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Capital Eye

Big Spender: Puerto Rico Outdoes Mainland States In Federal Lobbying Efforts

By Sheryl Fred

April 10, 2003
Copyright © 2003
Capital Eye. All rights reserved. 

More than 1,500 miles from Washington, D.C., along the coastline of San Juan, sits La Fortaleza, the impressive 40-room executive mansion of Puerto Rico's governor. Constructed nearly three centuries before the White House was built, the structure nonetheless houses a government that relies on Washington for its livelihood. But lacking voting representation in Congress and the ability of its 3.8 million citizens to vote in federal elections, Puerto Rico has long struggled to be heard on Capitol Hill. In recent years, however, the commonwealth has been banking on a different kind of access to achieve its policy goals: lobbying.

Since 1998, Puerto Rico has paid outside firms almost $20 million to lobby Congress and the executive branch–more than any other U.S. territory or state. In the first half of 2002 alone, the commonwealth spent $1.5 million–more than double that of Illinois, the second-largest state spender on federal lobbying.

Puerto Rico, like other U.S. territories and states, lobbies on a number of healthcare, transportation, welfare and environmental issues. But since taking office in 2001, Gov. Sila Calderón has focused a great deal of her attention on tax incentives that would encourage investment on the island.

Section 936 of the Internal Revenue Code for many years has allowed businesses to operate virtually tax-free in the territory. The Web site of the Puerto Rico Industrial Development Co. (PRIDCO), a government-owned corporation responsible for promoting economic development on the island, implores companies to do business in what it calls "a United States community with a foreign tax structure."

But in 1996, a group of congressmen–including some usually pro-business Republicans–deemed Section 936 "corporate welfare" and voted to phase it out by 2006. Now facing the possibility of losing businesses–and jobs–to other locales, the governor is looking for a substitute tax regime.

"The decision to phase out Section 936 really was a call to action," said Earl Gohl, director of legislative affairs for the Puerto Rico Federal Affairs Administration (PRFAA), the commonwealth's Washington-based arm. (What PRFAA spends on its in-house lobbyists, including Gohl and two legislative assistants, does not have to be reported under ederal law.)

During Congress' last session, Gov. Calderón's agenda was temporarily buoyed when Rep. Phil Crane (R-Ill.) sponsored a bill that would have allowed subsidiaries of U.S. company es doing business in Puerto Rico to send profits back to the U.S. mainland on a tax-deferred basis. Fifty-one House members signed onto the measure, but the proposal never reached vote in either chamber of Congress.

James Healey of BKSH & Associates, one of the commonwealth's primary lobbying firms, says he has been working on amended legislation with the Joint Tax Committee. He predicts the tax proposal, which backers may attach to President Bush's economic stimulus plan, is more likely to succeed this session.

"We've been having very regular meetings," Healey said, "and we think we have good bipartisan support this time."

Gohl of PRFAA is similarly positive: "We've had very good reception so far, and we're pretty optimistic we have a proposition that will certainly support the development of good jobs in Puerto Rico."

While no one doubts that decent jobs are needed in Puerto Rico, Gov. Calderón has been criticized for spending commonwealth money to lobby for them in Washington.

Similar criticism plagued her predecessor, Gov. Pedro Rossello, whose administration paid $15 million to no fewer than 13 firms between 1998 and 2000. In 1999 alone, PRIDCO paid Verner Liipfert Bernhard McPherson and Hand nearly $1.4 million–among the top single lobbying fees disbursed that year.

"If you compare [the Calderón administration's lobbying expenditures] to what the former governor spent on lobbying, we're rookies," Healey said.

Another distinction between the two governors' lobbying efforts lies in their position on whether Puerto Rico should become a state, perhaps the most divisive issue in the territory today. Gov. Calderón's Popular Democratic Party supports maintaining Puerto Rico's current status as a commonwealth. Accordingly, the governor spends much of her energy trying to enhance that status through traditional tax incentives.

Gov. Rossello, from the pro-statehood New Progressive Party, was a big proponent of self-determination and spent millions in the 1990s lobbying Congress for a federally supported referendum on Puerto Rico's status. Rep. Don Young (R-Alaska) introduced legislation in 1997 that would have created a congressionally recognized vote in Puerto Rico. But while the measure narrowly passed the House, it died in the Senate, and the anticipated referendum never occurred.

Some say the controversy surrounding Puerto Rico's territorial status is what fuels the commonwealth's spending on lobbying.

"If this issue were resolved, you wouldn't need to spend all that money from the Puerto Rico treasury," said José Aponte, executive director of the Citizens' Educational Foundation-US. The foundation is a non-partisan self-determination group opposed to what Aponte calls the "colonial" status quo. "Under the current system," Aponte said, "there is no other way to gain access to Washington."

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