DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE, Hon. HENRY M. JACKSON, Chairman, Subcommittee on Territories and Insular Affairs, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This letter is in response to your request of May 26, 1959, for a report on S. 2023, a bill to provide for amendments to the compact between the people of Puerto Rico and the United States. The bill would amend Public Law 600, 81st Congress, by inserting therein provisions (composed of 15 articles) to be known as "The Articles of Permanent Association of the People of Puerto Rico With the United States," and would repeal (1) the Foraker Act (act, April 12, 1900, 31 Stat. 77), (2) those portions of the Jones Act (act, March 2, 1917, 39 Stat. 951) still in force and now known as the Puerto Rican Federal Relations Act, and (3) any provisions of law inconsistent with the bill or with "the compact. (The subject matter of the provisions of the Foraker and Jones Acts which the bill would repeal is included in the more comprehensive proposed "Articles of Permanent Association.") The bill "and any amendments thereto enacted by the Congress" would become effective when approved by a majority of the qualified voters of Puerto Rico participating in a referendum and upon proclamation by the President of the results of such referendum. We defer to the Departments of the Interior, Justice, and State on the basic constitutional and policy questions raised by this bill with respect to the relationship between the United States and Puerto Rico. Our comments, enclosed herewith, are therefore confined to questions touching the program interests of this Department. The Bureau of the Budget advises that it perceives no objection to the submission of this report to your committee. Sincerely yours, ARTHUR S. FLEMMING, Secretary. COMMENTS ON S. 2023 1. Article III(g) of the proposed "Articles of Permanent Association" provides that, with certain exceptions with which we are not concerned, the internal revenue laws of the United States shall have no force and effect in Puerto Rico. If these provisions were to be enacted, they would apparently make inapplicable to Puerto Rico the provisions of the Self-Employment Contributions Act of 1954 (26 U.S.C. 1401-1403) and the Federal Insurance Contributions Act (26 U.S.C. 3101 et seq.) which are the financing provisions for the Federal old-age and survivors insurance program, as well as the Railroad Retirement Tax Act (26 U.S.C. 3201, et seq.) which finances the railroad retirement system, unless paragraph (h) of article III, quoted and discussed below, is construed to modify paragraph (g) in this respect. If paragraph (g) is retained, the social insurance taxes we have mentioned should be included among the exceptions therefrom. 2. Article III (h) of the proposed "Articles of Permanent Association" provides as follows: "The social insurance laws of the United States under which the participating states or the people thereof substantially pay the costs of insurance shall extend to Puerto Rico equally as if Puerto Rico were a member State of the Union. Laws of the United States establishing programs under which the federal government substantially contributes the cost thereof, such as direct aid to the needy, and grants-in-aid laws, shall apply to Puerto Rico only if the Congress specifically so provides and in accordance with the determination of the Congress.' These provisions, if enacted in their present form, would not appear to modify or otherwise adversely affect the relevant provisions of any law now administered by this Department. The term "social insurance laws of the United States" would seem to include the old-age, survivors, and disability insurance system (composed of title II of the Social Security Act and corresponding provisions of the Internal Revenue Code of 1954) which, as now in effect, applies in Puerto Rico as elsewhere in the United States. (See the discussion under point 1 of this report for possible conflict as to the provisions of the IRC.) Also, the reference to public-assistance programs and other grant-in-aid laws in the next sentence of article III(h) is sufficiently guarded to preserve such exclusions or limitations with respect to the application of such laws to Puerto Rico as now exist. If article III (h) is retained, however, we would suggest deletion of the phrase "under which the participating states or the people thereof substantially pay the costs of insurance," because the phrase is unnecessary and technically defective. There is, moreover, some ambiguity in article III (h) as to whether the term "social insurance laws of the United States" would include that part of the Federal-State unemployment insurance system consisting of the Federal Unemployment Tax Act and certain parts of the Social Security Act, and whether, if grants under title III of that act (for State unemployment compensation administration) are brought under the bill by the first sentence of article III (h), they are excluded by the second. It would seem preferable to extend the system to Puerto Rico by specific amendments to the acts in question, as has been proposed by the administration. (In this connection, also, see point 1 of these comments.) It is not entirely clear whether article III (h) relates only to acts of Congress already in effect, and, if so, whether it includes future amendments to such laws, or if it is intended to encompass both laws now in effect and entirely new laws that may hereafter be enacted. In the latter event, the first sentence of article III (h) would seem to be in conflict with article IX(c) of the bill which makes future laws of the United States applicable to Puerto Rico only if they specifically refer to Puerto Rico by name. Our town preference is to let the application of such laws be governed by their own terms. It should, in any event, be made clear beyond peradventure that, not withstanding article IX of the "Articles of Permanent Association" and section 3 of the bill, Congress reserves the right to alter, amend, or repeal any of these laws at any time, in relation to their application to Puerto Rico or otherwise. 3. Article VI of the proposed "Articles of Permanent Association" contemplates transferring to Puerto Rico-subject to Presidential concurrence and congressional approval-functions, duties, or services performed by the Federal Government in Puerto Rico, if the Commonwealth certifies to the President its readiness to assume such responsibilities, except in the case of functions, duties, and services "which the Federal Government should retain in order to fulfill the nature of this permanent association." While the condition of Presidential and congressional approval would appear to establish safeguards in this respect, article VI raises the question whether a provision of this kind does not imply that there may be Federal functions which, though properly exercisable as such by the United States in the several States of the Union, would be more properly performed in Puerto Rico by the Commonwealth as Commonwealth functions in view of the nature of the association of the Commonwealth with the Union. We assume that the implications of this article will we thoroughly explored in this connection. 4. Article VII (c) of the proposed "Articles of Permanent Association" provides that the President shall from time to time, "notwithstanding any other provision of law," dispose of lands, buildings, and other interests or property in Puerto Rico owned or controlled by the United States which are not needed for "essential" public purposes of the United States, and directs the President to first offer such lands, buildings, interests, or property to Puerto Rico and to transfer them to the Commonwealth "at cost to the United States" if the Governor should certify that they are needed for the public purposes of the Commonwealth. This is a modification of section 7 of the Puerto Rican Federal Relations Act (48 U.S.C. 748) which authorizes the President, in his discretion, to convey to the people of Puerto Rico such lands, buildings, or interests in lands, or other property in Puerto Rico "now owned," i.e., owned on March 2, 1917, as in his opinion are no longer needed "for public purposes" of the United States. The bill would thus substantially broaden existing law by bringing in property acquired by the United States after March 2, 1917, making the provision mandatory, and excepting only property needed for "essential" public purposes. Article VII (d) would require that as soon as practicable, and in no event later than 2 years after the effective date of this article, each Federal agency owning or controlling property in Puerto Rico shall report to the President and the Congress the lands, buildings, and property and interests therein which it owns or controls "and describing the need, if any, for a continuation thereof." We do not believe that the modifications in existing law contemplated by the proposed paragraphs (c) and (d) are desirable. In the first place, section 202 of the Federal Property and Administrative Services Act of 1949 has fully adequate provisions relating to the ascertainment, utilization, and disposal of excess Federal property. It requires, among other things, that each executive agency "continuously survey property under its control to determine which is excess property, and promptly report such property to the Administrator [of General Services] *** and ***transfer or dispose of such property as promptly as possible in accordance with authority delegated and regulations prescribed by the Administrator." It requires every Federal executive agency, so far as practicable, to transfer property excess to its needs to other Federal agencies and to obtain excess property from other Federal agencies. Section 203 of the act regulates the disposal of surplus property, i.e., excess property not required for the needs and the discharge of the responsibilities of the Federal Government. It authorizes the donation of surplus personal property, (a) upon allocation by this Department, for educational or public-health purposes to tax-supported or nonprofit medical institutions, hospitals, clinics, health centers, school systems, schools, colleges, and universities, and (b) upon allocation by the Office of Civil and Defense Mobilization (which has delegated operating functions to this Department) to civil defense organizations, in any "State," which term is defined to include the Commonwealth of Puerto Rico. It also authorizes this Department, upon assignment by the Administrator of General Services, to dispose of surplus real property in any "State," including Puerto Rico, for school, classroom, or other educational use or for use in the protection of public health, and provides that, in fixing the sale or lease value of property to be so disposed of, we shall take into consideration any benefit which has accrued or may accrue to the United States from the use of such property by the transferee. Under this authority, we dispose of surplus real property for public-health or educational purposes at a so-called public benefit allowance which ranges from 40 to 100 percent of the fair value of the property. We, therefore, recommend against the inclusion of paragraphs (c) and (d) of article VII of the bill or, if these provisions are included in any form, we recommend that it be made clear that the provisions for the disposal of excess and surplus property under the Federal Proper and Administrative Services Act referred to, as now in effect or hereafter amended, shall not be affected as respects their application to Puerto Rico. 5. Article VIII of the proposed "Articles of Permanent Association" provides, among other things, that the laws of the United States for the protection and improvement of the navigable waters shall "continue to apply" to Puerto Rico with respect to the surrounding waters, harbors, and inlets that may be directly accessible at low tide from the open sea, "but not including the streams, lakes, and lagoons within Puerto Rico." We believe that, insofar as there are Federal laws to prevent or control pollution of navigable waters, care should be taken that at least the United States does not surrender, with respect to Puerto Rico, whether through legislation already in effect or through future legislation, powers which the United States would have if Puerto Rico were a State. In this connection, attention is also invited to article XV of the proposed "Articles of Fermanent Association" which seems to imply that these articles might affect the validity or applicability of Federal laws already in existance or hereafter enacted unless enacted subject to the consent of Puerto Rico and accepted by the Commonwealth. 6. Article IX of the "Articles of Permanent Association," apart from its possible relationship to article III(h), raises basic questions and contains ambiguities and seemingly internal inconsistencies. Article IX (b) seems to make past and future acts of Congress automatically effective in respect of Puerto Rico as if Puerto Rico were a member State of the Union (insofar as consistent with "this compact" and otherwise applicable), while article IX (c) would condition the applicability of future laws of the United States to Puerto Rico on specific provision in the law to that effect. We, at any rate, doubt the desirability and perhaps the efficacy of this latter provision. If effective, it would require constant vigilance and awareness of this provision on the part of legislative draftsmen in the drafting of laws which clearly are intended to operate throughout the United States and its territories and possessions. Hon. JAMES E. MURRAY, THE SECRETARY OF COMMERCE, Chairman, Committee on Interior and Insular Affairs, DEAR MR. CHAIRMAN: This is in response to your letter of May 26, 1959, requesting the comments of this Department relative to S. 2023, a bill to provide for amendments to the compact between the people of Puerto Rico and the United States. The bill proposes amendments to the Puerto Rican Federal Relations Act of 1950 respecting a number of matters and generally accords to the Commonwealth a greater degree of latitude in the administration of certain governmental functions. The parts of the bill of direct interest to the Department of Commerce are those relating to tariff and import duty arrangements, and to the negotiation of trade agreements. This report, therefore, concerns itself with such aspects of the bill. The bill appears to make no substantive change in the present law respecting the application of the tariff laws and, therefore, Puerto Rico and the United States would continue to have a common tariff and to enjoy free trade between the island and the United States. The present exception to this rule, respecting coffee, authorized under section 319 of the Tariff Act of 1930, would remain in effect, and Puerto Rico could continue to impose duties on coffee notwithstanding the fact that coffee is on the free list. These provisions are not objectionable from the viewpoint of the foreign and domestic commerce of the United States. Paragraph (f) of article IV would authorize the President, on the request of the Commonwealth of Puerto Rico, to negotiate special provisions respecting Puerto Rico in trade and commercial agreements. This provision would appear to increase the authority of the President in this respect. It is recognized that economic and business conditions in Puerto Rico differ in certain respects from those that prevail in the United States and, therefore, may warrant special treatment in certain trade and commercial agreements with foreign countries. In principle the Department of Commerce sees no objection to such differential treatment in well justified exceptional situations and where adequate consideration is given the international commitments of the United States and to the needs of the foreign and domestic commerce of the United States. The proposed section places responsibility on the President for decision in this regard, and presumably, therefore, the Department would be in a position to comment on any proposals for differential treatment before adoption. While this Department has no reason for objecting to the purpose to be achieved by this section of the bill, a provision of the section does occasion concern. Attention is drawn to the final words of the section, as follows: "** * and the President, upon request by the Commonwealth, shall exclude Puerto Rico from any trade agreement unless he finds that the general interests of the United States require that Puerto Rico be included." It appears to us that this language may go too far in the direction of favoring exceptions for Puerto Rico from trade agreements provisions. It would appear preferable to leave the President's discretion as broad as possible. This could be accomplished by eliminating the words quoted above from the section. This in no way would lessen the opportunity for Puerto Rico to present its views to the President. It is noted that this bill would affect some of the administrative and political relationships between Puerto Rico and the United States, particularly having to do with the execution of internal revenue and customs matters. We are in no position to comment on such aspects of the bill with respect to which the committee will no doubt consult other Federal agencies which are more directly concerned. We have been advised by the Bureau of the Budget that there would be no objection to the submission of this report to your committee. Sincerely yours, FREDERICK H. MUELLER, DEPARTMENT OF THE NAVY, OFFICE OF THE SECRETARY, Washington, D.C., September 21, 1959. Hon. JAMES E. MURRAY, Chairman, Committee on Interior and Insular Affairs, MY DEAR MR. CHAIRMAN: Reference is made to your request to the Secretary of Defense for the views of the Department of Defense with respect to S. 2023, a bill to provide for amendments to the compact between the people of Puerto Rico and the United States. The Secretary of Defense has delegated to the Department of the Navy the responsibility for expressing the views of the Department of Defense. The purpose of the bill is to amend the act of July 3, 1950, (Public Law 81-600, 64 Stat. 319) which granted to the people of Puerto Rico the right to organize a government under a constitution of their own adoption. The bill would modify the rights of Puerto Rico and the United States now specified in the Puerto Rican Federal Relations Act. It would grant more autonomy to Puerto Rico in some respects and assimilates its status to that of a state in others, depending on what is desirable from a Puerto Rican point of view. The Department of the Navy on behalf of the Department of Defense is opposed to the above-mentioned bill as presently written. To achieve the above objectives, the bill incorporates 15 new and revised articles in Public Law 600, 81st Congress. The majority of the articles would affect the operations of executive agencies other than the Department of Defense and the Department defers to the views of such interested agencies. Insofar as this bill affects the operations of the Department of Defense, articles III, VII, and VIII of the bill are of particular interest. Article III deals with tax matters. Article VII relates to the transfer of public property and is substantially the same as the present 48 U.S.C. 746-748 with one important exception, discussed below. Article VIII corresponds to 48 U.S. C. 749 and relates to harbors, waters, and submerged lands. Subsections (e) and (g) of article III relate to the internal revenue laws of the United States. It is not all clear whether these subsections would amend the Internal Revenue Code to include Federal salaries of Puerto Rico residents in gross income, for Federal income tax purposes, only if derived from sources (employment) outside of Puerto Rico, or whether Federal salaries would continue to be included in gross income no matter the source from which derived. It is also noted that provision is made in subsection (e) for crediting income tax payments to the Commonwealth of Puerto Rico, on income subject to the tax laws of the United States, against Federal income taxes. Questions arise as to whether the credits will be allowed without limitation, or whether limitations, such as provided in sections 33, 36, and 904 of the 1954 Code will be applicable. If subsection (e) and (g) should operate to exclude Federal salaries earned in Puerto Rico from gross income, for Federal income tax purposes, a question will arise as to whether a member of the Armed Forces not domiciled in Puerto Rico may qualify as a "resident" of Puerto Rico, while serving therein, so as to exclude his military pay from his U.S. income tax return. If so, will he then be able to claim exemption from Puerto Rico income taxes by reason of the protection afforded by section 514 of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended? As written, subsection (e), when viewed in the light of subsection (g) and the broad repeal language of section 2 of the bill, leaves much doubt as to the effect of S. 2023 on the Internal Revenue Code of 1954, particularly with respect to Federal salaries. Furthermore, questions arise as to the effect of article III(g) upon the administration of the internal revenue laws of the United States. This subsection, which would make the internal revenue laws of the United States inapplicable to Puerto Rico except in limited enumerated areas, would apparently make such provisions as the gift and estate taxes and property lien laws inapplicable in Puerto Rico. Article VII abounds in a number of terms which are so vague that problems are certain to develop which will seriously impede any effort to effectively carry out the provisions. In the first instance crown property areas should be defined with accuracy. No such definition of these or other areas covered by the bill is set forth. Accurate definition of area is essential to avoid later controversy. In subsection (b) the term "reserved to the United States for public purpose" requires determinations of what are public purposes. In the same subsection (b) the President is required to transfer crown property "no longer needed for essential public purposes." Here again the term is vague and a standard of essentiality is apparently introduced. The payment is to be at "depreciated cost or appraised value." These two terms on the face of them appear to be inconsistent and neither term is defined. The requirement that payment be made only for property "used by or useful to the Commonwealth" suggests another criterion. subsection (c) covering lands other than crown property the term "essential public purposes" is again used and the consideration is stated to be "cost to the United States.' Thus, in subsection (b) "depreciated cost" is referred to whereas in subsection (c) "cost" is employed and neither term is defined. În The report required by article VII (d) would be superfluous insofar as the military is concerned since a similar worldwide report is required by the Department of Defense. It is considered that present administrative procedures in effect in the Department of Defense, conducted in close coordination with the appropriate committees of both House and Senate, are effective and adequate. In its report on the military construction bill for fiscal year 1960 (S. Rept. 296 of May 19, 1959 at p. 39) the Senate Armed Services Committee, after a review of the Defense 42622-60- -2 |