal with the legal structure.
Mr. Pierluisi. And would Puerto Ricans continue to be
American citizens----
Mr. Vila. Yes.
Mr. Pierluisi [continuing]. Even if they are residing in a
sovereign nation, as opposed to the United States?
Mr. Vila. Yes, it is a matter of political will.
Mr. Young. We will continue this.
Mr. LaMalfa.
Mr. LaMalfa. Thank you, Mr. Chairman. I just had a question
I wanted to throw out there on the idea of Puerto Rican bonds
that might be going into bankruptcy. I am trying to work
through this a little bit here, I am trying to get familiar
here, but it is the possibility that previous bonds could end
up in bankruptcy. What would that mean for investors? And then,
what kind of confidence would anybody have in future bonds
going forward?
And then, how would this lay over with how things look with
Greece--how would that differ from the country of Greece, with
those governments defaulting? What kind of confidence would
investors be able to have with Puerto Rico at that point?
Mr. Fortuno. Mr. Chairman, should I give it a try?
Mr. Young. He just put it out. Anybody wants to answer it--
--
Mr. Fortuno. I will be happy to, of course. And some of the
members of this committee know my background. I slashed
expenses by 20 percent. I am proud to be a fiscal conservative.
But I can tell you that I believe that the rules in the country
should apply in the same way for creditors and debtors across
the country, regardless of whether you are dealing with the
credit of Detroit, California, Florida, or Puerto Rico. And, in
that sense, I believe that certainty is required.
Some people have stated in the past, well, if you now
implement a Chapter 9, or you allow Chapter 9 to actually
benefit both creditors and debtors of debt issued by Puerto
Rico, you will be changing the rules of the game. That is
exactly what this Congress does every day, and that is exactly
what investors in every type of paper face every single day.
Congress changes rules, especially tax rules, every single day.
So, in that sense, nothing special. But I strongly believe
that there ought to be fiscal responsibility on the part of the
territory, but there ought to be certain rules that apply to
debtors and creditors. And Chapter 9 applies in the 50 states;
it ought to apply across the country, including the
territories.
Mr. Vila. May I just add that what will happen is the same
thing that happened in Detroit. The same thing. You have an
orderly process to deal with the situation. We are not--we are
talking about municipalities or instrumentalities of the
central government that might go bankrupt. So, in that sense,
you have a very recent experience in Detroit. So that is the
same. It is basically allowing those corporations and those
instrumentalities of the government of Puerto Rico to use that
tool.
And I just want to clarify also that the reason Resident
Commissioner Pierluisi's bill is so important is because the
local government in Puerto Rico approved a local law and was
declared unconstitutional by a Federal court. That case is
pending in Boston, in the First Circuit, Boston Court of
Appeals. We will see what happens.
The problem is that we don't get action from Congress. And
then, when the local legislature of Puerto Rico decided to
somehow act, then we have a Federal court say, ``You cannot do
that.'' So I don't know of any other place in the world that
doesn't have rules----
Mr. LaMalfa. And that feels like----
Mr. Vila [continuing]. To deal with the status----
Mr. LaMalfa [continuing]. Already, right? If the court is
stopping you from doing things. But----
Mr. Vila. I missed you, sorry.
Mr. Barcelo. Can I make a statement?
Mr. LaMalfa. We don't change tax rules every day around
here. We have had a package that has been very difficult to do
tax reform around here, so it is not as easy as maybe it is
made out to be.
But go ahead, sir.
Mr. Barcelo. We are very concerned. People are concerned
about the bond holders, and they think of the bond holders as
wealthy bond holders from the Nation, from the United States. A
lot of the bond holders--and I don't know how much of a
percentage, but a large percentage are poor people of Puerto
Rico, retirees. And some of the retirement funds in Puerto Rico
have invested heavily in Puerto Rican bonds, because they have
faith in the government of Puerto Rico. So they would also be
subject to not only the bond holders in Wall Street, but the
individual bond holders and family bond holders in Puerto Rico
will be affected by anything that is done.
And when something is done in an orderly fashion, it is the
best way to do it. If nothing is done, and then the roof falls
down on everyone, then everybody is going different ways, and
going to court, and court proceedings for years and years and
years. That is why it is being sought. Nobody expected this to
ever happen.
One of the problems is that in Puerto Rico there has been
a--as a colony, we have created a dependency. You have heard
Governor Vila speak about how he wants to have U.S. citizenship
and not participate in the democratic process. How can anybody
that says that they believe in democracy and that they want the
U.S. citizenship, not want to participate in the democratic
process of the nation they are citizens with? Somebody is
telling a lie or does not understand what democracy is, and
does not understand what U.S. citizenship means, because they
want citizenship but they don't want to vote. Oh, that is bad,
to have representation in the government of our Nation is
prejudicial.
I mean how can that even be accepted? I wouldn't have the
gall to go any place and say, ``I am a Democrat, I believe in
democracy, but I don't want to have the right to vote or the
right to representation.''
Mr. LaMalfa. Yes, I am sorry, sir.
Mr. Young. Time is up.
Mr. LaMalfa. OK, thank you. Just be careful on asking for
statehood, because you might get more EPA than you ever asked
for, because my resources, we can't get at in California any
more due to those guys.
Mr. Young. The Ranking Member.
Mr. Sablan. Yes, on the EPA part, you get it whether you
are an outlying area, you could be in Midway and get the EPA.
Trust me.
[Laughter.]
Mr. Sablan. Would it be possible for the people of Puerto
Rico to come together and figure this out themselves, and then
come to Congress and tell us what it is you want?
I have learned in my short 7 years here in Congress that
you don't ask a question unless you know the answer. If you are
really going to look to Congress for guidance--seriously, is
there a way for you to finally come together and----
Mr. Pierluisi. Would the gentleman yield?
Mr. Sablan. I yield to the gentleman from Puerto Rico.
Mr. Pierluisi. See, the problem, Mr. Sablan, is that as I
was saying, in Alaska they held a referendum, a plebiscite,
years before they came a state. And 57 percent chose statehood,
and 43 percent said they didn't want it. It always happens. In
Alaska--correct me if I am wrong, Mr. Chairman--but I believe
there are people who still want Alaska to be independent.
[Laughter.]
Mr. Young. Primarily because of the EPA.
[Laughter.]
Mr. Pierluisi. The same happened in Texas. Texas was an
independent nation before it joined the Union. So you will
always have different opinions and different factions. So, to
ask Puerto Ricans, ``Oh, why don't you just agree, all of
you,'' it is just an easy way out, with all due respect----
Mr. Sablan. Reclaiming my time----
Mr. Pierluisi [continuing]. Because Congress needs to act--
--
Mr. Sablan. Reclaiming my time. I am just suggesting--I am
naive--that in Puerto Rico, just like in the Northern Mariana
Islands, politics is something we discuss breakfast, lunch, and
dinner.
I reclaim, Mr. Chairman, and this is interesting, I hope I
didn't offend anyone. And, if I did, then that is your problem,
not mine.
[Laughter.]
Mr. Sablan. But I am enlightened. I am going through the
same growing pains, although Puerto Rico has been in this since
1902--or 1908.
Mr. Pierluisi. In 1898 we became a territory, a U.S.
territory.
Mr. Sablan. 1898. Well, see, that is what happened when
that war broke out in Cuba. The United States won the war. They
kept Puerto Rico and sold off to the Germans. And that is where
we left off, but now I am so glad we are together again. See,
it is so wonderful. The world goes around in circles. And in
100 years we will probably be down there and you are up here,
because you are a state.
But I will tell you this much. There are so many times when
I am trying to get something done in Congress and I pray, ``If
only Puerto Rico were a state, and they would be out of my
way.''
[Laughter.]
Mr. Sablan. Thank you very much, Mr. Chairman, for this
hearing.
Mr. Vila. May I react to his comment? I know it was not a
question, but I think that probably we all agree.
I am going to say two things in terms of things that are
happening and have been shown here. For example, Pierluisi's
bill for Chapter 9 has bipartisan support in Puerto Rico, and
that is very rare. So you have statehooders, pro-
commonwealthers, all sectors supporting that. A coalition has
been created to deal with the health issue, Medicare and
Medicaid, also with bipartisan support. That is new. Probably
10 years ago that would have been impossible. That is why my
presentation is basically about the economic crisis.
I think you have a responsibility and a unique opportunity.
I am not talking only about Congress. It has to do also with
the executive branch. This crisis is going to get complicated.
And as I said, and I repeat it, we are in this together. The
solution for this crisis needs the U.S. Government to come to
the table and be part of that solution. I think, on that, we
might also be able to get some kind of agreement beyond
political parties in Puerto Rico.
Mr. Young. I want to thank everybody at this table. I may
have to leave here in a moment if--my Vice Chairman, because we
have a vote on.
Miriam, what is--and this is for all of you--how does this
tax structure work for the bigger companies that--
pharmaceuticals and I don't know what else is down there. How
does that work, and what benefit does it bring to Puerto Rico?
Mr. Barcelo. I think it hurts Puerto Rico.
Mr. Young. Pardon?
Mr. Barcelo. I think it hurts Puerto Rico, Mr. Chairman. I
think that--for a long time I have been saying that if we
reduce this 90 percent tax credit to the corporations,
basically the pharmaceuticals, down to 70 percent, instead of
paying 4 percent they would pay 12 percent. It would mean about
$3 to $4 billion more in revenues for the government of Puerto
Rico, and we could start solving this economic situation.
But the incumbent now, the government, the Governor and the
Popular Party, will never do that because when the campaign
comes along, the lobbyists and the lawyers from these
corporations, they raise a lot of money for them. And that is--
--
Mr. Young. Well, what I am leading up to, it is just not
pharmaceuticals. There are other ones. But that would bring
money into the Puerto Rican economy.
Mr. Barcelo. Definitely, yes.
Mr. Young. Because, right now, some of these companies
don't even have workers from Puerto Rico, do they?
Mr. Barcelo. Yes, they do----
Mr. Young. But Miriam--wait a minute. Miriam, go ahead.
Ms. Ramirez. Well, I have spent a lot of years now looking
at this, because when I first started coming up here I thought
it was the independentistas who were obstructing the deal. And
I was bumping into these lobbyists who were actually----
Mr. Young. Now, don't knock lobbyists all the time. I want
you to know something. They do inform people. But I just--
because you are basically all lobbyists, sitting at that table.
Ms. Ramirez. I realize that.
Mr. Young. OK. So----
Ms. Ramirez. What I mean to say is that I found these pro-
corporation--this particular type of corporation lobbyists
interfering with the work that we were doing up here to try to
convince Congress to move on this issue. And since then, the
GAO has produced--I have introduced that and have links in my
testimony--has produced evidence that this is one of the
biggest tax evasion scams in the whole world. Almost every
country is looking at this very seriously. And I have met with
people in the finance--in the Ways & Means Committee, and they
are very concerned about the fact that there are all these
trillion--this is in the papers every day--trillion dollars of
money out there in foreign countries.
But here is the problem. We are coded as foreign in the
IRS. I don't know if the other territories are, but we are
coded as foreign under Section 933, which is what has allowed
the benefits for these people who relocated to Puerto Rico, for
these corporations. And I just have the numbers from Microsoft,
because they became public. But I know for a fact that this is
happening also with the pharmaceuticals and everybody else. The
contrast is here we are talking about how Puerto Rico is
sinking in bankruptcy, how Puerto Rico--do you think the people
of Puerto Rico don't see that? That is why they are leaving.
Mr. Young. OK, stop right there. What I am looking for, if
that is happening--because we have another bill that has been
introduced by, I believe, a gentleman--Duncan, is it Duncan,
South Carolina--that wants a congressional control board.
Does anybody there support that?
Mr. Pierluisi. Mr. Chairman, would you yield?
Mr. Young. I am going to, yes.
Mr. Pierluisi. It is not a bill. He wrote a letter. And
some are advocating for that. I should say for the record that
I oppose that.
Mr. Young. OK.
Mr. Pierluisi. I mean Puerto Rico, as we have discussed, we
have a republican form of government, a constitution blessed by
this Congress.
So, unless you suspend the effectiveness of our
constitution--which makes no sense--you don't appoint a
financial control board to take over Puerto Rico. Puerto Rico,
with all due respect to the District of Columbia, is not the
District of Columbia. It is not the city of New York. We are a
territory. And there is case law from the Supreme Court saying
that----
Mr. Young. I understand what the gentleman----
Mr. Pierluisi [continuing]. We deserve deference, in terms
of our own self-government for our local----
Mr. Young. I am about ready to run out of time. But here is
what I am looking for.
As you know, I am a proponent, because it is probably the
central solution, and you all have a vote, just say you are
going to be a state and be a state. And then that may not
happen, because this is--this cannon is an awful--has a long
fuse on it.
I have problems, and with the Congress. I have, like I
said, been in this business for a long time and watched the
attitude, which is bad. We don't need a bunch of foreigners--by
the way, back in the United States--we don't need two Senators
that are new. We don't need five Democrat Congressmen--which is
not true, by the way, you would probably end up all being
Republicans, all due respects.
[Laughter.]
Mr. Young. Because I lived through that. We were all
Democrats, now we are all Republican.
But I do think we have to--and my job is to try to keep
this alive and moving, because somewhere we have to solve this
economic problem. I personally think statehood would do it. I
may be wrong.
We also have to consider the fact that maybe we change the
tax laws so we can pick those up a little bit, where we can
take--be more solvent. But the present system, the status quo,
is not working. I said this 21 years ago, and if I am alive 20
more--God help you guys if I am alive 20 more years. But the
fact is I would like to see this not be a black eye on American
citizens, and Puerto Rico be accepted as equal.
I do apologize, and I want to thank the panel, we have a
vote on. And for those Delegates that don't have to vote,
you've got it made. You don't have to run over there and have a
vote and miss a vote, you know? If you miss a vote, they say
you have committed a crime.
If there are no other questions, I will adjourn.
Ms. Bordallo. Mr. Chairman?
Mr. Young. Yes, ma'am.
Ms. Bordallo. May the territories take over this meeting?
Mr. Young. Absolutely. I have offered to her [Delegate
Radewagen], if she wants to do it. Are you through? OK.
We are adjourned.
[Whereupon, at 4:35 p.m., the subcommittee was adjourned.]
[ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD]
[LIST OF DOCUMENTS SUBMITTED FOR THE RECORD RETAINED IN THE COMMITTEE'S
OFFICIAL FILES]
-- June 22, 2015, Diaspora Puerto Rico 51st State, Statement
for the Record.
-- June 23, 2015, Mr. Luis G. Rivera Marin, Esq. Statement
for the Record.
-- June 23, 2015, Dr. Gabriel J. Roman, President, Citizens
Movement for Statehood, Guayama, Puerto Rico,
Statement for the Record.
-- June 23, 2015, The Honorable Larry Seilhamer, Minority
Leader, New Progressive Party Delegation, Senate of
Puerto Rico, Statement for the Record.
-- June 24, 2015, Dr. Gladys Escalona de Motta, Senator Jose
A. Ortiz-Daliot, Alliance for Free Association
ALAS, Letter to Chairman Don Young.
-- June 24, 2015, The Honorable Sergio E. Estevez, Municipal
Legislator, Municipality of Carolina, Minority Whip
Leader for the New Progressive Party, Statement for
the Record.
-- June 24, 2015, Dennis O. Freytes, American Patriots for
Equality (Igualdad)--Civil Rights, Statement for
the Record.
-- June 24, 2015, Mr. Franklin D. Lopez, ``The Time for
Equality is Now! ,'' Statement for the Record.
-- June 24, 2015, Anibal Acevedo Vila, former Governor of
Puerto Rico, Submission for the Record, ``Supreme
Court of the United States, LIMTIACO v. CAMACHO.''
-- June 24, 2015, Anibal Acevedo Vila, former Governor of
Puerto Rico, Submission for the Record, ``Toward
the Economic Refounding of Puerto Rico and its
Commonwealth Status.''
[all]