2006 Puerto Rico budget crisis: Difference between revisions

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The 2006 Puerto Rico budget crisis is a political, economical, and social crisis that saw much of the government of Puerto Rico shut down after it ran out of funds for the 2005 fiscal year. The reason for this insufficiency of funds is still debated, but many believe it to be a consequence of a dispute over the 2004 General Election on the island, and that the Legislature has refused to approve the Governor's budget proposals, which some argue that has prevented the government from raising revenue.

Following the General Elections in 2004, Puerto Rico was left with an executive under Governor Aníbal Acevedo Vilá of the Popular Democratic Party (PPD), and a Legislature controlled by the New Progressive Party (PNP). Due to a dispute, the elections had to be decided by the Supreme Court of Puerto Rico, and relations between the Governor and the Legislature have been poor since. The legislature has refused to approve the Governor's proposed budgets since the elections, and since then the government has been operating on the budget approved for the 2004 fiscal year.^[1]

The PNP has repeatedly indicated its opposition to further borrowing by the already heavily indebted government^{[citation needed]}, and blamed increased levels of spending under Vilá's predeccessor, Sila María Calderón (also of the PPD), for Puerto Rico's financial problems. The PNP has advocated a fiscal reform and the use of money set aside for income tax refunds and unemployment benefits in the short term.^[2]

On the other side, Pedro Rossello is blamed for the excessive expenses during his administrations. Most of the projects during his administration ended costing over five times what was planned.

In April 2006, Governor Vilá announced that the the central government of Puerto Rico did not have enough funds to pay the salary of public employees for the months of May and June. The governor asked the Legislature to approve a loan of over $500 million USD so that the government could keep the agencies running. The Senate approved the loan, but the House of Representatives refused to do so.

The House has given the rate of a new sales tax as the reason for its opposition to the Governor's proposal. The Puerto Rico Government Development Bank has offered to supply the loan, but has insisted on a repayment plan that requires this new tax to be collected and a proportion set aside. Governor Vilá has proposed a 7% rate. The PNP has instead proposed a 4% rate. The House also proposed a 5% corporation tax, but the Governor's administration has argued that this would violate a number of contracts with American corporations^[3], and that it may even violate the constitution of Puerto Rico and the constitution of the United States^{[citation needed]} (to which Puerto Rico is subject to).

In a televised address on April 27, Governor Acevedo Vilá announced that most of the government agencies would be shut down beginning May 1, and will remain closed unless the House approves the economic plan. Government activites relating to health and security (including hospitals and police stations) would remain open, although medical professionals questioned whether hospitals would function if staff went unpaid and also raised the issue of government-funded prescriptions, whilst private security firms on contract to the government said they might cease work if the government did not pay what it owes them.^[4]

Senator Kenneth McClintock, President of the Senate and a member of the PNP until his expulsion in March over the police of statehood, said the government had enough funds to continue paying public workers until the first week of June.^[5] The President of the PNP, former Governor Pedro Rosselló, said he did not think Governor Vilá would shut down the government and accused him of trying to create "uneasiness"^[6] and "intimidate the Legislature".^[7]

A public demonstration against the shutdown, named the Puerto Rico Shouts march, attracted around 50,000 people on April 28.^[8] Later on, labor leaders called for a general strike^[9] if the shutdown occurred.

On May 1, 2006, with the House of Representatives, the Senate, and the Governor having failed to reach an agreement, 45 goverment agencies closed and 15 others were partially closed, leaving 95,762 people temporarily unemployed.^[10] The only agencies remaining open are security related, such as police and firefighter agencies, and health related agencies.^[11] 1,600 public schools were shut, leaving 500,000 pupils without facilities.^[12]

There where several protests on May 1, some in front of the Puerto Rican Capitol, and another in the Milla de Oro, the financial district. In the one in front of the Labor Departemnt a confrontation between protesters and police broke out when students started to throw rocks at the windows of several banks, several where injured.

On May 2 the shut down continued. The New Progressive Party held a meeting and decided to stick with the 4% tax proposal and nothing else, saying there won't be any type of negotiation. Another meeting between the president of the House of Representatives and the governor ended in dispute and the governor leaving it less than 15 minutes after it started. Protests where held also in fornt of the Popular Bank in Hato Rey and the Capitol.

On May 3, Governor Acevedo Vilá accepted an invitation by José Aponte, Speaker of the House, to meet with him alone in the Capitol. Acevedo Vilá suggested to Aponte that Senator Kenneth McClintock, President of the Senate, should be present. Aponte didn't agree. Acevedo Vilá arrived to the Capitol in company Alfredo Salazar, the President of the Puerto Rico Government Development Bank, Juan Carlos Méndez, Secretary of Treasury, and Aníbal José Torres, Secretary of Government. Aponte, as accorded, asked Acevedo Vilá to meet alone with him. Fifteen minutes after the meeting Acevedo Vilá left abruptly. According to Acevedo Vilá, Aponte began to complain at some point during the meeting, specifically mentioning that a few days earlier, the Secretary of Treasury changed the financial numbers given under oath in a public hearing, and that the Secretary was absent in a meeting one week earlier, making it difficult for the House to reach him. At some point during the meeting, Acevedo Vilá noticed a smiling face in Aponte and commented that he was happy to see him smile during such time of crisis. At this point, versions differ. Allegedly, Aponte told Acevedo Vilá that he has "seen the face of distress" of Acevedo Vilá in recent days, and that if he needed a handkerchief for his tears, he could let him know. At that point Acevevo Vilá left, feeling that "it was an insult to the Puerto Rican people left in the streets". Aponte denied this, and accussed the Governor of lying.^[13]

On May 4, Acevedo Vilá, in suit, marched from La Fortaleza, the Governor's house, to the Capitol. It was the first time in Puerto Rican history that such an event happens. In Puerto Rican custom, the Governor walks from the Capitol to La Fortaleza when he takes the oath of office.