Mr. O'BRIEN. Thank you very much, Dr. Burns, for this valuable contribution to the record of this hearing. Not only that, but I think it is a contribution to future discussions of this whole problem which may be even more important than the record of this hearing. Åre there any questions? Mr. WESTLAND. I have some questions I would like to ask, but I think I had better study this a little bit further. This is a lot to assimilate in 5 minutes. Doctor, can you tell me a little more about what you mean by fiscal pattern projections? Dr. BURNS. The fiscal pattern relates to the tax burden and expenditures by the States when the States are lined up by the highest per capita income States such as Delaware in 1961, on down to Mississippi. We find that there is a general pattern, that the tax burden as a percentage of income is much greater in the high-income States and much lower in the low-income States. If we go down and place Puerto Rico below the States, down at the point where it would fit on an income scale and make a projection to that point, we can get an approximation of the burden of taxes as well as the expenditures that would be made. As I say, for 1958, the approximate burden is 14 percent. In 1961, it is 16 percent because Puerto Rico income meanwhile had increased. Mr. WESTLAND. But the per capita income is still half that of Mississippi? Dr. BURNS. That is right. And one-fifth of that of Delaware. Mr. WESTLAND. You show in 1961 a favorable fiscal balance of $224 million for Puerto Rico. Under your heading, "Fiscal Pattern Projections," that is. Dr. BURNS. Yes. Mr. WESTLAND. Is that assuming that in 1969 Puerto Rico was a State? Dr. BURNS. That is right. This is assuming that it had fitted into the Union and in the fiscal pattern. Mr. WESTLAND. Under the Commonwealth status-this would be factual in 1961-it had a favorable fiscal balance of $218 million, Dr. BURNS. That is right. Mr. WESTLAND. Are you, in effect, saying that had Puerto Rico been a State in 1961 it would have had a more favorable balance by $6 million than it did as a Commonwealth? Dr. BURNS. The numbers work out that way, but all estimates are approximations. That is why I said in my statement it would have been approximately the same, one way or the other. Mr. WESTLAND. We have been hearing this $167 million all the time had Puerto Rico been a State. In other words, it would have lost $167 million. Dr. BURNS. That is back in 1958. Mr. WESTLAND. Very well; 1958. You show that, in fact, would have been $52 million. Is that about right? Dr. BURNS. The loss would have been $52 million as these estimates work out; that is right. Mr. WESTLAND. But then in 1961, because of the increase in per capita income in Puerto Rico, there was that much of a change. 99-944-63-11 Dr. BURNS. There was a substantial increase; you are right, Mr. Congressman. There was a big increase or a considerable increase in this favorable fiscal balance up to $224 million. Mr. WESTLAND. Then are you saying that as the per capita income of Puerto Rico increases this balance, perhaps, would be even more favorable? Dr. BURNS. Yes; it would, for some time to come, because the growth in the income base against which these percentages are to be found will increase the total expenditures and increase the total taxes. But expenditures for some time will increase more than the taxes. Mr. WESTLAND. Then the percentage of tax. You have gone from 14 to 16 in 3 years. Dr. BURNS. Yes. It is likely to go up as Puerto Rico income goes up. As Puerto Rico income goes up, the likelihood is the percentage of expenditures will go down. But notice the spread between the two. The spread is so considerable at the present time that for some years to come an expansion of Puerto Rico income will lead to an increase in its favorable fiscal balance. Mr. WESTLAND. Thank you. That helps clarify it to me. Mr. O'BRIEN. Dr. Fernós. Mr. FERNÓS. I should like to ask just one question. The last sentence in your statement reads: The key to fiscal development lies in sustained economic growth. Do you believe that under statehood, with the added Federal tax burden, the economic growth could be sustained? Dr. BURNS. I see no reason why it should not, because we have had very rapid economic growth in some States, in Florida, for example, and other States, with the existing tax structure. Mr. FERNÓS. Ín other words, industry would continue to come to Puerto Rico in spite of the tax burden? Dr. BURNS. The tax structure is not the only element, as you know, that contributes to economic growth. It might limit some phases of economic growth, but the other aspects could easily offset the effect of the tax. Mr. FERNÓS. Thank you. Mr. O'BRIEN. Mr. Morton. Mr. MORTON. Dr. Burns, is a favorable fiscal balance a favorable cash flow into Puerto Rico as in the case here of 1961 where we have a Federal payment of $308 million and receipts from Puerto Rico of $90 million, and the favorable fiscal balance of $218 million? Does that represent a cash flow from the United States into Puerto Rico which is absorbed by projects and other Federal expenditures in the area? Dr. BURNS. It would be the Federal expenditures under various programs, together with the cash flow into Puerto Rico involved in shifting certain Puerto Rico taxes off Puerto Rico onto any buyers of Puerto Rican products in the United States. For example, an excise on Puerto Rican rum would appear as a tax on Puerto Rico. But the tax has shifted to the people on the mainland who buy the product, and, therefore, the funds flow back into Puerto Rico in the form of higher prices. Mr. MORTON. Are trust fund expenditures part of this $218 million? Dr. BURNS. Yes. Mr. MORTON. This would mean a total investment, both in working capital and assets, in Puerto Rico in 1961, of $218 million again. just over breaking even. Is that about it? Dr. BURNS. It would be the excess of the cost, let us say. It would be the cost of Puerto Rico to the rest of the United States just as similar figures represent the costs of Mississippi being a member of the United States. Mr. MORTON. I understand. Thank you, sir. Mr. O'BRIEN. Thank you very much, Doctor. We are most grateful for your contribution and your time. Dr. BURNS. Thank you. Mr. O'BRIEN. I would like at this point, for the record, to ask is Mr. Sam Casey here. STATEMENT OF SAM H. CASEY, PRESIDENT, COMMONWEALTH OIL & REFINING CO., PUERTO RICO; ACCOMPANIED BY RICHARD MANNING, VICE PRESIDENT, COMMONWEALTH OIL & REFINING CO. OF PUERTO RICO Mr. CASEY. My name is Sam H. Casey. I am president and chief executive officer of the Commonwealth Oil Refining Co., Inc., in which capacity I have served since 1960. Prior to that I served as vice president of the company since I joined it in 1957. I am appearing here today at my request and on behalf of my company. I wish to thank the members of this subcommittee for the opportunity to make this statement to you. The Commonwealth Oil Refining Co. is Puerto Rico's largest industrial enterprise. It is a publicly owned Puerto Rican corporation, with 35,000 stockholders in Puerto Rico and the United States and 840 employees, most of whom are locally hired. Commonwealth Oil is not controlled by, nor is it affiliated with, any other corporation. Our company's only business is the operation of an oil refinery on Puerto Rico's south coast near Ponce. We supply a substantial part of Puerto Rico's demand for refined petroleum products. Commonwealth Oil has enjoyed the finest and fairest treatment that any enterprise could expect. I believe that all businessmen who have had experience with the Commonwealth government will testify to its fairness, honesty, integrity, and its willingness and eagerness to cooperate with private enterprise. I think I can also attest-and I am glad to do so-to the character and spirit of the people of Puerto Rico. They are Americans in the best sense of the term. I have no doubt whatever about the stability and basic democracy of the governmental institutions of Puerto Rico. The government is honest and dedicated. Since the future of my company with its $80 million in assets is dependent upon Puerto Rico's future, I have made it my business to study Puerto Rico's past and try to arrive at some judgments as to its future. Of course, my company would not exist if it had been for the great democratic experiment in private enterprise with government stimulus which has achieved worldwide fame as Operation Bootstrap. I also know that Operation Bootstrap, the creation of the people of Puerto Rico under the leadership of their own elected officials, would not have been possible without the stimulus and freedom resulting from increasing self-government. With the creation of the Commonwealth of Puerto Rico, there occurred a forward thrust of the economic development of Puerto Rico, which I am sure would not have been possible if the Congress of the United States and the leaders of Puerto Rico had not had the wisdom and inventive genius to create this form of democratic association between the two governments which, at the same time, gave Puerto Rico freedom to conduct its internal affairs. To relate the economic growth of Puerto Rico to Commonwealth status and to the proposed resolution requires a look into the past. Since the historic day in 1952, when the Commonwealth status was declared, many startling and, I am sure, somewhat unforeseen changes have taken place. In 1952, there was little heavy industry in Puerto Rico. The economy was still tied to the sugar industry in what was truly "one crop" economy. Today, Puerto Rico can boast of two modern oil refineries employing well over 1,000 persons and representing assets in excess of $100 million. Adjacent to the Commonwealth Refinery is a $30 million petrochemical plant soon to be expanded by an additional investment of $20 million. Hundreds of other new industries have commenced operations in Puerto Rico in the last decade. There is an ammonium nitrate fertilizer plant, cigar plants, textile plants turning out many varied products electronics, chemical and pharmaceutical plants-plus many fine tourist hotels, all attracted by Puerto Rico's Operation Bootstrap. The increased industrialization of the Island has substantially increased the standard of living of Puerto Rican people. For example, from 1952 through 1962, the following changes have taken place: Puerto Rico's gross product increased from $968 million to $2 billion; manufacturing income increased from $115 million to $381 million; per capita annual income increased from $374 to $682. Because of the substantial progress made in the decade since the establishment of the 1952 compact, there exists in Puerto Rico today a substantial and growing middle income group which did not exist 10 years ago. The Puerto Rico of today is not the same as the Puerto Rico of 1952. The people of Puerto Rico are more aware of their political and economic situation. They are more aware of the problems of the future-problems which must be solved if the growth of the past decade is to continue. There still exists a substantial unemployment problem. There still exists an exceedingly high birth rate. More jobs must be created and more housing units built. The per capita income, even after the almost 100 percent increase of the past decade, is still about one-half that of the lowest State in the Union. Today, as Puerto Rico looks to the future with its increasing political and economic awareness there are signs of political unrest, or perhaps uneasiness, among its leaders and its people. As a resident of Puerto Rico and as a business executive, I have been increasingly aware in the last few years that something more must be done. Another step must be taken. The reasons for this are pretty |