The Miami Herald
Mon, May. 01, 2006

Government shutdown imminent in Puerto Rico

Puerto Rican House members came up with a plan they said would prevent the government from shutting down today, but critics called it illegal.


SAN JUAN - Amid a flurry of proposals to stave off a looming fiscal crisis that threatens to put 95,000 people out of work today, Puerto Rico's House of Representatives passed a special 5 percent corporate tax Sunday aimed at preventing a government shutdown.

But with serious questions by the governor and Senate leadership putting the measure in doubt, Puerto Rico appears just hours from a partial shutdown of its central government.

The government here is facing a $1 billion deficit, and Gov. Aníbal Acevedo Vilá had given until midnight Sunday for the Puerto Rico legislature to authorize a $638 million line of credit that would fund public payrolls for the rest of the fiscal year, which ends June 30.

If such a loan did not materialize late Sunday, the governor said he would be forced to close 1,500 schools and 43 government agencies until the new fiscal year begins July 1.

The Senate was to convene late Sunday night to consider the measure. Before becoming law, the Senate would have to pass the House bill and Acevedo would have to sign it. But both Senate President Kenneth McClintock and the governor have serious misgivings, with some critics blasting the House measure as an improvised measure cobbled together in the middle of the night.


Acevedo's Popular Democratic Party is at odds with the opposition New Progressive Party -- which controls the House -- and the two sides have not been able to agree on any compromises. The impasse is considered one of the worst crises in Puerto Rico's already fractious political history.

The House, which has been conducting around-the-clock sessions, has refused to approve the governor's requested line of credit, because the governor insists it must be paid with a new 7 percent sales tax.

The House Sunday instead passed a 5 percent special levy against corporations whose gross income is more than $10 million. The same bill authorized a $531 million line of credit to fund the public payroll, to be paid back with the new one-year corporate tax. The tax would be retroactive to Dec. 31.

Corporate shareholders who reside in Puerto Rico would get a tax credit next year.

''Our own constitution says we can do this,'' said House budget committee chairman Angel Pérez, a member of the New Progressive Party. ``The constitution says that in emergency situations, we can touch these corporations. The problem is that the Popular Democratic Party has always considered these corporations sacred cows.''

Of the 16 members of the Popular Democratic Party in the House of Representatives, eight voted against the measure and the other half abstained. ''They abstained, because they know this is a good measure,'' Pérez said.

On Sunday Acevedo criticized the House-passed measure.


''Never in the history of Puerto Rico have we charged a retroactive tax. There is a serious question as to the legality of that,'' Acevedo told reporters. ``In the past five days, we have seen new measures without any studies, without any analysis and with clear improvisation and clear trickery.''

Many of the 4,000 large corporations in Puerto Rico, naysayers said, already have tax holiday contracts with the government and could not be forced to pay the tax the House approved.

''We have no idea how much money it raises and no idea how many companies would have to pay,'' House minority speaker Héctor Ferrer told reporters. ``The estimate we could come up with at 3 in the morning was that it would raise $138 million. It doesn't even come up with the funds needed.''

Puerto Rico's teachers' union, which represents the bulk of those who face layoffs today, immediately called upon the Senate to approve the bill, and for the governor to sign it. ''Workers pay too much tax,'' said Rafael Feliciano Hernández, of the teachers' union. ``It's time that the rich pay their dues.''

Other labor unions said they needed to evaluate the measure before deciding whether to endorse it.


''In principle, it goes in the direction we have said all along: to make the corporations pay,'' said José Rodríguez, of the Puerto Rican Workers Federation. ``But we have to make sure we are not resolving an immediate problem with something that causes problems in the future.''

If no deal is struck, he said, the union is considering calling for a general strike to paralyze Puerto Rico until lawmakers resolve the crisis.