Puerto Rico legislators may slash the commonwealth's annual bond bill by $175 million if Gov. Anibal Acevedo Vila signs a measure that would allow officials to pay a loan to the Government Development Bank for Puerto Rico with revenue as opposed to bond proceeds.
While lawmakers say that initiative should pass through both chambers, another bill, which would decrease the island's sales tax to 2.5% from 7% and replace the funds with a revamped 6% excise tax, has not gained support in the Legislature.
Acevedo Vila, a member of the Popular Democratic Party, proposed the tax change in February, yet Senate President Kenneth McClintock and House Speaker Jose Aponte, both members of the New Progressive Party, do not approve of the change to the sales tax. Of the 7% sales tax, 1% backs $2.6 billion of sales-tax bonds.
"The bill's not going to go anywhere. It's fiscally irresponsible," McClintock said.
In looking at the $175 million initiative, McClintock and Aponte said both chambers have enough votes to pass the measure to use $240 million of revenues that currently sit with the commonwealth's Treasury Department to pay $175 million to the GDB, the island's financing arm, for loans the bank extended to the commonwealth to help balance previous annual budgets. In 2006, lawmakers enacted reforms to prohibit the government from using GDB funds to help fill budget deficits.
Using cash for this year's $175 million payment to the GDB would decrease the island's $425 million general obligation bond bill for fiscal 2008 to $250 million as the government would not need to borrow to cover the $175 million payment to the GDB.
The House is scheduled to vote on the measure today, with Aponte confident that the bill will move on to the Senate. The $240 million of revenue comes from a one-time tax measure. In 2006, lawmakers approved a 5% flat-tax on retirement-fund withdrawals to generate more revenue for the commonwealth.
"We have the votes to pass the bill [today] and I have talked with [McClintock] and other members of the Senate and they are on the road to approve when they receive it," Aponte said.
McClintock confirmed that the Senate would pass the legislation and could vote on the issue as early as next week, but said the question remains as to whether the governor will sign the bill.
"The majority will pass in both the House and the Senate," McClintock said. "We have to see if the governor will sign it or not because he might want to use that money for something else. But we think that it should first be used to fulfill our fiscal obligations before using it to spend, so I think it's the right thing to do."
Regarding the bill, Acevedo Vila spokeswoman Juanita Colombani said via e-mail that the governor "will not comment on speculations."
House minority leader Hector Ferrer of the Popular Democratic Party said the bill has yet to go through a public hearing as Aponte is looking to fast-track the legislation, and declined to say whether he favors the measure.
"That's one of the things that I have to discuss with the governor [today]," Ferrer said.
The GDB did not return phone or e-mail messages for comment.
In December, the Senate approved a $450 million bond bill for fiscal 2008 that included $175 million for the GDB. Since then, the House has been working on the borrowing plan with Aponte preferring a smaller bond bill. Acevedo Vila and the GDB have said lawmakers need to pass the borrowing initiative to help spark job growth in the local economy.
In addition to the initiative to decrease the bond bill by $175 million, Aponte anticipates the House today will pass, with amendments, a new tax incentive bill as the island's current tax benefit law will expire on June 30. The new incentive measure would give businesses that invest in energy, technology, or research and development a corporate income tax rate of 4%, down from 8%. Today is the House deadline to pass the bill, yet Ferrer said officials are still ironing out details of the initiative.
"By law we have to approve that by tomorrow, but I'm not sure that the committee will have the bill ready for vote tomorrow," Ferrer said yesterday.