Puerto Rico: Information for Status Deliberations

Published by the Government Accountability Office on 1990-03-07.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                             linitetl   Stat,t?s Gt~neral Accountirq   Office
                                             I3ricl’ing Report to the Chairman,
                                             Subcommittee on Insular and
                                             International Affairs, Committee on
                                             Interior and Insular Affairs, House of
I    -I__-__--.-.-_        -._-   ----

     Mit t*t*tt I !)!)I)
                                             PUERTO RICO
                                             Information for Status

    dA0/1~1~1,-!,0-~701~1~               -
United States
General Accounting Office
Washington, D.C. 20648

Human Resources Division


March 7, 1990

The Honorable Ron de Lugo
Chairman, Subcommittee on Insular
  and International Affairs
Committee on Interior and
  Insular Affairs
House of Representatives

Dear Mr. Chairman:

This report provides background information on Puerto Rico’s history
and culture, its relationship with the federal government, and its gov-
ernmental structure, economy, and socioeconomic conditions. The report
also summarizes several key transition issues facing the Congress as it
defines the three options to be voted on by the Puerto Rican people-
statehood, independence, and enhanced commonwealth.

The report was prepared jointly with the Congressional Research Ser-
vice in order to brief the Subcommittee. We undertook this effort, at
your request, to assist the Subcommittee as it prepares to consider the
future political status of Puerto Rico.

As agreed with your office, we obtained oral comments from Puerto
Rican government and key political party officials on a draft of this
report. We are sending copies of this report to the Governor of Puerto
Rico, the Resident Commissioner, members of the Puerto Rico legisla-
ture, the leaders of the three major political parties in Puerto Rico, as
well as appropriate congressional committees and Members of Congress.
We will make copies available to others upon request. If you or your
staff have any questions about this report, please call me on (202) 275-
1655. Other major contributors are listed in appendix II.

Sincerely yours,

Linda G. Morra
Director, Intergovernmental
   and Management Issues

Page 1                         GAO/HRD-90-7OBR   Puerto Rico’s Status Deliberations

Puerto Rico:
Information for Status Objectives,
                       Background  Scope, and Methodology
History                                                                                                             8
                             Spanish Period                                                                         8
                             U.S. Period                                                                           10
                             Major Developments in the Relationship With the                                       11
                                  United States
                             Post-Commonwealth Developments                                                        14
                             International and Regional Dimensions                                                 18
                             Status Precedents                                                                     20

Culture and Society                                                                                                24
                             Cultural Dimensions                                                                   24

Federal Relations                                                                                                  28
                             Federal Spending                                                                      28
                             Programs and Laws                                                                     30
                             Tax Laws                                                                              31
                             Income Support Programs                                                               33
                             Health Care Programs                                                                  36
                             Federal Lands and Properties                                                          38
                             Key Transition Issues                                                                 43

Governmental                                                                                                       48
Structure                    Similar to States With Some Exceptions
                             Revenue Sources
                             Expenditures                                                                          54
                             Puerto Rico’s Debt to Gross Product Ratio                                             55

Economy                                                                                                            58
                             Puerto Rico’s Gross Product                                                           58
                             Manufacturing Is Key Sector                                                           59
                             Government Is the Largest Employer                                                    59
                             Unemployment Persists                                                                 62
                             Exports Exceed Imports                                                                63

                             Page 2                         GAO/HRD-90s70BR   Puerto Rico’s Status Deliberations

Ekkioeconomic                                                                                        64
Ckditions       Social Problems
                Social Gains

AQpendixes      Appendix I: General Election Results Since 1952                                      68
                    Percentages of Votes Cast for Each Party
                Appendix II: Major Contributors to This Report                                       69

Btbliography                                                                                         70

Tkbles          Table 1: Results of Referendums on the Question of                                   22
                    Statehood in 11 U.S. Territories
                Table 2: Military Bases and Installations                                            40
                Table 3: National Forests and Parks                                                  40
                Table 4: Other Real Properties                                                       41
                Table 5: Properties Identified for Transfer                                          42
                Table 6: Financial Data on 11 Public Corporations of the                             50

Figures         Figure 1: Map of the Caribbean                                                        5
                Figure 2: Federal Lands and Properties                                               39


                AIDS        acquired immunodeficiency syndrome
                APDC        Aid to Families With Dependent Children
                CRS         Congressional Research Service
                GAO         General Accounting Office
                IIHS        Department of Health and Human Services
                SSI         Supplemental Security Income

                Page 3                         GAO/HRD-9OBOBR   Puerto Rico’s Status Deliberations
Puerto Rico: Information for
Status Deliberations

                In 1898, Spain ceded Puerto Rico to the United States, which began to
Background      administer it as a territory. Located about 1,032 miles southeast of Flor-
                ida (see fig. l), Puerto Rico consists of six islands in the Caribbean. The
                main island is about 110 miles long and 35 miles wide. The island’s pop-
                ulation has grown steadily from approximately 1 million in 1900 to 2.7
                million in 1970, reaching about 3.3 million in 1988. That makes Puerto
                Rico more populous than 25 states, ranking behind Arizona, the 25th
                largest state with 3.5 million people.

                Puerto Rico’s population is predominately urban, with about one-third
                of the residents living in the San Juan-Bayamon-Carolina metropolitan
                area in 1989. Puerto Rico’s population density was estimated to be 947
                persons per square mile in 1986; this is 14 times greater than that of the
                United States as a whole and comparable with Rhode Island, which has
                a population density of 924 persons per square mile. Further, about 5 1
                percent of Puerto Rico’s population was under 25 years old in 1980.

                In 1952, the island became a commonwealth when its constitution
                received congressional and local approval. This provided greater self-
                government, but the issue of political status remains a central focus of
                Puerto Rican politics. Since 1952, Puerto Rico has exercised local execu-
                tive, legislative, and judicial authority similar to that of the states. The
                island’s constitution, patterned after the federal and state models, pro-
                vides for three branches of government and guarantees a democratic
                political system. Although Puerto Ricans are U.S. citizens, they cannot
                vote in presidential elections unless they are registered in a state or the
                District of Columbia. They do, however, vote in general elections for
                local officials representing the major political parties (see app. I). There
                are about 2.2 million registered voters in Puerto Rico.

                In addition to its political evolution, Puerto Rico’s economy, led by man-
                ufacturing, has grown significantly. Once based primarily on agricul-
                ture, the economy has been transformed from an agrarian to an
                industrialized one. The island’s per capita income is the highest in Latin
                America and one of the highest in the Caribbean. However, it is 47 per-
                cent of Mississippi’s, the state with the lowest per capita income. There
                have been significant improvements in social conditions in areas such as
                health care, education, and housing since 1950. While Puerto Rico has
                suffered a temporary setback from the destruction caused by Hurricane
                Hugo, both the availability and quality of the island’s housing stock
                have increased. Despite these gains, Puerto Rico faces various problems.
                Unemployment on the island exceeds the U.S. average and remains a
                chronic problem. In fiscal year 1988, Puerto Rico’s unemployment rate

                Page 4                           GAO/HRD-90.70BR   Puerto Rico’s Status Deliberations

                                         Puerto Rico: Information                for
                                         Status Deliberations

Figure 1: Map of the Caribbean
                        \\ _~. . \----                                                                                                        I

                                                                                        North Atlantic

                                                       Caribbean Sea                                       Rosea”   9   Mertinique



                                                  . Medellln                                                               GUYANA
                                                               *   Bogota

                                           Boundary    representation       is
                                           not necessarily    authoritative

                                         Page 5                                        GAO/HRD-90-7OBR   Puerto Rico’s Status Deliberations
                        Puerto Rico; Information   for
                        Statue Deliberations

                        was 15.9 percent, compared with the U.S. average of 5.5 percent. Fur-
                        ther, Puerto Rico faces other problems, such as crime, alcoholism, drug
                        addition, acquired immunodeficiency syndrome (AIDS), mental illness,
                        and infant mortality.

                        Resolving Puerto Rico’s social and economic problems has been tied to
                        the longstanding debates over the political status of the island. In
                        November 1988, the three major Puerto Rican political parties
                        addressed the issue of Puerto Rico’s status in the platforms they pre-
                        sented to the electorate. In January 1989, a letter and a joint declaration
                        were signed by the leaders of the three major political parties to pursue
                        resolution of the status issue. And President George Bush, in his Febru-
                        ary 1989 State of the Union address, reaffirmed the right of self-deter-
                        mination for the Puerto Rican people, but expressed his preference for
                        statehood. As a result, the political status of Puerto Rico has reemerged
                        as an issue in the Congress.

                        The Chairman of the Subcommittee on Insular and International Affairs,
Objectives, Scope,and   House Committee on Interior and Insular Affairs, asked us, in conjunc-
Methodology             tion with the Congressional Research Service (CRS), to brief the Subcom-
                        mittee on background information about Puerto Rico in preparation for
                        hearings on the island’s future political status. This report summarizes
                        the information provided in that briefing on Puerto Rico’s history and
                        culture; its relationship with the federal government; and its govern-
                        mental structure, economy, and socioeconomic conditions. This report
                        also summarizes selected transition issues facing the Congress as it
                        defines the three status options to be voted on by the Puerto Rican peo-
                        ple-statehood,      independence, or enhanced commonwealth.

                        CRS prepared  the information on Puerto Rico’s history and culture. That
                        information was primarily obtained from our 1981 report’ and docu-
                        ments published by the Commonwealth government. We developed the
                        remaining information contained in this report. We obtained our infor-
                        mation on Puerto Rico’s relationship with the federal government, econ-
                        omy, and socioeconomic conditions primarily from our 1989 report.”
                        Other information was obtained from various federal agencies-primar-
                        ily the Departments of the Treasury, Labor, Health and Human Services,

         w              ‘Puerto Rico’s Political Future: A Divisive Issue With Many Dimensions (GGD-81-48, March 2, 1981).

                        ‘PIJEH’lO RICO: IJpdate of Selected Information Contained in a 1981 GAO Report (GAO/
                        lm-sa-l04FS,    Aug. 9, 1990).

                        Page 6                                    GAO/HRDSO-7OBR      Puerto Rico’s Status Deliberations
Puerto Rico: Information   for
Status Deliberations

and the Bureau of the Census-and from documents published by Com-
monwealth government agencies and universities. We noted some differ-
ences in the information in recently published reports, particularly for
socioeconomic and financial data. For example, information on Puerto
Rico’s population varies among published documents, and some finan-
cial classifications of revenues by source were not comparable. We did
not seek to resolve these discrepancies, but we give dates and sources
for data cited in this report. We recognize, however, that there are other
sources that may have different or more recent information for the
same category of data. We did not verify the data contained in docu-
ments published by federal and commonwealth government agencies or

Our work was performed between October and November 1989, in
accordance with generally accepted government auditing standards,
with the exception noted above.

Page 7                           GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
                 Spain ceded Puerto Rico to the United States in 1898. Administered as a
                 territory, the island became a commonwealth of the United States in
                 1952. Throughout the political history of Puerto Rico-during both the
                 Spanish period (1493-1898) and the U.S. period-there    runs a recurring
                 theme: Puerto Rico’s quest for political autonomy.

Spanish Period   territory for Spain. The island remained under Spanish rule until the
                 Spanish-American War ended in 1898. During this period, Puerto Rico
                 developed beyond the point of being merely a base for defense of Span-
                 ish shipping and a port for replenishing fresh water supplies. Puerto
                 Rico began to press for increased political autonomy. Responding to that
                 pressure, Spain granted Puerto Ricans Spanish citizenship and, for a
                 time, representation in the Spanish Parliament.

                 In 1897, shortly before the outbreak of the Spanish-American War,
                 Spain approved a Charter of Autonomy for Puerto Rico. Although the
                 Charter was never put into effect because of the outbreak of the war,
                 Puerto Rico has not forgotten the Charter’s provisions and has not hesi-
                 tated to use them as a bench mark against which to compare political
                 arrangements established in Puerto Rico by the Congress since becoming
                 associated with the United States.

                 The Charter provided for universal male suffrage and created an Insular
                 Parliament with power to legislate matters for the island not specifically
                 reserved by Spain. It was empowered, for example, to create and control
                 an insular tariff and to levy local taxes. Any change in the organization
                 of the island’s government had to be first approved by the Insular Par-
                 liament. The Parliament had two co-equal bodies-an eight member

                 Page 9                          GAO/HRD-90-7OBR   Puerto Rico’s Status Deliberations
      l   Spanish Period (1493-l 898)
      l   U.S. Period (1898-Present)
          .Political Status

                    Chamber of Representatives and a 15-member Council of Administra-
                    tion Puerto Rican voters elected all the members of the Chamber and
                    eight members of the Council. The other seven members of the Council
                    were to be appointed by the Governor General. The Charter also
                    increased Puerto Rican representation in the Spanish Parliament.

                    Page 9                        GAO/HRD-90.70BR   Puerto Rico’s Status Deliberations

                   Further, although the Charter reduced the power of Spain’s Governor
                   General in Puerto Rico, he continued to have significant authority. He
                   controlled the military and chose his cabinet secretaries from the Cham-
                   ber and Council membership. Additionally, he could dissolve the Parlia-
                   ment, suspend civil rights, and refer to Spain any legislation that
                   appeared to be detrimental or unconstitutional.

                   The Charter never went into effect because the Spanish-American War
                   broke out shortly before the legislature’s first meeting on July 17, 1898.
                   American troops arrived 8 days later to begin a 2-year military


                   The Treaty of Paris ended the Spanish-American War and ceded Puerto
~23. Period        Rico to the United States. It also provided that Puerto Rico’s political
                   status and civil rights were to be determined by the US. Congress. After
                   2 years of military administration, two commissions found that most
                   islanders were willing to be associated with the United States and both
                   recommended that a civilian government be formed. The Foraker Act of
                   1900, which implemented the commissions’ recommendations, was the
                   first of several legislative and judicial steps toward increasing the home
                   rule of Puerto Rico.

Political Status   The question of political status has remained a persistent and significant
                   sociopolitical and economic issue since well before US. rule. Now, as
                   throughout recent history, the Puerto Rican people are divided in their
                   quest for an alternative to the current political status. Three alterna-
                   tives-statehood,   independence, or enhanced commonwealth-have
                   been proposed to accelerate Puerto Rico’s economic and social develop-
                   ment and its future relationship with the United States.


                   Page 10                         GAO/HRD-9040BR   Puerto Rico’s Status Deliberations

              Major Developments in
              the Relationship With
              the United States
          l Foraker Act (1900)
          l Insular Cases
         l Jones Act (1917)
          l Elective Governor Act (1947)
          0 Puerto Rico Federal Relations
           Act (Public Law 81-600)
          lCommonwealth (1952)

                        Puerto Rico has pursued increased control over its internal matters since
Major Developments in   the latter stages of Spanish dominion. Such efforts persisted after the
the Relationship With   island was ceded to the United States. Since that cession, Puerto Rico
the United Stat&        has gradually attained local self-governing powers. During this develop-
                        ment, the Congress passed legislation in 1900 providing for three
                        branches of government and guaranteeing a democratic political system.
                        This legislation vested executive authority primarily in a presidentially
                        appointed government, The Congress passed legislation in 1917 author-
                        izing a popularly elected legislature and extended U.S. citizenship in
                        response to the people of Puerto Rico pressing for greater self-govern-
                        ment. In 1952, Puerto Rico became a commonwealth.

                        Page 11                        GAO/HRD-90.70BR   Puerto Rico’s Status Deliberations



fioraker Act        The Foraker Act of 1900 created a civil government to rcpla~ milit.ary
                    rule and is considered to be the island’s first Organic: Act..” It, vested
                    executive authority in a Governor and an 1 I-membor Exoc*utivc: Council
                    appointed by the President. It also vested legislative authority in ;I
                    bicameral legislature consisting of a locally clectcd 35-mcmbcr IIouse of
                    Delegates and an 1 l-member Executive Council appointed by the l’rosi-
                    dent with at least 5 Puerto Rican members. ,Judicial instit,llt.ions con-
                    sisted of a local District Court appointed by the GOVWINWand a Supreme
                    Court appointed by the President. Further, the act, ctst,at)lishc~da I J.S.
                    District Court.

                    All US. laws were to apply to Puerto Rico except whtirc specifically
                    identified as being inapplicable. The act declared 1J.S.curroncay to be the
                    legal tender, and provided for a resident commissionor to rol)rc~sc?nt.   the
                    island in the U.S. Congress. The act also provided that, the: I J.S.tariffs on
                    goods imported into Puerto Rico would be rcmittod to thrb l’ucrto Rican
                    government, and that temporary duties and taxes on goods shipped
                    between Puerto Rico and the IJnited States would bc rc~turned to the
                    Puerto Rican treasury.

The Insular Cases   The Foraker Act, however, did not resolve some import.ant, questions on
                    Puerto Rican legal status. These unresolved questions led to a stlrics of
                    U.S. Supreme Court cases, known as the Insular cases, whic*h wcrc hoard
                    early in this century. The Court found that the f’und;lmc~nt.;~lrights of’
                    U.S. citizenship applied to Puerto Ricans. It also decided that. I’ucrto
                    Rico was an “unincorporated territory;” that is, one to which all the pro-
                    visions of the U.S. Constitution had not been expressly ~~xt,c~rrd&It.
                    therefore held that the Congress could continue to impose dut.ics on
                    foods coming into the TJnited States from Puerto Ri(do.

The Jones Act       The Jones Act of 1917 was a new Organic Act, for t.hc island passed in
                    response to Puerto Rico’s continued argument that thcaForakcr Act pro-
                    vided less self-government than the earlier Spanish (X~xrt.or of’ Anton-
                    omy. The Jones Act, which repealed certain sections of the Forakcr Act,
                    created both a popularly elected House and Sonata. ‘l’ho St!nat.c:rq~laccd
                    the Executive Council appointed by the President. l<ut, ~Lppoint,tncnt.of
                    Supreme Court Justices, the Governor, and several council members,
                    continued to be vested in the President, and the Congress rc%winc!dthe
                    power to annul Puerto Rican legislation. The act also proviclc~d a bill of

                    “An Organic Act is a law that confers powers of govcrnmrnt upon ;I fwritory.

                    Page 12                                    GAO/HRD-90.70HR       Puerlo   Kitw’s Stat IIH Iklibrrationx
                            rights and granted U.S. citizenship for Puerto Ricans. In 1918, the Con-
                            gress authorized Puerto Rico to adopt its own tax system and exempted
                            resident Puerto Ricans and island corporations from U.S. income taxes.

The Elective Governor Act   Although the Jones Act provided a locally elected legislature, questions
                            concerning the island’s ultimate status remained, and requests for
                            increased autonomy continued. The Congress passed the Elective Gover-
                            nor Act in 1947, enabling Puerto Ricans to elect their first governor. The
                            Governor is responsible for executing Commonwealth laws and can
                            make appointments, grant pardons and reprieves, and approve or disap-
                            prove joint resolutions and bills passed by the legislature. However, like
                            all its predecessors, the act did not determine the island’s final status,
                            and the Congress still retained the power to annul legislation.

Puerto Rico Federal         Continued Puerto Rican dissatisfaction with this remaining federal juris-
Relations Act               diction led to the passage of the Puerto Rico Federal Relations Act in
                             1950 (P.L. 81-600). This act provided for the adoption of a local consti-
                            tution and was ratified by a referendum in June 1951. This set in motion
                            the process of drafting a constitution for the island. This process
                            entailed electing a constitutional convention and was completed when
                            the people ratified the Commonwealth Constitution at a referendum in
                            March 1952.

Commonwealth Status         When the US. Congress approved the Commonwealth Constitution in
                            July 1952, the U.S. role ended in local matters, thereby granting full
                            local executive, legislative, and judicial authority to Puerto Rico.


                            Page 13                         GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations

           l   National Political
           l   Status Commission (1966)
           l   Referendum (1967)
           l   Advisory Groups
           l   Compact (1975)
           l   Ford Proposal (1976)
           l   House Resolution (1979)
           l   100th Congress Legislation
           l   Current Legislation

                         Creation of the Commonwealth in 1952, however, did not lay to rest all
Post-Commonwealth        issues in the continuing debate over Puerto Rico’s political status. For
Developments             example, although islanders have been represented in national political
                         parties, both in the party national committees and at presidential nomi-
                         nating conventions, Puerto Ricans still cannot cast votes for President in
                         the quadrennial presidential elections. And despite the ratification of
                         the Commonwealth Constitution, dissatisfaction remains with the cur-
                         rent relationship between the United States and Puerto Rico. The past
       w                 38 years have been marked by repeated efforts on the part of the Gov-
                         ernment of the Commonwealth of Puerto Rico to make further adjust-
                         ments and enhancements in that relationship with the goal of expanding

                         Page 14                         GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations

                           the sphere of self government. Throughout the nearly four decades, the
                           Congress, presidential administrations, and two advisory bodies have
                           reaffirmed a commitment to the principle of self-determination and
                           urged expressions of the popular will.

National Political         Although Puerto Rican delegations were first accorded representation at
Representation             both the Republican and Democratic National Conventions of 1904,
                           shifts in political alliances and frequent changes in party name charac-
                           terized Puerto Rico’s first four decades under the United States. The
                           current alignment of political parties in the Commonwealth dates from a
                           later period.

                           The three political parties are not formally affiliated with the national
                           Democratic or Republican Parties. The formal Democratic and Republi-
                           can Parties, however, have allowed delegates who are members of these
                           political parties to participate in their conventions. Puerto Rican dele-
                           gates have been represented on the Democratic National Committee
                           since 1940, and at every Democratic National Convention since 1944.
                           Likewise, Puerto Ricans have been represented on the Republican
                           National Committee and at Republican National Conventions since 1968.

                            The Popular Democratic Party, which supports Commonwealth status,
                            was established in 1938. Its leadership has historically had strong ties
                            with the Democratic Party. The New Progressive Party, which supports
                            statehood status, was established in 1967 as a successor to the Republi-
                           can Statehood Party. Its bylaws, however, encourage its members to also
                           join either of the two major U.S. political parties. The Puerto Rican Inde-
                           pendence Party, which advocates independence from the United States,
                           is not represented in U.S. political parties.

Early Efforts to Enhance   Shortly after the Commonwealth was created, it began expressing dis-
Commonwealth               satisfaction over its relationship with the United States. A number of
                           bills were introduced in the Congress to amend the Federal Relations Act
                           to expand the Commonwealth’s sphere of self-government. Several of
                           these bills were formally requested by the Commonwealth government,
                           including the 1953 “Cosmetic Bill,” the 1959 Fernos-Murray bill, and the
                           1963 Aspinall bill. None were approved by the Congress.

                           Page 15                         GAO/HRD-90.70BR   Puerto Rico’s Status Deliberations
1966 Status Commission   After a 1963 congressional proposal to draft a new compact failed, the
                         Congress created the U.S.-Puerto Rico Commission on the Status of
                         Puerto Rico, with the charge to investigate status issues.

                         In 1966, the United States-Puerto Rico Commission on the Status of
                         Puerto Rico called for a referendum on political status. The Commission
                         also cautioned against immediate or rapid changes from the current
                         Commonwealth status in order to avoid the adverse economic effects of
                         such changes. Nevertheless, 10 individual statehood bills were intro-
                         duced in the House during 1966 and early 1967. No action was taken.

The 1967 Referendum      The referendum recommended by the Commission was held in July 1967
                         and authorized by the Commonwealth Legislature. About 60 percent of
                         the voters expressed a preference for an enhanced commonwealth, 39
                         percent for statehood, and less than 1 percent supported independence.
                         About 66 percent of registered voters participated in the election.

Post-Referendum          In 1968, Puerto Rico elected the first governor favoring statehood, Luis
Advisory Groups          A, Ferre. The Governor and, at his behest, President Richard Nixon
                         appointed an advisory group to study the possibility of extending the
                         right to vote in presidential elections to Puerto Ricans. It concluded that
                         such a right was not incompatible with commonwealth status and rec-
                         ommended a Puerto Rican referendum on the issue. The referendum was
                         never held because of a lack of agreement within the Commonwealth

                         In 1972, Rafael Hernandez-Colon, a supporter of commonwealth, was
                         elected governor. In 1973, President Nixon and Governor Hernandez-
                         Colon established another advisory group to study possible revisions in
                         the Commonwealth agreement. The group’s recommendations called for
                         adjustments in the agreement to achieve greater autonomy for the

Compact Proposal         Principal elements of the advisory group’s recommendations appeared
                         in legislation introduced in the House in October 1975 to enhance com-
                         monwealth status through the establishment of the Compact of Perma-
                         nent Union between Puerto Rico and the United States. Despite approval
                         of an amended version of the bill by the House Subcommittee on Territo-
                         rial and Insular Affairs, no further action took place in either the House
                         or the Senate, where a similar bill had been introduced.

                         Page 10                         GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
Ford Proposal           In December 1976, President Gerald Ford expressed support for Puerto
                        Rican statehood, upon approval by the Puerto Rican people. Legislation
                        to provide statehood was introduced in the House but there was no
                        action on the bill (H.R. 2201).

-.” . ..-....-.
House Resolution        In 1979, the House of Representatives passed a concurrent resolution
                        (H. Con. Res. 165, with the Senate concurring). This resolution reaf-
                        firmed the House’s commitment to support the Puerto Rican people’s
                        right to self-determination.

   ..-.-.--. ~.___~__
L$gislation of the      In the 100th Congress, a bill was introduced in both the House and Sen-
l(~Oth Congress         ate (H.R. 2849 and S.1182) to hold a statehood referendum and to imple-
                        ment its results. Amendments, however, were drafted to the House
                        statehood bill to broaden the choices to include enhanced commonwealth
                        status, independence, and free association,fi as well as statehood. During
                        this period, the Congress received 350,000 individual petitions request-
                        ing statehood for Puerto Rico from a grass roots non-partisan Puerto
                        Rican civic organization. Another bill (H.J.Res.218) was introduced to
                        give Puerto Rico independence. No action was taken on any of the three

Current Legislation     During the 1Olst Congress, a bill (S.712) was introduced in the Senate in
                        April 1989, calling for a referendum on Puerto Rico’s political future.
                        The referendum would allow the Puerto Rican people to make a choice
                        among three options-statehood,     independence, or enhanced common-
                        wealth. S.712 was reported out of the Senate Energy and Natural
                        Resources Committee in September 1989. In October 1989, H.R. 3536
                        was introduced in the House and referred to the Committees on Interior
                        and Insular Affairs and on Rules. It resembles S.712, as reported, with-
                        out the specific tax and trade provisions for each status option.

                        “Free association has no precise definition in international law but is recognized in 1J.N.resolutions as
                        an alternative to independent status for jurisdictions emerging from trusteeship status. Among the
                        Pacific trust territories, it consists of a self-governing state with defense responsibilities resting wit,11
                        the IJnitcd States.

                        Page 17                                        GAO/HRD-90.70BR       Puerto Rico’s Status Deliberations
                  International         and Regional
              l   Role of the United Nations
                  *United Nations Resolutions
              l   Regional Interests

                             There are two international dimensions to the Puerto Rico status debate.
International and            First is the role of the United Nations and its resolutions on self-determi-
Regional Dimensions          nation, and second are the regional interests of Puerto Rico as repre-
                             sented by the United States in international organizations.

Role of the United Nations   The United Nations has historically monitored the political evolution of
                             non-self-governing territories. In the late 194Os, the United States volun-
          Y                  tarily included Puerto Rico within this category and reported informa-
                             tion on the island’s political developments annually to the United
                             Nations. In 1953, after Puerto Rico had established its commonwealth

                             Page 18                          GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations

relationship with the United States, the United Nations removed Puerto
Rico from its list of non-self-governing territories, but the island’s politi-
cal status remains a recurring question.

In 1960, the U.N. General Assembly passed Resolution 1514 (XV) on the
granting of independence to colonial countries and peoples. Then in
1961, the General Assembly created “The Committee of Twenty-four,”
later known as the Decolonization Committee. This committee was
authorized to examine political, constitutional, economic, social, and
educational conditions of territories where people had not yet attained
self-government. In 1971, this committee began urging the United States
to take all necessary measures to transfer total sovereignty to Puerto

In 1972, the committee, in considering the island’s status, adopted a res-
olution recognizing “the inalienable right of the people of Puerto Rico to
self-determination and independence.” Since then, discussions on Puerto
Rico’s status in the General Assembly have been held annually by the
Decolonization Committee. In 1978, leaders of the major Puerto Rican
political parties testified as to their dissatisfaction with the current sta-
tus. In the early 1980s the debates culminated with a recommendation
by the Decolonization Committee that the issue of Puerto Rico be
brought before the General Assembly. But that resolution was never
voted on by the General Assembly. However, in its latest resolutions, the
Decolonization Committee decided to keep the question of Puerto Rico
under continuing review.

The United States maintains that the 1953 U.N. resolution which recog-
nized that Puerto Rico had exercised its right to self determination,
leaves the United Nations with no jurisdiction in the matter. Recently,
the IJ.N. General Assembly adopted a resolution calling for the
decolonization of all territories by the year 2000. Puerto Rico was not
mentioned specifically in the resolution. The United States voted against

Page 19                          GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations

Rt3igionalInterests   The United States represents regional interests of Puerto Rico in inter-
                      national government organizations and negotiations by the United
                      States.” Puerto Rico, like a state, may enter into international agree-
                      ments with the consent of the Department of State or the US. Congress,
                      which, for example, authorized membership for Puerto Rico in the Car-
                      ibbean Development Bank.

                      As a commonwealth, Puerto Rico has separate participation                            from the
                      United States in the Olympics.

                      Other U.S. territories have followed varying paths in establishing their
SLatusPrecedents      political relationship with the United States. The U.S. Constitution
                      grants the Congress authority over territories and the power to admit
                      new states or grant independence. Historically, the Congress has been
                      guided by tradition, but it has also been adaptable when considering and
                      legislating changes to the status of territories. The Congress’ broad
                      authority and the diversity of each applicant have produced some pat-
                      terns and many variations in the status of U.S. territories.

Statehood             Thirty-seven territories have eventually become states, satisfying the
                      Congress of their readiness for statehood by meeting three traditional
                      requirements: (1) establishing a republican form of government; (2)
                      expressing a majority preference for statehood through referendums,
                      through direct petitions to the Congress, through the creation of consti-
                      tutional conventions, or through ratification of a state constitution; and
                      (3) having sufficient population and demonstrating the economic capa-
                      bility to support a state government and provide its share of the cost of
                      the federal government.

                      Of the 37 territories that have become states, 11 held referendums to
                      express the electorate’s popular will for statehood by a yes or no vote,
                      as shown in table 1. Of these 11, 7 voted for statehood by majority votes
                      ranging from 59 to 80 percent. Voters in the other four territories ini-
                      tially rejected statehood for various reasons, but later expressed a
                      desire for statehood by majority votes of from 76 to 83 percent.

                      “Regional interests include negotiations with Caribbean countries and territories surrounding Puerto
                      Kico’s borders. For example, the Caribbean Basin Economic Recovery Act, has special provisions
                      applying to Puerto Rico, Virgin Islands, and American Samoa. The act allows duty-free treatment of
                      products produced or processed in Puerto Rico and sold by one of the Caribbean beneficiary nations.

                      Page 20                                    GAO/HRD-90.70BR      Puerto Rico’s Status Deliberations

              Status Precedents
          l   Statehood
              4Zongressional Representation
      l       Independence
      l       Commonwealth
      l       Free Association
                        The 26 territories not holding referendums used other means to demon-
                        strate that the majority of the people desired statehood. As mentioned
                        earlier, these included directly petitioning the Congress, convening a
                        state constitutional convention, or ratifying a proposed state

                        7Ser klxperiences of Past Territories Can Assist Puerto Rico Status Deliberations (GGD-80-26, Mar. 7,
                        1980) for more detail on the experiences of territories in gaining statehood.

                        Page 21                                    GAO/HRD-90-70BR      Puerto Rico’s Status Deliberations

Tablie 1: Results of Referendums on the
Question of Statehood in 11 U.S.                                    Year of
Territories                               Territory          -.---__referendum       Results of referendum                         -.-
                                          Alaska                    1946             Approved statehood by a 32 margin @g-percent
                                          .- __~---_____                             majority).
                                          Arizona                   1906             Rejected joint statehood with New Mexico by 4:1, In
                                                                                     1912, 76 percent of voters ratified a state
                                                                                     constitution.                                     -___ .._.
                                          Colorado                  1859             Reiected statehood.a Reiection attributed to concern
                                                                                     over taxation and a sensk of unreadiness. In 1876,79
                                          ---.--                        --           percent of voters ratified a state constitution. -_I
                                          Florida                   1837             Approved statehood by a 2:l margin (63-percent
                                          Hawaii                    1940             Approved statehood by a 2:l margin (67-percent
                                          --          --                             majority).
                                          Michigan                  1832             ADDroved statehood by 3:2 marain
                                                                                                                  v    (60-Dercent
                                          Ne”ada ----.---                            niajority).                                 -----.
                                                                    1863             Approved statehood by 4:l margin (80.percent
                                                                                     majority).                                      __-
                                          New Mexico           --   1906             Approved joint statehood with Arizona by 2:l margin
                                          ---              ___-_-                    (64-percent majority).
                                          Oregon                    1854-1856        Rejected statehood three times by narrow margins
                                                                                     (51 to 56 percent of votes). An 1857 referendum
                                                                                     approved statehood by a 5:l margin (82-percent
                                          Tennessee                 1795            Approved statehood by 5:2 marain  - (72.percent
                                          Wisconsin                 1840-I 844      Reiected statehood four times bv 2:l marains
                                                                                    ranging from 2:l to 4:l. Reject&s attribukd largely
                                                                                    to light vote and indifference. An 1846 referendum
                                                                                    approved statehood by a 5:l margin (83.percent
                                          “Voter margin not available
                                          Source. Congressional Research Service and state archives,

                                          The admission of new states and population increases caused the House
                                          of Representatives to grow from 65 members representing 13 states to
                                          435 members representing 50 states. New states’ admission or enabling
                                          acts normally prescribed at least one representative until the next
                                          apportionment. Apportionment acts from 1850 to 1911 allowed for
                                          increasing the House size should a new state be admitted, and House
                                          membership was increased following each decennial census until 1911.

                                          In that year an apportionment act fixed House membership at 433 and
                                          provided that Arizona and New Mexico each have 1 representative
                                          should they become states. In 1912 both were admitted and the House
                                          size set at the present 435. Although a 1929 act changed the method for
                                          apportionment, it did not change the House size. The number has

                                          Page 22                                    GAO/HRD-90-70BR     Puerto Rico’s Status Deliberations

-j---“-----         History

                   remained at 435 since then with the exception of the cases of Alaska
                   a.nd Hawaii in the 195Os, when the Congress temporarily increased the
                   size of the House of Representatives until the decennial census in 1960.
                   After the census, the number returned to 435.

Independence       Independence has occurred only in the case of the Philippines. Like
                   Puerto Rico, the Philippines was ceded to the United Stated by Spain in
                    1898. In 1916, the Congress declared its intent to recognize Philippine
                   independence as soon as a stable government was established. In 1934,
                   the Philippine Independence Act was adopted and it set forth a lo-year
                   transitional commonwealth government. The Philippine legislature
                   drafted a constitution, within certain parameters set by the Congress,
                   and it was approved by the United States and ratified by the Filipinos in
                   1935. Independence was granted in July 1946.

Commonwealth       Only one territory other than Puerto Rico is known as a “common-
                   wealth”-the     Northern Mariana Islands, which has been part of the
                   Trust Territory of the Pacific Islands. The Northern Mariana Islands
                   was one of four territories that the United Nations designated the
                   United States to oversee, with the ultimate goal of helping it develop
                   into self-government. A covenant between the United States and the
                   Northern Mariana Islands went into full effect in 1986. Unlike Puerto
                   Rico, however, the US. Department of the Interior plays a large role in
                   the administration of the Northern Mariana Islands. The territory does
                   not have a delegate in the Congress, but has a “representative” in Wash-
                   ington, DC.

Free Association   The other three U.N. trust territories administered by the United States
                   have chosen what is called “free association” with the United States.
                   The Republic of the Marshall Islands and the Federated States of Micro-
                   nesia became associated free states in 1986. Only Palau remains under
                   1J.S.trusteeship because its people have yet to approve a compact of
                   free association between Palau and the United States, within the terms
                   of their constitution.”


                   “I’he most recent refwendum on this issue was held on February 6, 1990. The results fell short of the
                   required 75- percent ma,jority needed to change the existing constitution and accept the compact.

                   Page 28                                     GAO/HRD-SO-70BR      Puerto Rico’s Status Deliberations
C~ture and Society

                      Puerto Rican heritage stems from Spanish, Indian, African, and Euro-
Cultural Dimensions   pean cultures, with more recent influences coming from the United
                      States. The Spanish had substantial influence in Puerto Rico from 1493
                      until 1898. The Spanish also brought their language-a characteristic
                      that has endured to the present day.

Heritage              Puerto Ricans are proud of their unique heritage, which is diverse and
                      distinctly rich. The Taino Indians were the island’s inhabitants in 1493
                      when Columbus first set foot on the island. Initial cordial relations
                      between the European settlers and the Tainos did not last long. The
                      early Spaniards craved gold, but the island’s supply was limited, and
                      they soon had to settle down to farming and raising livestock to make a

                      During the next three centuries, settlers spent much time defending
                      Puerto Rico from the Spanish Empire’s traditional enemies. The walled
                      fortress, El Morro, provided protection from harbor attacks, but the fort
                      was captured by the English in 1598 by land. The English conquerors,
                      however, were driven out by a dysentery epidemic. Other aggressors
                      included the Dutch in 1625, but the island’s troops refused to surrender,
                      forcing the Dutch to flee. During the early 1800s many settlers from
                      Spain and new Latin American republics migrated to the island. Since
                      1898, migration between Puerto Rico and the United States has further
                      contributed to a cultural and social interchange. Migration to the states
                      totaled about 700,000 persons from 1947 to 1972. Net out-migration is
                      estimated at 280,000 from 1980 to 1988. About 2.3 million Puerto
                      Ricans now reside in the states.

Language              Puerto Rico’s cultural heritage reflects the presence of its native inhabi-
                      tants and the blend of various cultures, but the Spanish language pre-
                      dominates. Spanish is the language of day-to-day affairs, of most
                      newspapers, television shows, and radio stations, reflecting Puerto
                      Rico’s lasting Spanish legacy. While the population is predominantly
                      Spanish-speaking, about 42 percent has some English proficiency,
                      according to the 1980 census.

                      American influence has also contributed to Puerto Rico’s culture, partic-
                      ularly in introducing English. Federal government and federal court pro-
                      ceedings have been conducted in English since 1900. House hearings
                      disclosed, however, that the defendants, plaintiffs, and witnesses are
                      overwhelmingly Spanish-speaking, as well as the judges, attorneys, and

                      Page 24                         GAO/HRD-90.70BR   Puerto Rico’s Status Deliberations
                   Culture   and Society

          Culture and Society
          Cultural Dimensions
      l   Heritage
          *Population Characteristics
          *Spanish Culture
      l   Language
          *Predominantly Spanish-
          aFederal Court Proceedings
          *Public Schools

                   court personnel. In 1980, the U.S. House of Representatives passed a bill
                   to allow Spanish to be used for a 12-year period in the Puerto Rico Fed-
                   eral District Court. The bill also provided that Spanish-speaking people
                   could serve on the petit or grand juries if trials were to be held in Span-
                   ish. The Senate, however, did not act on this legislation. Presently,
                   because of the English-language requirement, half the population cannot
                   sit on juries in the federal court, but they can sit on juries in local courts.

                   Language policy regarding public schools in Puerto Rico has fluctuated
                   greatly since 1900. In 1900, Spanish was the medium of instruction at
                   the elementary level, while English was the medium at the secondary
                   level. In 1905, English became the medium of instruction in all grades. In

                   Page 26                           GAO/JlRD-90-70BR   Puerto Rico’s Status Deliberations
Culture   and Society

 1916, the policy changed again with Spanish being taught in the lower
grades and English in the higher grades. President Franklin D. Roosevelt
stated in 1937 that Puerto Rico should become bilingual and, in 1942,
the policy changed to further emphasize bilingual instruction. Emphasiz-
ing English, however, still caused considerable controversy. In 1948,
Puerto Rico was given total control of its education system. Since then,
Spanish has been the medium of instruction of public schools with
English taught at all levels beginning with first grade.

Page 26                       GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
Page 27   GAO/HRD-90-7OBR   Puerto Rico’s Status Deliberations

                   Total federal spending, at $6.2 billion in 1988, comprises about 34 per-
Federal Spending   cent of Puerto Rico’s $18 billion gross product. In the 50 states, the aver-
                   age is about 18 percent. About 38 percent of the federal spending-
                   about $2.4 billion-was   in grants to the commonwealth or its local gov-
                   ernments. This includes welfare assistance, education, highway aid, and
                   customs duties shared with the island. Another 47 percent was for
                   direct payments to individuals, including those for retirement, disability,
                   and veterans’ benefits. Most of the remaining 15 percent was for the
                   wages of federal employees on the island, such as postal workers, and
                   for procurement, such as military purchases.

                   Additionally, the federal government provided $703 million to Puerto
                   Rico in direct loans, loan guarantees, and insurance in fiscal year 1988.
                   For example, the federal government guaranteed $50 million in student
                   loans, $454 million in mortgage insurance, and $9 million in the Depart-
                   ment of Veterans Affairs home loans.

                   Page 28                         GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
                                          Federal        Relations

GAQ Federal Relations:
    Federal Spending

     Swrm:   Census   Bursau,   Federal   Expendlt~rer    by State fw Fiscal Year lVCi2.

                                          Page 29                                          GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
                     Federal   Relations

    GAQ Federal Relations:
        Programs and Laws
             Puerto Rico Is Generally
             Treated the Same as a State
         l   Areas Where There Are
             Notable Differences
             *Tax Laws
             4ncome Support Programs
             *Health Care Programs

                    Under most federal programs and laws Puerto Rico is treated the same
Programs and Laws   as a state. Under some, however, Puerto Rico is treated differently in
                    some notable ways. The three most significant areas in which Puerto
                    Rico is treated differently are tax laws, income support programs, and
                    health care programs.

                    Page 30                        GAO/HRD-90.‘7OBR   Puerto Rico’s Status Deliberations
                        Federal   Relations

    GAQ Federal Relations:
        Tax Laws
           l   No Federal Individual or
               Corporate Income Tax
           l   Internal Revenue Code
                (Corporation Tax Credit)
               #Section 7652(a)
                (Shipment of Goods to U.S.)
           0Customs Duties and Excise

                       Puerto Rico is not subject to federal individual or corporate income tax.
Tax Laws               Since the passage of the Revenue Act of 1918, Puerto Rico has had its
                       own tax law. In this respect, it is similar to a foreign country. Two pro-
                       visions in federal tax law are designed to encourage industry and
                       improve the Puerto Rican economy.!’ The first, section 936 of the Inter-
                       nal Revenue Code, provides for a corporate tax credit. The second, sec-
                       tion 7652(a) of the Code, imposes a tax on shipments of Puerto Rican

                       “See Welfare and Taxes:   Extending Benefits to Puerto Rico, Virgin Islands, Guam, and American
                       ~~flIl%J87-60,              Sept. 15, 1987) for more detailed information on section 936 and foreign
                        . a> .1

                       Page 3 1                                     GAO/HRD-90-70BR      Puerto Rico’s Status Deliberations
                         Federal   Relations

                         goods to the United States that are to be paid into the Puerto Rican

Section 936              Section 936 of the Code provides for a tax credit that has the effect of
                         exempting income that U.S. corporations earn from business operations
                         and certain financial investments in Puerto Rico and U.S. possessions
                         from federal income tax. This tax credit, in effect in one form or another
                         since 1921, provides a significant incentive for US. businesses to estab-
                         lish operations in Puerto Rico. According to the Department of the Trea-
                         sury, in 1983 (which is the most current published data available), 625
                         corporations in Puerto Rico received credits equaling $1.6 billion. These
                         companies employed about 89,000 people. The estimated tax benefit per
                         employee varies greatly by industry and averaged $18,523, or 125 per-
                         cent of the average compensation per employee. Forty-six percent of the
                         benefits went to pharmaceutical companies, which accounted for about
                         15 percent of the total employed by the companies receiving these

Section 7652(A)          Section 7652(a) imposes a tax on goods manufactured in Puerto Rico
                         and shipped to the United States. It also provides that taxes collected
                         under the federal internal revenue laws on items produced in Puerto
                         Rico and transported to the United States or consumed in Puerto Rico
                         are to be paid into the treasury of Puerto Rico. The island received $227
                         million under this provision in 1987.

Federal Customs Duties   U.S. customs duties and excise taxes collected in Puerto Rico are depos-
and Excise Taxes         ited in a special U.S. Treasury account. After providing for the expenses
                         of administering customs activities in Puerto Rico, the remaining
                         amounts are transferred to the Treasury of Puerto Rico. The island
                         received $291 million in 1988.

                         Page 32                        GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
     /   .

                             Federal   Relations

             GAQ Federal Relations:
                 Income Support Programs
                    Federal Funding Capped,
                    Benefits Lower
                l   Adult Assistance
                    (Supplemental Security Income)
                @Aidto Families With
                 Dependent Children
                l   Nutrition Assistance
                    (Food Stamps)

                             Of the six largest income support programs, three are applied in the
    Income Support           same way as they are in the states, and three are applied differently to
    Programs                 Puerto Rico. The three that are applied the same are social security,
                             unemployment insurance, and child nutrition. Those that differ are
                             Adult Assistance (the predecessor program to Supplemental Security
                             Income (ssI)), Aid to Families With Dependent Children (AFDC), and
                             Nutrition Assistance (which is similar to Food Stamps). For these pro-
                             grams, federal funding is capped and benefits are lower than they are in
                             the 50 states. According to a CRSmemorandum, fully extending benefits

                            Page 33                         GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
---T---                     Federal   Relations

                           for these three social programs would significantly expand the eligible
                           population in Puerto Rico, thereby increasing federal costs.111

Adult Assistance Program    Under the Adult Assistance program, which is the equivalent for Puerto
                            Rico of the SSIprogram for the states, cash assistance is provided to
                            needy, aged, blind, or disabled individuals. Unlike SSI,which is fully
                            funded by the federal government, the Adult Assistance program is
                           jointly funded by the federal and Puerto Rican governments. The federal
                            government pays 75 percent of Puerto Rico’s costs of the Adult Assis-
                           tance benefit and training programs and 50 percent of the administra-
                           tive costs. However, the Adult Assistance program is subject to a federal
                            funding cap. The cap (which includes several other income support pro-
                           grams) for fiscal year 1990 is $82 million (42 U.S.C. 1308(a)).

                           In fiscal year 1989, the federal share of Puerto Rico’s Adult Assistance
                           benefits program was $13.7 million. The average monthly payment was
                           $32 for an Adult Assistance recipient, and 50 percent of actual housing
                           costs. The U.S. average under SSI was $362 a month.

Aid to Families With       AFDC provides cash payments for needy children (and their caretaker
Dependent Children         relatives) through state-administered programs that are jointly funded
                           by states and the federal government. The federal share is an open-
                           ended match ranging from 50 to 83 percent of total costs, depending on
                           a state’s per capita income. However, the federal share of benefits for
                           Puerto Rico is 75 percent and is capped. For fiscal year 1990, AFM:
                           (together with the AFDC program and several other income support pro-
                           grams) for Puerto Rico is set at $82 million, The federal share of Puerto
                           Rico’s AFDC program was about $53 million in fiscal year 1988.

                           Puerto Rico, like the states, defines need, establishes income and
                           resource requirements, and sets benefit levels within federal limits. In
                           1988, the basic monthly benefit was $80 for a family of three, plus half
                           their housing cost. The average total monthly benefit to a family of
                           three was $90, which is $28 lower than the lowest maximum payment in
                           the 50 states and U.S. territories.

                           ‘“CIIS prepared a memorandum to Senator Daniel P. Moynihan entitled, “Effects of the Proposal for a
                           Rcfcrendum on the Status of Puerto Rico,” (Aug. 1, 1989) that presents an analysis of how selected
                           social welfare programs would be affected by a change in the island’s status.

                           Page 34                                   GAO/HRDSO-7OBR       Puerto Rico’s Status Deliberations
                       Federal   Relations

                       Puerto Rico is reimbursed for its costs under the program at a lower
                       statutory rate than it would be if it were a state. This treatment was
                       challenged in 1980 in a Supreme Court case, Harris v. Rosario, 446 U.S.
                       651(1980). The Court found the lower reimbursement rate constitu-
                       tional because there was a rational basis for it: Puerto Rican residents
                       do not contribute to the federal treasury, the cost of treating Puerto Rico
                       as a state would be high, and there was a concern that higher benefits
                       could disrupt the Puerto Rican economy.

Nutrition Assistance   Among the states, the Food Stamp program provides federal open-ended
Program                funding for a state-administered food assistance program. Puerto Rico
                       has been excluded from participating in this program since 1982. In its
                       place, the federal government created a separate Nutrition Assistance
                       program. However, unlike the Food Stamp program, this grant is not
                       open ended. Federal funding for administrative and benefits costs of
                       food assistance in Puerto Rico is capped. The cap for fiscal year 1990 is
                       $936.76 million (7 U.S.C. 2028(a)). About 44 percent of the Puerto Rican
                       population received benefits in cash under this program in fiscal year
                       1988, and benefit levels are similar to those under Food Stamps (about
                       $48 monthly per person, on average, versus about $60). The program is
                       administered by Puerto Rico within funding and other limits set by fed-
                       eral law and under a plan reviewed and approved annually by the
                       Department of Agriculture.ll

                       ’ ‘The 1991 federal budget proposes eliminating the Nutrition Assistance program and establishing a
                       new fiscal assistance block grant to include other services to the poor. It also would transfer the
                       federal administration of this program from the Department of Agriculture to HHS.

                       Page 36                                    GAO/HRD-QO-70BR      Puerto Rico’s Status Deliberations
                         Federal   Relations

    GAQ Federal Relations:
        Health Care Programs
                Federal Funding Is Lower
            l   Medicaid Has a Federal
                Funding Cap
            l   Medicare Reimbursement Rates
                Are Lower Based on Puerto
                Rican Hospital Costs, Not the
                National Average

Health Care Programs     grams. The difference between Puerto Rico and the states under these
                         programs is that the level of funding for Puerto Rico is lower than that
                         of the states.

Medicaid Has a Federal   Medicaid provides funding for medical assistance to low-income persons
Funding Cap              who are aged, blind, disabled, or members of families with dependent
                         children. The federal government shares part of total program costs
                         through a formula grant available to the states and other jurisdictions,
                         including Puerto Rico. The program is designed and administered by the

                         Page 36                         GAO/HRD-QO-70BR   Puerto Rico’s Status Deliberations
                           Federal   Relations

                           states and Puerto Rico within federal limits and in accordance with
                           plans approved by HHS. Federal funding for the Medicaid program in the
                           states is open ended; in Puerto Rico it is capped. The cap for fiscal year
                           1990 for Medicaid in Puerto Rico is $79 million (42 U.S.C. 1308(c)).

                           The federal financing participation rates for states’ Medicaid benefits
                           (except for family planning, which is reimbursed at 90 percent) is based
                           on a formula that takes into account states’ per capita income, with lim-
                           its that may be no lower than 50 percent and no higher than 83 percent.
                           The rate for Puerto Rico is fixed at 50 percent by federal law, up to the
                           funding cap. The sharing rates for administrative expenses are 75 per-
                           cent for training, conducting utilization reviews, operating mechanized
                           claims processing, information retrieval, fraud control, and hospital
                           costs-determination systems; 90 percent for establishing the mechanized
                           claims processing and fraud control systems; and 50 percent for the
                           remaining administrative costs.

Medicare Reimbursement     Medicare pays much of the health care costs of people aged 65 years old
Rates Are Lower Based on   and over and certain disabled people. Puerto Rico is generally treated as
                           a state under this program. The difference in Puerto Rico’s treatment
Puerto Rican Hospital      under the program is that its prospective payment rate (the established
Costs, Not the National    payments under Medicare for various medical procedures) is based on
Average                    the cost of hospitalization in Puerto Rico, whereas, in the states these
                           costs are based on a national average.

                           Page 37                        GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
                       Federal   Relations

   GAQ Federal Relations:
       Lands and Properties
         l   Military Bases and Installations
         l   National Forests and Parks
         l   Other Real Property
         l   Coastal Jurisdiction

                      The United States owns about 125 square miles of land in Puerto Rico,
Federal Lands and     which is about 3.6 percent of the land in Puerto Rico, The Defense
Properties            Department operates several military bases and installations that are
                      strategically important to the United States. Various federal depart-
                      ments and agencies also own significant amounts of property in Puerto
                      Rico. In addition, the United States owns several historic sites and lands
                      that the Congress is considering transferring to Puerto Rico (see fig. 2).

                      Page 38                         GAO/HRD-90.7OBR   Puerto Rico’s Status Deliberations
                                                    Federal   Relations

F!igure 2: Federal Lands and Properties

        GAO Federal Relations: Lands and

                       A   Military Bases and lnstallatlons (6)
                       l   National Parks and Forests (2)
                       n   Properties Identified for Transfer (8)
                       @   Capital City
                       @   Other Munlcipalitiea

Military Basesand                                  Since 1898, Puerto Rico has afforded the United States a secure position
Installations                                      for protecting U.S. interests and training military personnel. The ser-
                                                   vices of the IJ.S. Armed Forces maintained 5,833 full-time permanently
                                                   assigned personnel in fiscal year 1987 to conduct operations in Puerto
                                                   Rico. The Navy has the largest presence (see table 2). U.S. Naval Station
                                                   Roosevelt Roads, on Puerto Rico’s eastern coast, is one of the IJnited
                                                   States’ largest naval bases. Roosevelt Roads is described by high-ranking
                                                   Naval personnel as the world’s best naval training area. In addition to
                                                   affording a major training facility for the U.S. Navy and allied forces,
                                                   Roosevelt Roads provides a strategic U.S, presence.

                                                  Page 39                          GAO/HRD-90s70BR   Puerto Rico‘s Status Deliberations
                                            Federal   Relations

Table 2: Military Bases and Installations
                                            Installation                                                Location                                Acres
                                            ___---.--...--~~--...-.--           -_.. - ______
                                            -.____--- Roads Naval Station                               Roosevelt Roads-          -_______-- 32,161
                                            Naval  Security
                                                    .-.... -._ Group
                                            _~_..-.-..-         ..-.. .~. .~~~~-.                       Sabana Seca                              2,618
                                            Naval Communications       Station                          Ponce                                    1,913
                                            Camp    Santiago
                                             ...--____.--~..~        ~~~~
                                                                       ~-~. --    .    .~~    -- -....... Salinas                               11,431
                                            Fort Buchanan                                                 San Juan                                   828
                                            Air Force:
                                            Air  National Guard Tactical
                                            .---.-..-__.-~~~~         - ~_Fighter
                                                                           __-. Group
                                                                                  .-~~~         .~      San Juan                                   44
                                            Total                                                                                              48.995
                                            Source: “Department of Defense List of Military Installations Including FY 1987 Authorized Full Time
                                            Assigned Personnel,” provided by the Office of the Assistant Secretary of Defense/Legislative   Affairs.

National Forests and Parks                  The United States owns about 28,000 acres of forest land in Puerto Rico,
                                            as shown in table 3. The Caribbean National Forest is the largest tract of
                                            forest land in Puerto Rico and is the largest tropical forest in the U.S.
                                            National Forest System. The San Juan Historic Site includes the walled
                                            fortress, El Morro, which was built in 1540.

Table 3: National Forests and Parks
                                            Site                                         Location                                              Acres
                                            Department of Aariculture:
                                            Forest Service
                                              Caribbean National Forest
                                                                    _...____~~~          Luquillo Mountain range                               27,846
                                            Deoartment of the Interior:
                                            National Park Service
                                              San Juan National Historic Site            San Juan                                                 53
                                            Total                                                                                             27,899
                                            Source: “Real Property Owned by the United States Government,”       as of September 30, 1987, provided
                                            by the General Services Administratron.

Other Real Properties                       Various federal departments and agencies have nearly 400 buildings in
                                            Puerto Rico that total about 2.8 million square feet of office and storage
                                            space, and they control nearly 3,000 acres of land. The General Services
                                            Administration owns the largest share of real property, totaling 667,829
                                            square feet, while the Fish and Wildlife Service owns most of the land
                                            acreage. Table 4 identifies all real property owned by the United States
                                            government in Puerto Rico as of September 1987.

                                            Page 40                                      GAO/HRD-90-70BR        Puerto Rico’s Status Deliberations
                                  Federal   Relations

Tbble 4: Other Real Properties
                                 Federal agency
                                 Department of Agriculture:
                                 --                      --
                                 -- Agricultural Research
                                                    ----    Service                                38-..~-. ___-~-
                                                                                                                    ~--~-.-~- ~~~._-~ 0
                                    Forest Service
                                 _._-...-.-  ____--                                                30           57,637                0
                                 Department of Commerce:                             --__-        .-.---. .-. -. - ~~--~- ~ _ ~_         .~~
                                    National Oceanic and Atmospheric
                                    Administration                                                   2             800                    0
                                 Department of Interior:
                                   Geological Survey
                                                  __.-                           -_____            14            9,702                36
                                   National Park Service                                           20           42,450                53
                                   Fish and Wildlife Service                                       10           26,058             2,425
                                 Department of Justice:               __-
                                     Immigration and Naturalization Service                         1             4,800                  3
                                     US. Postal Service                   -_--_.__-----.-          21          194,902
                                                                                                                .__._                   20
                                                                                                                           _. _. ~_.._..~.
                                 --.   ____. of the Treasury:                               __ ____ .--_--.-         --~--~ ~~~_~-..~~_~.
                                     Customs Bureau                                                 8          110,024                   3
                                 Federal Communications Commission                                  0                   0              69
                                 Department of Veteran Affairs                                      4          542,919                160
                                 General Services Administration                                    4          667,829                 46
                                 National Science Foundation                                       21            52,993               118
                                 Department of Transportation:
                                     Coast Guard                                     __. -.__ 178              499,604 ~ -       ~. - 47
                                     Federal  Aviation
                                      - __. ~~.~--~    Administration                     __.~__   20~--..---72,542                      2
                                 Department of Energy                                               9            68,512                  0
                                 Department of Education                                            8          302,057                   0
                                 Corps of Engineers -~~.._________-___-                             6 -- .~-- -.29,298
                                                                                                 .___,.             __ ~~- --_~ ~~~-.    6
                                 Total                                                            394      2,759,222              2,988
                                 Source: “Real Property Owned by the United States Government,”     as of September 30, 1987, provided
                                 by the General Services Administration.

Properties Identified for        The enhanced commonwealth option in S.712, as reported by the Senate
Possible Transfer                Committee on Energy and Natural Resources, states that unless the
                                 President finds there is a national interest requiring continued federal
                                 ownership of certain properties, the properties listed in table 5 shall be
                                 transferred to the Commonwealth of Puerto Rico (see fig. 2).

                                 Page 41                                     GAO/HRD-90-70BR      Puerto Rico’s Status Deliberations
                                     Federal   Relations

Table;S: Properties identified for
TransJer                             Property                                    Location
                                     Federal Courthouse in Old San Juan         San Juan
                                     Former Stop 7-l/2 Naval Residence          Guavnabo
                                     San Geronimo Quarters                      San Juan
                                     Custom House in San Juan                   San Juan
                                     Custom House in Mayaguez                   Mayaguez
                                     Custom House in Ponce                      Ponce
                                     - ..--_---House    in Fajardo
                                                  ..-..--..                     Fajardo
                                     Coast Guard Facility at Puntilla           San Juan

Coastal Jurisdiction                 Control of the waters surrounding Puerto Rico is of great interest to
                                     those living on the island as well as to the United States. There are three
                                     measures of coastal jurisdiction surrounding Puerto Rico’s coast line.
                                     First, Puerto Rico’s boundaries extend 3 Spanish leagues (a little more
                                     than 10 miles) from its shore. Puerto Rico has extensive control over
                                     activities in this area.

                                     Second, the territorial sea of the United States, including Puerto Rico,
                                      extends 12 nautical miles from the shore. The territorial sea is a mari-
                                     time zone extending beyond the land territory and internal waters of the
                                      United States over which the United States exercises sovereignty and

                                     And third, the United States claims an exclusive economic zone that
                                     extends 200 nautical miles from the coast line of the states and Puerto
                                     Rico. In this zone, the United States claims exclusive rights regarding
                                     the establishment and use of artificial islands, structures having an eco-
                                     nomic purpose, protection of the marine environment, and fishing.

                                     Page 42                              GAO/HRD-SO-7OBR   Puerto Rico’s Status Deliberations
                        Federal   Relations

    GAQ Federal Relations:
        Key Transition Issues
          l   Taxes
          l   Programs
          l   Laws
          l   Lands and Properties

                        Historically, the Congress has exercised broad authority in deliberations
Key Transition Issues   leading to statehood or independence. The approaches used have varied,
                        depending on each territory’s unique characteristics. As a result, the
                        admission procedures for statehood, any prerequisite conditions, the
                        amount of assistance provided, and the time that elapsed before attain-
                        ing statehood (or in the case of the Philippines, independence) varied

                        “See Experiences of Past Territories Can Assist Puerto Rico Status Deliberations (GGD-80-26, Mar.
                        7, 1980).

                        Page 43                                   GAO/HRD-90-70BR      Puerto Rico’s Status Deliberations
        In the case of Puerto Rico, the most recent legislative initiative to
        resolve its political status, S.712, has been premised on the immediate
        implementation of the status option chosen, once the referendum’s
        results are certified. Providing multiple options before a referendum is
        novel, but it fits the historical circumstances surrounding the Puerto
        Rican status debate. However, this requires the Congress to define many
        transition issues before the referendum is held.

        While there are many issues the Congress will have to resolve ahead of
        time under this approach is to be enacted into law, we see four as

    l the transition toward the imposition of federal income taxes if Puerto
      Rico becomes a state;
    l the phasing out of section 936 under statehood or independence;
    l the transition toward the implementation of various grant-in-aid pro-
      grams, which Puerto Rico does not currently receive, if it becomes a
      state; and
    . a close scrutiny of existing federal laws under any new or changed sta-
      tus, including the ownership of lands and properties in Puerto Rico cur-
      rently held by the United States.

        Each of the three major Puerto Rican political parties have offered a
        variety of proposals in each of these areas, but the Congress will ulti-
        mately have to decide.

        The tax implications would vary with the form of political status cho-
        sen. IJnder statehood the imposition of federal personal and corporate
        income taxes would be phased in, and section 936 tax credits would be
        phased out. The timing on imposing income taxes, and the timing of the
        phasing out provisions for section 936, however, are important because
        if they are done too soon, unnecessary economic dislocations could
        occur. The U.S. Constitution require taxes to be uniform among the
        states. The phasing in of U.S. taxes and the phasing out of section 936
        once Puerto Rico becomes a state could raise a constitutional issue.
        Under independence, section 936 would become void upon the date of
        independence. However, a foreign tax credit might be created in its place
        to avoid potential economic dislocations. Under the enhanced common-
        wealth option, the existing tax structure would not change; that is,
        Puerto Rico would continue to collect its own taxes and receive excise
        tax and custom duties back from the federal government.

        Page 44                         GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
                       Federal   Relations

Programs               Puerto Rico’s participation in federal grant programs would also vary
                       with the form of political status chosen. Under statehood, Puerto Rico
                       would become eligible for certain federal programs for the first time.
                       However, the pace of implementation of certain income support pro-
                       grams will have to be carefully phased to avoid unnecessary economic
                       dislocations. Under independence, a transition could include block
                       grants to replace federal grants for a period of time, and the protection
                       of federal pensions and Social Security vesting. Both governments would
                       need to coordinate existing social security and medicare credits with
                       new retirement programs to be established by the Republic of Puerto
                       Rico. Most programs would not change under the enhanced common-
                       wealth option. Enhancement could include treating Puerto Rico the same
                       as the states in benefit programs or increasing flexibility. Increased flex-
                       ibility could include the consolidation of certain federal grant programs,
                       with these funds provided as a lump sum to be allocated among differ-
                       ent grant programs at the discretion of the responsible federal agency,
                       or at the request of the Puerto Rican government.

&aws                   The application of federal laws would vary with the form of political
                       status chosen. IJnder statehood, all U.S. laws would ultimately apply to
                       Puerto Rico. Under independence, the United States would withdraw
                       and surrender all existing rights of possession and sovereignty to the
                       Republic of Puerto Rico and U.S. laws would no longer apply. The timing
                       of the transition toward these goals under either statehood or indepen-
                       dence would have to consider a number of administrative implications.
                       Increased flexibility under the enhanced commonwealth option could
                       give the Governor of Puerto Rico the authority to certify to the Congress
                       that a particular law is either inconsistent with Puerto Rico statutes or
                       undermines local interests. If the U.S. Congress upholds the Governor’s
                       certification, the law would no longer apply to the Commonwealth of
                       Puerto Rico.

Lands and Properties   Federal ownership of land and property in Puerto Rico could also vary
                       with the form of political status chosen. Under statehood, the federal
                       government could reassess its need for properties it currently holds in
                       Puerto Rico. Like territories accepted into the Union in the past, Puerto
                       Rico could be compensated for lands retained, with these funds ear-
                       marked to reduce Puerto Rico’s public debt, or improve education. The
                       process for determining how this would occur, and how much would be
                       paid would need to be developed. Under independence, the United States
                       could withdraw all existing rights of possession with exceptions such as

                       Page 46                         GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
Federal   Relations

unrestricted access to maintain and preserve present military installa-
tions Determining these exceptions, and any compensation mechanisms
would also need to be developed. Under enhanced commonwealth, the
continued need for selected federal properties could be reassessed by
the United States, with provisions for transfer to Puerto Rico. Again, a
mechanism to do this would need to be created.

Page 46                        GAO/HRD-90.70BR   Puerto Rico’s Status Deliberations
Page 47   GAO/HRD-90-7OBR   Puerto Rico’s Status Deliberations
Governmental Structure

                         Government in Puerto Rico includes the Commonwealth central govern-
Similar to States With   ment (with its 52 public corporations) and 78 municipalities. Unlike
SomeExceptions           most states, the great majority of governmental functions are adminis-
                         tered and financed by the central government and its public corpora-
                         tions and limited responsibilities have been delegated to the

                         Puerto Rico’s Constitution provides for a government structure similar
                         to that of the federal government and the states. The island freely man-
                         ages local affairs and also operates within the broader federal political
                         system. Presently, like states, Puerto Rico does not exercise responsibili-
                         ties within the federal government’s purview, such as levying duties or
                         imposts on imports or exports, entering into treaties with foreign gov-
                         ernments, coining money, and establishing rules for naturalization.

Public Corporations      Puerto Rico’s 52 public corporations are governmental entities of the
                         Commonwealth, with varying degrees of independence from the central
                         government, particularly with respect to the custody of funds. In 1987,
                         11 of the largest of these corporations had net assets of about $5 billion
                         and revenues of about $2.7 billion, as shown in table 6. While most of
                         these corporations obtained their revenues from charges for services or
                         products, a number of the corporations, such as the Sugar Corporation
                         and the Maritime Shipping Authority, operated with a net loss and were
                         subsidized by the central government.

                         Page 48                         GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
                     Governmental   Structure

    GAJ Governmental Structure

            Similar to States
            With Some Exceptions
        l   Public Corporations
        l   Commonwealth Provides Many
            Local Services

                     Page 49                    GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
                                                   Governmental     Structure

Table ,6: Financial Data on 11 Public Corporations of the Commonwealth (Fiscal Year 1987)
Dollarrj   In mrllrons
                                                                         ~~-. - .~~~_.._____                        --
                                                                                                                                 Total                                     FY67
Public Corporations                                                                              Total assets              liabilities
                                                                                                                            --                 Net assets              revenues
Government         Development          Bank   -                                                      $5,687.6                 $5,304.0                $383.5              $383.6
tlrghway     Authority                                                                                  2,524.3                   710.4               I,81 3.9                70.0
                                                                                .~~ . ---.----                                            -.___-.
Electrrc    Power Authority                                                                            2,552.8                  2,218.g                 333.9 _-__-           860.5
Aqueduct       and Sewer       Authonty                                                                2,040.2                    735.7               1,304.6                 259.8
Telephone      Authority                                                                                1,296.6                   937.9                 358.8                485.1
                                                                                --     _-_.-.
Pubkc Burldrngs          Authority                                                                      1,075.2                   803.7                 271.5-        -----1222
lndusmal      Development            Company                                                                574.8                 195.4                 379.4                     50.1
Ports Authority                                                                                             352.4        TZ3                            198.1                     60.7
Mantrme      Shrpprng      Authority                                                                        214.3                 424.4                (210.1)               311.8
Communrcatrons            Authoritv                                                                -186.7                         122.8                   63.9                    53.4
Land Authority                                                                                               636                   20.0                  43.6                     37.6
Total ’                                                                                            $16,566.5              $11,627.5                  $4,941 .l          $2,694.8
                                                   Source: Annual reports for each public corporation,              and the Fiscal Year 1989-90 Budget for the Com-
                                                   monwealth of Puerto Rico.

---.-_”     ..-.._..-...I__-
Commonwealth Provides                              The Commonwealth government provides most government services,
Many Local Services                                such as local police and fire protection, public education, welfare, and
                                                   economic development. Puerto Rico’s 78 municipalities are responsible
                                                   for the administration of local services, such as street cleaning, garbage
                                                   collection, and some public works. To a limited extent, the municipalities
                                                   share responsibility for education and health by providing various ser-
                                                   vices, such as drivers for school buses and ambulances.

Commonwealth                                       Most of the Commonwealth’s constitutional provisions were adopted
Constitution                                       directly from the U.S. and state constitutions. Puerto Rico’s Constitution
                                                   provides for three separate independent branches of government-exec-
                                                   utive, legislative, and judicial---with appropriate checks and balances,
                                                   The Commonwealth Constitution also includes an extensive bill of rights
                                                   essentially derived from the traditional protections contained in federal
                                                   and state constitutions.

Executive Branch                                   Executive branch responsibilities are similar to those in states, but more
                                ”                  extensive. For example, they include: education, health, police and fire

                                                   Page 50                                              GAO/HRD-90-70BR             Puerto Rico’s Status Deliberations
                      Governmental   Structure

                      protection, telephone communications, electricity, and water. The execu-
                      tive branch includes the Office of the Governor, 15 departments, 42
                      executive agencies and offices, and 52 public corporations.

L&islative Assembly   The Legislative Assembly is bicameral and consists of 27 senators and
                      5 1 representatives. There is also an independent Controller, appointed
                      by the Governor with consent of the Legislative Assembly. The Control-
                      ler is charged with auditing all revenues, accounts, and expenditures of
                      the Commonwealth, its agencies and instrumentalities, as well as local

Jpdicial System       The Commonwealth Constitution provides for a unified judicial system
                      for purposes of jurisdiction, operation, and administration. Puerto Rico’s
                      Judiciary Act of 1962 authorized a General Court of Justice-composed
                      of the Supreme Court, local superior courts, and local district courts,
                      The members of Puerto Rico’s Supreme Court are appointed by the gov-
                      ernor with the advice and consent of the Puerto Rican Senate, The Court
                      is almost exclusively a court of appellate jurisdiction although it does
                      have original jurisdiction to hear habeas corpus petitions and other
                      causes and procedures conferred on it by law.

                      We analyzed the Commonwealth’s 1989 revenues (including commercial
Revenue Sources       and public utilities) and contrasted them with the averages for state and
                      local governments in the 50 states and the District of Columbia. While
                      the comparison with state and local revenues provides a useful context
                      for describing Puerto Rico’s revenue pattern, the comparison is approxi-
                      mate for a number of reasons, First, some financial classifications of
                      revenues by source were not comparable because such data were not
                      readily available. Second, the Commonwealth’s governmental activities
                      in some respects, such as supplying agriculture credit, correspond more
                      closely to those of the federal government than those of state and local
                      governments. And finally, differences in the pattern of Commonwealth
                      revenues and the averages for state and local governments may not nec-
                      essarily be significant, because wide variations exist among the states.

                      Page 51                         GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations

                                      Governmental        Structure

GAQ Governmental Structure:
    Revenue Sources

        Saurcfm: Qovemu’r   Ecmomk   Mvimy   Coundl,   and Census   Bueau’s   Government   Financea
        in 1!386-87.

                                     Total revenues (including commercial and public utilities) for Puerto
                                     Rico’s central and municipal governments were about $10.5 billion in
                                     1989. As a percent of total revenues, the largest single share, at 52 per-
                                     cent, is the category of “sales of goods and services and all other reve-
                                     nue sources.” This category includes a significant amount of revenues
                                     generated by its public corporations, For state and local governments
                                     this category is 42 percent, and includes revenues from government
                                     owned and operated water, gas, and transit systems, and liquor store
                                     receipts. The second largest source of Puerto Rican revenues is federal
                                     aid (17 percent). This is about 3 percent more than the average for the
                                     50 states.

                                     Page 62                                                    GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations

      Governmental   Structure

      The other three major components, almost equally divided, are sales
      taxes, and individual and corporate income taxes, Puerto Rico relies
      more heavily on individual and corporate income taxes (19 percent),
      compared with an average of 13 percent for states and their localities.
      However, Puerto Rico relies less on the use of property taxes and sales
      taxes than do states and their localities, on average (3 percent versus 14
      percent; and 10 percent versus 17 percent, respectively).

      Page 53                        GAO/HRD-OO-70BR   Puerto Rico’s Status Deliberations
                   Governmental   Structure

    m      Governmental Structure:
           Selected Expenditures

                  Puerto Rico spends about 29 percent less per capita than state and local
Expenditures      governments. It tends to spend less on education than states. Education
                  is 23 percent of total expenditures, compared with 33 percent in the
                  states. Puerto Rico also spends less on welfare (6 percent versus 11 per-
                  cent). Put it spends more on housing and community development (8
                  percent versus 2 percent), and more on health care and hospitals (11
                  percent versus 8 percent).

                  We analyzed the Commonwealth’s 1989 expenditures (excluding the
                  municipalities and the commercial activities of public corporations) and
                  contrasted them with the averages for state and local governments in
                  the 59 states and the District of Columbia. For the reasons mentioned

                  Page 64                         GAO/HRD-OO-7OBR   Puerto Rico’s Status Deliberations

                         Governmental   Structure

                         earlier, the comparison is not precise. Also, personal income levels vary
                         significantly between the United States and Puerto Rico, so these num-
                         bers are not appropriate indicators of levels of effort. For example even
                         though Puerto Rico spends less per capita than states on education, if
                         expenditures were measured per $1,000 of personal income, Puerto Rico
                         spends $85 and the states and the localities, $62.

                         Puerto Rico’s debt, including that of the Commonwealth, its municipali-
E’uerto Rico’s Debt to   ties, and its public corporations, totaled about $10.1 billion in 1987. But
&mossProduct Ratio       the public corporations’ debt accounted for 71 percent of Puerto Rico’s
                         total debt. To make the percent of the Commonwealth’s and municipali-
                         ties’ debt in relation to its gross product more comparable with that of
                         state and local governments, we excluded Puerto Rico’s debt attributa-
                         ble to public corporations.

                         On a per capita basis, Puerto Rico’s debt (excluding the public corpora-
                         tions) was estimated at $882 in 1987, which is equivalent to 17 percent
                         of its gross product. For state and local governments, the per capita debt
                         was much higher ($2,471), but a lower proportion of gross product (13
                         percent). However, a comparison with state and local governments’ debt
                         is not exact, because some of Puerto Rico’s credit activities may be con-
                         sidered similar to some of those of the federal government and private

                         Puerto Rico’s total public debt as a percent of its gross product has
                         declined since 1975. In 1975, it was 20 percent and dropped to 17 per-
                         cent in 1987. By comparison, state and local governments’ debt as a per-
                         cent of the U.S. gross national product was 12 percent in 1975, and rose
                         to 13 percent in 1987.

                         The level of total debt per capita is about that of state and local govern-
                         ments, but excluding the debt of public corporations, it is less than state
                         and local borrowing. The debt of these public corporations is generally
                         financed by the revenues of these corporations, similar to private corpo-
                         rate borrowing. Puerto Rico’s debt per capita rose from $493 to $882
                         (current dollars) between 1975 and 1987. State and local government
                         debt per capita rose from $886 to $2,471 over the same period.


                         Page 66                         GAO/HRDSO-7OBR   Puerto Rico’s Status Deliberations
Page 67   GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations

                                           Puerto Rico’s gross product-the   total annual output produced within
Puerto Rico’s Gross                        the commonwealth-increased      each year from 1979 to 1981 but at
Product                                    declining rates of growth. As with the United States, Puerto Rico expe-
                                           rienced a recession in 1982, which resulted in a decrease in real gross
                                           product. While the U.S. economy began to recover in 1983, Puerto Rico’s
                                           gross product again declined for that year. Puerto Rico experienced real
                                           growth rates of nearly 4 percent a year from 1984 to 1987, compared
                                           with 3.5 percent in the United States as a whole.

     GAO Economy: Annual
         Growth in Gross Product

                         UnmM stsms

            Note: l&h change represents   gmwth   or decline   in gross pmduct   in percenbges   using
            constMt  1982 dews.

            Sources:Puwto    Rko Planning Board, Economic      Report of the Governor   (1999). and Ewnomk
            Repoti ol tie President (January 1989).

                                           Page 68                                                       GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations

     G+@ Economy:
         Manufacturing Is Key Sector

            10 7






            Souse: Puem Rico Planning Board, Economic Report of the Govemor (lS98).

                                           Spurred almost entirely by the investments of US. firms, manufacturing
Manufacturing Is Key                       has become the most important sector in Puerto Rico’s economy. Manu-
Sector                                     facturing contributes m&e than twice as much to gross product as any
                                           other sector, totaling about $10.2 billion in 1988.

                                            Page 69                                   GAO/~99-70BR   Puerto Rico’s Status Deliberations


      w      Economy: Government
             Is the Largest Employer


            Source:   Puerto   Rim P’mh!~   Bad.   Economk   Report of the Gwanmr   (1086)

                                              While manufacturing is the largest contributor to Puerto Rico’s gross
Government Is the                             product, government is the leader in terms of employment. By 1988, the
Largest Employer                              government employed 201,000 people at all levels-federal,       common-
                                              wealth, and municipal-and       comprised 23 percent of the total
                                              workforce. That compares with 15.5 percent in 1986 in the United
                                              States.lzl In addition, spending by the federal, commonwealth, and
                                              municipal governments contributed 24.1 percent of the island’s gross
                                              product in 1988.

                                              “‘The 1J.S.public sector employment figure includes federal, state, and local employees. Local govern-
                                              ment employment includes personnel such as school teachers, police, and sanitation workers.

                                              Page 60                                        GAO/HRD-SO-70BR   Puerto Rico’s Status Deliberations


        Manufacturing jobs grew from 9 to 20 percent of total employment from
         1950 to 1979. But between 1980 and 1988, manufacturing declined as a
        share of total employment to 18 percent, in part because of more rapid
        employment growth in other sectors of the economy. In 1988, manufac-
        turing employment stood at about 157,000 jobs. However, there was a
        shift from labor- to capital-intensive industries. Among all manufactur-
        ing industries, electrical equipment and chemical manufacturing
        employment grew at the fastest rate from 1980 to 1988. Each grew at
        over 20 percent and added about 8,300 new jobs during the same period.
        The apparel industry remained the largest employer although employ-
        ment stayed constant at about 33,600 jobs between 1980 and 1988.

        Page 61                        GAO/HRD-SO-70BR   Puerto Rico’s Status Deliberations


    GAQ Economy:
        Unemployment Rates

          Soum:     Ptwio Rico Planning bad.     Ewoomic   Repal   of Ow Govamof   (1986);   Bureau   of labx
          StaWca.    Empbymml    and Eaminps   (Msy 198s).

                                         Net job creation increased at nearly three times the rate of population
Unemployment                             growth from 1979 to 1988. Unemployment is down from the 23.5 per-
Persists                                 cent peak reported in 1983. But Puerto Rico’s unemployment rate con-
                                         tinues to be two to three times greater than the national average and
                                         incomes remain relatively low. In fiscal year 1988, the unemployment
                                         rate was 15.9 percent compared with the U.S. average of 5.5 percent
                                         (Louisiana had the highest unemployment rate, 10.9 percent in 1988).
                                         This high rate of unemployment has been coincident with high levels of
                                         participation in public assistance programs. For example, in 1988, about
                                         44 percent of the population was eligible for the Nutrition Assistance

                                         Page 62                                                       GAO/HRD-SO-7OBR   Puerto Rico’s Status Deliberations
    w      Economy:
           Exports Exceed imports

           16   Cemh16   isQ   Ddbm   in 622s~






                                          Puerto Rico experienced a trade surplus in 1982. When exports and
Exports Exceed                            imports are expressed in constant dollars, annual surpluses resumed in
Imports                                   1986 and continued through 1988. The island’s exports increased from
                                          $8.9 billion in 1982 to $10.9 billion in 1988. Puerto Rico’s imports
                                          increased from $8.5 billion in 1982 to $9.8 billion in 1988.

                                          Page 63                       GAO/HRD-SO-70BR   Puerto Rico’s Status Deliberations

                  Despite progress on a number of fronts, Puerto Rico faces various prob-
Social Problems   lems such as crime, poverty, alcoholism, drug addiction, and mental
                  health. For example, 46 states (including the District of Columbia) had
                  higher crime rates than Puerto Rico. Puerto Rico’s crime rate was
                  3,358.8 per 100,000 population in 1987, compared with 5,550 per
                  100,000 in the United States. However, only seven states had a higher
                  violent crime rate than Puerto Rico.

                  Chronically high poverty rates persist in Puerto Rico despite an improv-
                  ing economy. In 1979, the Bureau of the Census reported that 62.4 per-
                  cent of Puerto Rico’s population had incomes below the federal poverty
                  level, compared with 12.4 percent of the U.S. population (the most
                  recent comparable data available).14 Puerto Rico’s 1979 per capita per-
                  sonal income of $3,149 was the highest in Latin America and one of the
                  highest in the Caribbean. The island’s per capita personal income
                  reached $5,157 in 1988, but it is still 47 percent of Mississippi’s $10,992,
                  the state with the lowest per capita income. Nevertheless, this is an
                  improvement over 1950, when the island’s per capita income was 39
                  percent of that of the lowest state.

                  Also, the island’s 1987 infant mortality rate was 14.2 per thousand live
                  births, compared with 10.1 per thousand in the United States in 1987.
                  Only the District of Columbia’s 1987 infant mortality rate was higher
                  than Puerto Rico’s 14.2 rate.

                  Puerto Rico faces a serious AIDS epidemic. It ranked second among the
                  states and the District of Columbia between October 1988 and Septem-
                  ber 1989. Puerto Rico reported 44.5 AIDS cases per 100,000 population in
                  that year. Only the District of Columbia had a higher rate. Cumula-
                  tively, Puerto Rico had the eighth highest number of AIDS cases through
                  September 1989.

                  The island’s housing stock and quality have increased greatly. In 1940,
Social Gains      for example, 80 percent of Puerto Rico’s housing was considered inade-
                  quate. This number was reduced to 18.2 percent by 1980, according to
                  the latest U.S. Census of Housing (the most recent data available). While
                  the island has suffered a temporary setback because of the destruction
                  caused by Hurricane Hugo, federal assistance and mortgage insurance

                  ’ ‘In 1979, the Ilureau of the Census reported that the federal poverty level was $7,412 for a family
                  of four, and $3,686 for an individual.

                  Page 64                                      GAO/HRD-90.70BR      Puerto Rico’s Status Deliberations


                                            Socioeconomic   Conditions

                         m       Socioeconomic Conditions

                                 Social Conditions
                             l   Problems
                             l   Gains
                                 l Housing

                                            continue to contribute to improved housing. However, in 1980, 12.4 per-
                                            cent of occupied housing in Puerto Rico lacked complete private plumb-
                                            ing facilities, compared with 2.2 percent in the United States.

                                            Better medical and sanitation services, among other factors, contributed
                                            greatly to controlling infectious diseases and reducing infant mortality
                                            rates in Puerto Rico. Although the island’s infant mortality rate is still
                                            high, its life expectancy was 74 years in 1986, slightly higher than the
                                            U.S. average and one of the highest in the world.

                                            Educational opportunities have also improved markedly. While only
                                            one-half of the eligible children attended school in 1940, four of five

                                            Page 66                         GAO/HRD-90-70BR   Puerto Rico’s Status Deliberations
    Socioeconomic    Conditions

    were enrolled in 1976 (the most recent data available), and significant
    progress has been made in reducing illiteracy, which was 80 percent at
    the turn of the century.

    Despite this educational progress, severe problems exist. The island’s
    illiteracy rate was about 11 percent in 1986. In the United States as a
    whole, between 17 and 2 1 million adults were functionally illiterate,‘”
    for an overall rate of nearly 13 percent in 1986. And the island’s public
    high school graduation rate was 63.2 percent in school year 1987-88,
    compared with 72.6 percent in the United States. Only two states and
    the District of Columbia had a lower graduation rate.

    Furthermore, elementary and secondary educational expenditures are
    estimated at nearly $1,400 per pupil in fiscal year 1988 in Puerto Rico.
    In fiscal year 1986, the lowest state expenditure was $1,694 per pupil.
    Nevertheless, higher education is increasingly in demand in Puerto Rico.
    From 1970 to 1987, the percentage of persons aged 18-24 attending col-
    lege more than doubled, from 17 to 40 percent. While 48 percent of the
     18-24 population attended college in the United States, the rate of
    increase has been much faster in Puerto Rico. Enrollment in public and
    private colleges totalled about 157,000 in 1989.

    “‘The IJS. rate is baaed on the number of U.S. adults, ages 20 and over, who are illiterate, according
    to the English Language Proficiency Survey commissioned by the Department of Education and con-
    ducted by the Census Bureau.

    Page 66                                     GAO/HRD-90-70BR       Puerto Rico’s Status Deliberations
Page 67   GAO/HRD90-70BR   Puerto Rico’s Status Deliberations
Appendix I

General Election Results Since 1952 (Percentages
of Votes Cast for Each Party)

                                                                   Party(ies)          Party(ies)          Party(ies)
                                                                    favoring            favoring            favoring
               Election year                                   Commonwealth           Statehood       Independence
               1952                                                          64.8             12.9                   19.0
                1956                                                         62.5             25.0                   12.0
               1960                                                          62.4             34.3                    3.3
               1964                                                          59.4             34.6                    2.7
               iii&i------                                                   51.8             45.2"                   3.0
               1972                                                          50.7             43.4                    5.4
               1976                                          -.__            45.3             48.3                    6.4
                                                                                              47.2                    5.7
               1980                                                     --~- 47.0
               1984                                                          47.8             44.6a                   3%
               % 1968, a small portion of these votes went to the Republican Statehood Party. In 1984, the Puerto
               Rican Renewal Party, which favores statehood, received 4.1 percent of the vote. Its votes are excluded
               from the statehood total to clanfy that the candidate of the party favoring commonwealth won the elec-
               Source: GAO’s Puerto Rico’s Political Future: A Divisive Issue with Many Dimensrons, GGD-81-48,
               March, 1981; and Puerto Rico Commonwealth Elections Commission.

               Page 68                                     GAO/HRD-90-70BR      Puerto Rico’s Status Deliberations

“Appendix II

vajor Contributors to This Report

                         John M. Kamensky, Project Director, (202) 275-0553
Hbrnan Resources         Truman Hackett, Project Manager
Division,                Kathryn G. Allen, Evaluator
Washington, D.C.         Brian J. Lepore, Evaluator

                         Robert G. Crystal, Assistant General Counsel
Ojffice of the General   Mary W. Reich, Attorney Advisor
Washington, D.C.

                         Clay H. Wellborn, Coordinator of Research, (202) 707-8521
Congressional            Bette A. Alberts, Analyst in American National Government
Research Service,
Government Division

                         Page 69                       GAO/HRD-SOTOBR   Puerto Rico’s Status Deliberations

               U.S. General Accounting Office. Experiences of Past Territories Can
               Assist Puerto Rico Status Deliberations. GGD-80-26.Washington, D.C.:
               March 7, 1980.

               U.S. General Accounting Office. Puerto Rico’s Political Future: A Divi-
               sive Issue With Many Dimensions. GGD-881-48.Washington, D.C.: March 2,

               U.S. General Accounting Office. Issues Affecting US. Territory and
               Insular Policy. GAOINSIAD-85-44. Washington, D.C.: February 7, 1985.

               U.S. General Accounting Office. U.S. Territory and Insular Policy. State-
               ment of Joseph E. Kelley, Associate Director, National Security and
               International Affairs Division. Washington, DC.: April 10, 1986.

               U.S. General Accounting Office. Welfare and Taxes: Extending Benefits
               and Taxes to Puerto Rico, Virgin Islands, Guam, and American Samoa.
               GAO/HRD-87-60. Washington, D.C.: September 15, 1987.

               U.S. General Accounting Office. Puerto Rico: Update of Selected Infor-
               mation  Contained in a 198 1 GAO Report, GAO/HRD-89-104FS.Washington,
               D.C.: August 9, 1989.

               U.S. General Accounting Office. Puerto Rico: Background Information on
               Significant Federal Legislation That Applies, Its Governmental Struc-
               ture, and Its Finances. Statement of Linda G. Morra, Director, Human
               Resources Division. GAO/T-HRD-90-7. Washington, D.C.: November 15,

               U.S. Library of Congress. Congressional Research Service. Statehood
               Plebiscites in the Territories of the United States. Peter Sheridan. Wash-
               ington, D.C., August 15, 1980.

               U.S. Library of Congress. Congressional Research Service. Puerto Rico’s
               Treatment in Federal Formula Assistance Programs. Barbara Maffei.
               Washington, D.C., June 1, 1984.

               US. Library of Congress. Congressional Research Service. The Posses-
               sions Tax Credit (IRC Section 936): Background and Issues. David L.
               Brumbaugh. 88-2003. Washington, D.C., March 11, 1988.

               U.S. Library of Congress. Congressional Research Service. Territorial
               Political Development: An Analysis of Puerto Rico, Northern Mariana

               Page 70                         GAO/HRD-90.70BR   Puerto Rico’s Status Deliberations

           Islands, Guam, Virgin Islands, and American Samoa. Bette A. Taylor. 88-
           667GOV. Washington, DC., October 17, 1988.

           U.S. Library of Congress. Congressional Research Service. Impact State-
           hood Might Have on the Commonwealth of Puerto Rico. Bette A. Taylor.
           Washington, DC., February 7, 1989.

           US. Library of Congress, Congressional Research Service. Puerto Rico:
           Political Status Considerations: Selected References, 1972-1989. Jean
           Bowers. 89-400L. Washington, DC., June 1989.

           U.S. Library of Congress. Congressional Research Service. Puerto Rico:
           Political Status Options. Bette A. Taylor. ID89065. Washington, D.C., Janu-
           ary 5, 1990.

(llHH49)   Page 71                         GAO/HRD-90-7OBR   Puerto Rico’s Status Deliberations
     I                                      Governmental    Structure

         GAO Governmental Structure:
             Debt to Gross Product Ratio

                   1*7S              1On             lael               1981

              Now. Exdudes Publk Corporations

                                           Page 56                         GAO/HRD-90-7OBR   Puerto Rico’s Status Deliberations