November 16, 1989 EXTENSIONS OF REMARKS 29607 EXTENSIONS OF REMARKS UNDERESTIMATING THE COST creases under statehood which differ radi­ exemption that would be precipitously OF STATEHOOD IN PLEBISCITE cally from those of the Energy and Natural ended · by the advent of statehood. The ON PUERTO RICO'S FUTURE Resources Committee Report. The cumula­ elimination of federal tax exemption would tive difference in the two estimates over have at least three major effects upon the just four years is $5.711 billion, a significant island's economy. First, it would deprive the HON. JAIME B. FUSTER sum that brings up estimates of additional local government of most of the funds it OF PUERTO RICO federal expenditures for Puerto Rico to now has, largely diminishing its role as the IN THE HOUSE OF REPRESENTATIVES $9.33 billion in the first 4 years of state­ main support of the Puerto Rican economy. hood. Exemption from federal taxes has permit­ Thursday, November 16, 1989 Even CBO's very broad assessment is not ted Puerto Rico to support a large public Mr. FUSTER. Mr. Speaker, once again I call yet complete. For one, the Congressional sector providing vital public services and to the attention of my colleagues develop­ Research Service had identified for us an employing more than a third of the work ments in the ongoing legislative process for a additional $107,778,000 which Puerto Rico force. Financing for this huge public sector congressionally sanctioned political status would have received in Title I education comes mainly from Puerto Rico income plebiscite in Puerto Rico. As you know, this funds in 1989 had we been a state. Using the taxes which are higher than federal income 5 percent inflation rate that the Senate taxes and local excise taxes which are referendum, which we hope will be held in Energy and Natural Resources Committee higher than most state sales taxes. To su­ 1991, will enable Puerto Ricans to decide be­ Report used, this adds another $538 million perimpose federal taxes upon them would tween statehood, independence or an en­ to the cumulative <4 years> underestimate of cause the burden of taxation ,upon Puerto hancement of the existing Commonwealth the Committee Report, hiking current esti­ Rico's narrow tax base to be unbearably status, which I favor. mates of additional federal expenditures heavy or would force a massive reduction in Far-reaching legislation to this end was ap­ under statehood to almost $10 billion for public services and public employment. It is proved in August by the Senate Energy and the 4 year period. estimated that the removal of federal tax Natural Resources Committee, which is the The potential effect of statehood on exemption under statehood could deprive successor to the old Senate Interior and Insu­ Puerto Rico's economy is another vital the local government of 60 percent of its aspect not covered in the Committee Report current revenues with no new federal ex­ lar Affairs Committee. Hearings on the food or in CBO's analysis. This is an issue that penditures to compensate for this particular stamp aspect of S. 712, the Puerto Rico this Committee must address because other­ loss <since all new federal outlays essentially Status Referendum Act, were held last week wise it cannot properly consider the ques­ would be increased federal welfare pay­ by the Senate Agriculture Committee, and the tion that you will be exploring today about ments to individuals) causing, therefore, the Senate Finance Committee concluded 2 days the potential cost to the U.S. Treasury of removal from the island economy of hun­ of hearings Wednesday of this week on the statehood for Puerto Rico. Any reasonable dreds of millions of dollars in services, jobs economic ramifications of the plebiscite. assessment of the federal budgetary costs of and capital investments. Chairman MORRIS UDALL of the House Inte­ statehood must address the fundamental Second, the removal of federal tax exemp­ question of what would happen to Puerto tion would be a grave blow to the corner­ rior and Insular Affairs Commitee has indicat­ Rico's economy upon the advent of state­ stone of the private sector, Section 936 of ed that he will hold hearings on a plebiscite hood. This is so because a very credible case the Internal Revenue Code. The federal tax bill sometime next year. As such, Mr. Speaker, can be made that statehood would so dis­ benefits of Section 936 have allowed Puerto we are anticipating that both Houses will ap­ rupt the island's economy that inevitably Rico's own tax incentives to serve as a pow­ prove this very significant legislation in time federal transfer payments to the island erful inducement for manufacturing compa­ for a plebiscite to be held in Puerto Rico in would have to be substantially increased to nies to build production facilities in· Puerto mid-1991. avoid economic disaster. Reputable Puerto Rico. About three fourths of all manufac­ But, Mr. Speaker, I am convinced that many Rican sources claim that statehood will turing employment in Puerto Rico is in 936 of my otherwise well-intentioned colleagues cause a total net loss of over 200,000 jobs in companies. Moreover, 936 deposits in Puerto the island from both the public and private Rican banks have allowed the financial do not understand the economic implications sectors. If this claim has any basis, it would sector to grow and thrive to unprecedented of the statehood option. And while I have mean that under statehood the current 15 levels. Together manufacturing and banking great respect for the institution of statehood, I percent unemployment rate of Puerto Rico and the indirect service jobs they create ac­ do not feel that statehood is in the best inter­ would more than double, geometrically in­ count for close to a third of the island's ests of either Puerto Rico or the United creasing local demand for federal assistance. labor force. They also account for the larg­ States. To that end, Mr. Speaker, I want to This issue has not been examined at all by est share of Puerto Rico's domestic product. share with my colleagues today my testimony the various federal agencies or congression­ Here again, the elimination of federal tax which I delivered to the Senate Finance Com­ al committees studying the potential effect exemption will inevitably result in a sharp of Puerto Rican statehood upon the federal decline of the existing manufacturing and mittee on Wednesday, November 15: budget. No attempt has been made to draw financial structure with the loss of thou­ STATEMENT OF HON. JAIME B. FuSTER any connection between economic change sands of jobs and the removal of hundreds Mr. Chairman, Members of the Senate Fi­ under statehood and the need to increase of millions of dollars from the productive nance Committee, I want to bring to your federal spending. Studies have been made sector of the island's economy. attention a very vital issue that must be ad­ about additional federal expenditures that Finally, the removal of federal tax exemp­ dressed by this Committee if the referen­ would be required under the statehood tion under statehood would be a severe blow dum process envisioned in S. 712 is to be option, but all such studies have merely at­ to the construction industry in Puerto Rico. meaningful. A fundamental question at tempted to estimate how much the federal Both housing developments and the con­ issue as we approach the referendum is the costs would increase in giving Puerto Rico struction of hospitals, industrial plants, potential cost to the United States Treasury parity or equal footing with the rest of the hotels and other infrastructure are made of statehood for Puerto Rico. 50 states regarding federal benefits. They largely possible in Puerto Rico through fi­ The Senate Energy and Natural Re­ have all assumed that there would be no nancial instruments that depend on local sources Committee in its Committee Report other change on the island's economy. They and federal tax exemption. Puerto Rican on the Puerto Rico Status Referendum Act all assume that all existing needs for nutri­ sourced GNMA mortgages, Puerto Rican <S. 712), September 6, 1989, signals its ex­ tion assistance, health care, college loans housing and industrial revenue bonds and pectation that ". both spending and reve­ and scholarships, unemployment benefits other Puerto Rican government securities, nue estimates will be refined as the bill and so forth will remain the same under commercial bank and S&L deposits, and moves forward in the legislative process." statehood. other such instruments generate huge local Already, the Congressional Budget Office Such assumptions may be grossly unwar­ private investments that make possible most <CBO) has produced, on November 6, item­ ranted. Puerto Rico's economy today is built of the construction and capital development ized estimates of expected spending in- around its exemption from federal taxes, an that occurs in the island. Here again the e This "bullet" symbol identifies statements or insertions which are not spoken by a Member of the Senate on the floor. Matter set in this typeface indicates words inserted or appended, rather than spoken, by a Member of the House on the floor. 29608 EXTENSIONS OF REMARKS November 16, 1989 loss of local tax autonomy which would ac­ ducting the most encompassing study ever One with One pairs immigrants or refugees company statehood would be a severe blow realized on this matter, concluded, that who are international newcomers to our coun­ to the financing of construction in Puerto "unless an appropriate substitute for Puerto try from all over the world with American vol­ Rico, causing a serious decline in jobs in this Rico's present economic arrangements can sector and.