Puerto Rico’s needs in Washington are urgent.
The U.S. territory’s federal Medicaid funding will run out this month. Congress hasn’t passed a disaster relief bill since October. And as Hurricane Maria fades out of the daily news cycle, pushing lawmakers to act through lobbying is one arena where the Puerto Rican government can exert influence.
But Puerto Rico’s government-appointed lobbyists in Washington failed to change the island’s corporate tax status after asking at the last second; the governor urged Congress in November to authorize $94.3 billion in disaster relief — a massive sum that a Republican-controlled House and Senate isn’t likely to approve — and Puerto Rican leaders recently began a statehood blitz on Capitol Hill that even supporters in Washington say has no hope of success.
The nearly year-long negotiations on the massive tax bill in Congress are a window into the Puerto Rican government’s inability to influence the levers of power in Washington, and Hurricane Maria along with the island’s lack of voting representation in Congress aren’t solely to blame.
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After failing to get legislative victories, Gov. Ricardo Rosselló attacked Republicans who agree with him on Puerto Rican statehood, including Florida Sen. Marco Rubio. Rosselló vowed to use the expanding Puerto Rican diaspora in states like Florida as political leverage in the 2018 elections.
But while Rosselló has started spending time in Florida, his office in Washington has yet to successfully influence major pieces of legislation.
The Puerto Rican Federal Affairs Administration, PRFAA, a Washington-based group of Puerto Rican government officials tasked with representing Rosselló’s interests on Capitol Hill and the White House, constantly shifted legislative priorities throughout negotiations on the tax overhaul, which made it difficult for members of Congress to understand the island’s needs, according to multiple congressional offices.
PRFAA executive director Carlos Mercader, a Rosselló appointee, said the group’s position on taxes “was conveyed throughout the process and it has never varied, to this day.”
“PRFAA never shifted the goalposts,” Mercader said in an email. “On the contrary, it addressed different provisions as they were put forward by Congress.”
Weeks before the tax bill became law, Rosselló’s lobbyists began to argue that the bill treated companies in Puerto Rico as foreign entities under the revamped tax code, putting them at a competitive disadvantage compared to their mainland counterparts. But the push came too late and wasn’t a feasible request, according to Republican and Democratic lawmaker offices who work extensively on Puerto Rican issues.
When the corporate tax change failed, Rosselló went on the offensive, publicly criticizing Republicans like Rubio for turning their backs on Puerto Rico in its time of need, three months after Hurricane Maria destroyed the island’s entire electrical grid.
Rubio said Rosselló’s office raised objections about corporate taxes in Puerto Rico just over a week before the bill passed the U.S. Senate, adding that “the bulk of their engagement was always with the disaster relief, and rightfully so.”
But, Rubio added, “it remains to be seen” whether the corporate tax changes will have the negative effects on Puerto Rico that Rosselló claims.
Rosselló isn’t happy that the tax bill imposes a 12.5 percent tax on “intangible assets” of U.S. companies abroad and a minimum of a 10 percent tax on companies’ profits abroad. The measure in the tax bill is designed to stop American companies from avoiding taxes by shifting profits overseas. But it would also apply to Puerto Rico because the island is treated as both a foreign and domestic entity under the U.S. tax code.
“We will analyze those who turned their back on Puerto Rico, who passed a bill that goes against the spirit of the law,” Rosselló said in December.
A list of tax recommendations agreed to in late 2016 by a group of lawmakers that included Rubio and key figures in the tax debate like Senate Finance Committee chairman Sen. Orrin Hatch, R-Utah, and Puerto Rican congresswoman Rep. Nydia Velázquez, D-N.Y, was shelved as the tax bill was being drafted.
The recommendations included an expansion of the child tax credit to all children in Puerto Rico, which reduces some families’ tax bill for every child they have under the age of 17. Currently, the child tax credit doesn’t apply to Puerto Rican families unless they have three children or more.
Juan Hernández Mayoral, who led the PRFAA under former Gov. Alejandro García Padilla, said the Rosselló administration put the task force’s proposal “in a drawer” when Rosselló took office in January 2017 because eliminating tax loopholes under the U.S. territory’s current political status doesn’t align ideologically with Rosselló’s pro-statehood position.
Rosselló’s government “put that proposal in a drawer because the new government does not want to do anything to help Puerto Rico under the commonwealth status,” Mayoral said, adding that he met multiple times with then-Budget Committee chairman Paul Ryan starting in 2014 about Puerto Rico’s tax status in preparation of a tax overhaul bill.
“I mean, anyone who knows Politics 101 had to know that this would be the perfect timing for Paul Ryan to pass his tax reform he’s been working on for 10 years, it’s nothing new,” Mayoral said. “It’s an example of how ideology comes first before the Puerto Rican people. The current government did not advocate for it after it had worked its way through Congress for two years.”
A Democratic staffer who worked extensively on Puerto Rican issues said “there’s blame to go around” for Republican lawmakers and the Puerto Rican government when it came to the task force’s recommendations not making it into the tax bill, but the Puerto Rican government was exclusively focused on corporate taxes and not individual taxes like the child tax credit when talking to lawmakers.
“The political pressure from Puerto Rico was all on the corporate side,” the staffer said.
Legislation has been introduced since the tax bill passed to expand the child tax credit and other provisions agreed to by the task force, but the tax bill was a key vehicle to getting something done, as Puerto Rico’s tax status isn’t a top priority for lawmakers right now amid a frenetic debate on immigration policy.
“The government also is working closely and collaboratively with senators from both sides of the aisle who support enactment of the earned income tax credit and child tax credit and funding for Medicaid for Puerto Rico,” Mercader said. “The reason those provisions didn’t appear in the final bill is that Congress elected to include NO provisions for Puerto Rico in the final bill. The Government’s consistent position has been, and remains, that Congress should not have turned its back on traditional tax provisions that have helped for a long time Puerto Rico economically.”
Rubio said his office is working to include “broader systemic reforms to the treatment of Puerto Rico that include tax provisions” into a long-term spending bill this year, but Congress is currently trying to keep the government open with stopgap short-term spending bills.
“The question is which vehicle to do it,” Rubio said. “Getting a bill like that through committee and on the floor by itself is going to be hard to do given all the other things going on.”
Throughout the tax negotiations Rosselló ignored Resident Commissioner Jenniffer González — Puerto Rico’s elected non-voting delegate in Congress — during tax deliberations because the pair disagreed over the corporate tax issue. Rosselló, a Democrat, and González, a Republican, did not meet in person to discuss the tax bill throughout 2017, according to a source with direct knowledge.
“Jenniffer González and the governor were worlds apart in this tax reform. They made a good effort in trying to recognize their differences but they were huge and significant,” said Roberto Prats, a former Puerto Rican senator and Puerto Rican Democratic Party chair who is a member of the island’s pro-commonwealth party. “If you’re a member of Congress and you hear the governor saying one thing and the resident commissioner saying another it gives you a good excuse not to listen.”
Rosselló’s father, former Gov. Pedro Rosselló, said in an interview that Ricardo Rosselló and González began scheduling a weekly meeting in January, after the tax bill became law.
“The governor and resident commissioner met very frankly and one of the outcomes in that was they talk every week,” Pedro Rosselló said. “I think that will go a long way. I don’t see fundamental differences, I just see that each one has a sphere where he or she works mainly and it’s just a question of recognizing what those spheres are.”
González’s sphere of influence within the Republican Party could have been helpful in the tax debate. She enjoys close relationships with members like Rubio and Rep. Carlos Curbelo, R-Miami, two pro-statehood Republicans who could communicate with House and Senate leadership about Puerto Rico’s needs, and she’s been campaigning for politicians like Rep. Ron DeSantis, R-Palm Coast, who recently announced a bid for Florida governor.
The disconnect between Rosselló and González last year meant that member offices weren’t clear on Puerto Rico’s biggest priorities in the tax bill, and the governor’s lobbying team did not present specific details on how changes to the tax code would affect Puerto Rico’s complicated status or follow up with staffers after meetings, according to multiple Republican offices. The PRFAA spent $560,000 on two lobbying firms with deep connections to the Trump administration in 2017, according to lobbying records, but their efforts were mostly focused on the White House and federal agencies, according to multiple sources. The bulk of tax discussions on Capitol Hill were conducted by PRFAA staffers, according to member offices, though Mercader said outside lobbyists were instructed to work “all hands on deck,” which included legislative branch lobbying.
“The government of Puerto Rico will continue to engage Congress and the executive branch to find common sense solutions to the island’s challenges,” Mercader said. “We will continue to advocate tirelessly, along with our supporters, to ensure equal treatment to the U.S. citizens residing on the island. In evaluating members, we will continue to work with those who value actions over words.”
And while the statehood issue unites Democrats like Rosselló and Republicans like González in the New Progressive Party, Puerto Rico’s chances of becoming the 51st state in 2018 are slim to none.
“We have been addressing every political issue from the statehood question. For the past 35 years we’ve been having plebiscites, and the result is the collapse of government in Puerto Rico,” Prats said. “If we want to improve Puerto Rico we need to do things differently.”