After the Midterm Elections

With the newly elected Republican majority now in control of the U.S House of Representatives, a cloud of uncertainty looms over Washington and the direction in which the U.S will be heading. Should the Republicans fulfill their campaign promises of decreasing government spending and dismantling Obama's "monstrosity" health insurance plan, Puerto Rico will find itself in quite a precarious situation. As I've mentioned before in an earlier blog post, the island is hugely dependent on federal funding to build roads, maintain its schools and create jobs. Puerto Rico received $6.5 billion in federal stimulus money from Obama's $787 billion American Recovery and Reinvestment Act (ARRA), and $6 billion in Medicaid funding for the next decade.

Despite the role of significance in which federal funds play in the Puerto Rican economy, not much attention has been given to the U.S midterm elections. In fact, there was more talk about Ricky Martin's appearance on Oprah, the first since declaring himself to be a gay man. It was Ricky who actually made the front cover news in two out of the three main newspapers on the island, Primera Hora and El Vocero. That just goes to show where people's priorities lie. Most boricuas were appreciative to receive, and some are still anxiously waiting, the so-called "el cheque de Obama" (translation: Obama's check), in reference to the stimulus check in which taxpayers received. The saving grace was the headline on the island's main newspaper, El Nuevo Día, which had a photo of the U.S President and the following headline: "Revés para Obama" (translation: "A Setback for Obama."). It could also easily have read: "Revés para la isla." Time will tell. Some may say less federal funding is a good thing for Puerto Rico, in order for the island to develop its own economic wherewithal. Nevertheless, this viewpoint is not shared by the majority of Puerto Ricans living on the island.

(Image by Minh Uong of the New York Times)

Throwing us a Bone

This past Monday, Gov. Fortuño unveiled his new tax reform plan, which promises to put "más dinero en tu bolsillo" (translation: more money in your pocket). This plan calls for a gradual decrease of taxes for all taxpayers immediately beginning income tax year 2010. By 2016, those with an annual income of $20,000 or less would pay 0% income taxes. An estimated 450,000 taxpayers fall under this tax bracket. For a breakdown of the new income tax rates, please click on the image to the right. Local businesses and corporations will also see their tax rates lowered. In order to finance this tax reform plan, a 4% excise tax will be levied on foreign corporations with operations on the island starting income tax year 2011. This corporate tax will be gradually lowered until 2016, when it phases out.

The excise tax on foreign companies is expected to bring in a total of $1.4 billion in its initial year, and a total of $5.689 billion in its entirety, while "más dinero en tu bolsillo" is expected to save taxpayers (or cost the government coffers) $1.2 billion during the first year. One important, but little mentioned caveat is that the tax reform plan calls for an evaluation to be done in 2013 to weigh-in on the effects of the tax cuts. The approval of the Puerto Rican Congress would be required in order to continue with the rest of the tax reductions slated for 2014 through 2016. After all, the tax cuts largely depends on the assumption that these foreign companies, which are mostly in the pharmaceutical industry, would remain on the island.

Fortuño's plan has largely been met with a warm reception, except for those from the opposing parties, naturally. Some claim it's too little too late. On the other hand, there were many Fortuño supporters yelling "cuatro años más" (translation: four more years). The governor is up for re-election in 2012. Meanwhile, other critics have made some valid points. Tax breaks are meant to provide short-term relief, as well as garner points for politicians who depend on their constituents' votes to stay in office. The economist Thomas Friedman rightly likens such policies to the injection of "steroids, instead of doing real bodybuilding." In the long run, what sustains and brings about a robust and dynamic economy is innovation, productivity, and an environment where businesses and individuals can flourish.

(Note: The graphic above appeared on www.endi.com).

The Green Way

Vía Verde (translation: "The Green Way") is a local Puerto Rican government initiative to lessen the island's dependence on petroleum, and to find a more environmentally sustainable energy source. To accomplish such a goal, the administration of Gov. Fortuño has been wholeheartedly pushing for the construction of a 91mile natural gas pipeline (el gasoducto), which would run from south to north of the island. In fact, the government is so keen to go forward with this project, that an estimated amount of savings is already included on the monthly electricity bill should el gasoducto be built. According to the Executive Director of the Puerto Rican Electric Power Authority (PREPA), Miguel Cordero, households will see a reduction of about 20% in their energy bills. Gov. Fortuño says the island is currently undergoing an "energy crisis" and the public should throw its support behind la Vía Verde.

The cost of electricity in Puerto Rico is, by some estimates, twice that of the mainland U.S'. This is a major achilles' heel to the local economy as it makes business' operating costs more expensive. An estimated 70% of the island's electricity comes from imported oil, and about 1% of the island's electricity comes from renewable energy resources, such as solar and wind. The Puerto Rican government acknowledges the need to diversify the island's energy portfolio, and it has pledged to increase the share of renewables to 12% by 2015 and 20% by 2035. Meanwhile, the construction of a gas pipeline seems to be the quickest way to appease household budgets and create jobs.

Much to Gov. Fortuno's chagrin, Vía Verde has been met with a massive opposition, especially amongst environmental groups and the communities in which the gas pipeline would be traversing. Such critics argue that the construction of el gasoducto will have a seriously negative environmental impact on the island's wildlife, flora and fauna. Furthermore, critics also point out that gas is just another type of fossil fuel. The fate of el gasoducto is on shaky ground, but most would agree that the island cannot continue to rely on imported foreign oil as its primary energy source.

(The image above was obtained from www.endi.com)

Not Living in Paradise

A friend of mine who lives in Seattle recently sent me an e-mail saying, "so jealous you get to live in paradise." He was referring to the fact that his city gets nothing but gloomy skies and rain, while we get lots of sun here on the island. I must also add that this friend of mine has never been to Puerto Rico, which tends to conjure images of beach, sun and palm trees for most people. While we are indeed blessed with such things here, there are also a whole litany of social problems on the island which many are not aware of. Violence, corruption, a crumbling public education system and a rising crime rate are just some of the many issues facing the island.

Drug trafficking is also one of the biggest problems confronting Puerto Rico. Last week's massive FBI operation serves as a perfect example of just how far drug traffickers have been able to exert their power. According to a recent article published in this past Sunday's El Nuevo Día, drug trafficking is the third largest economic activity in Puerto Rico. Just in case you're wondering, manufacturing and tourism are the two principal industries on the island. As the mainstream U.S media mostly focuses on Mexico with drug trafficking, and rarely talks about Puerto Rico, drugs is probably not something most people would associate the island with.

Given Puerto Rico's geographical location, it is situated between North and South America, it has always been an attractive midway point for the transportation of drugs. Startlingly, some of the drugs were even shipped via the U.S Postal Service, and seven postal workers were arrested by the Drug Enforcement Administration (DEA) just two weeks ago. While I do mostly enjoy living in Puerto Rico, it is certainly no paradise. The island has got its fair share of issues and challenges.