It is true that the revenue laws had been tested and found inadequate to a fair apportionment of the burdens of government upon the inhabitants of the island. It was evident that many of the wealthy classes were escaping taxation, and those less able to pay were saddled with onerous taxes out of all proportion to their means. Clear proofs were not wanting that great injustice was done also in the collection of the taxes that were raised under the existing levies. It did not require one very long to become satisfied that a radical reform was necessary in the whole revenue system. Had it not been for the 15 per cent tariff provided for in the organic act there would have been a lack of sufficient funds to meet the most ordinary requirements of the government. The expenses of the civil government must of necessity be in some respects greater than those of the military. The salaries of the military officers who filled civil positions were, of course, paid out of the funds appropriated for that purpose by the General Government. Then the public schools must necessarily be multiplied and schoolhouses constructed; the insular police must be increased in numbers to take to some extent the places of soldiers who had been withdrawn; the code commission provided for by Congress had to be paid by the island; public roads had to be constructed and repaired, and all debts of former administrations had to be provided for. All this must be compassed within the sources of revenue provided for in the organic act without the American Treasury to rely upon to make up any deficiency. It, then, behooved the governor to look well to the resources which he had in hand wherewith to meet all these requirements. The means were as follows: It appears from the report of the auditor that there was on hand at the inauguration of civil government in the treasury in actual cash, including trust funds, $285,339.25. There were subsequently collected by the civil government from sources pertaining to the period of the military government $65,566.27, making a total of receipts on account of the military government of $350,905.62, as stated in my message. However, of this sum the amount of $13,145.43 was in trust funds which were not available for any other purpose, reducing the available cash derived from the military government in amount to $337,760.19. Against this sum are, of course, chargeable all outstanding debts of the former governments, including those of the diputación provincial. There have been paid on these debts by this administration up to the 31st of March, 1901, the sum of $40,783.74, which, being deducted, further reduces the available cash to $296,976.45. There are claims against the diputación provincial still outstanding amounting to $181,833.76, a considerable portion of which will probably be approved and have to be paid, reducing the unincumbered cash received from and on account of the military government to $115,142.69. Excluding claims pending against the diputación provincial, then the Miscellaneous receipts from sundry sources during the eleven months On deposit in Washington, subject to allotment, the custom-house receipts from imports from Porto Rico since May 1, 1900, on March 31, 1901.... Total amount received during the first eleven months of the civil administration to the credit of the general revenues Received during the same eleven months, in trust funds: $296, 976. 45 925, 240.45 559, 578.75 20, 954.97 347, 868.00 2, 150, 618. 62 In the Treasury of the United States under the refunding act, on March 31, 1901, subject to allotment by the President of the United States for the benefit of the people of Porto Rico. Total cash assets of all kinds to the credit of the 485.60 6, 911.82 7,397. 42 441, 027.62 795, 736.00 3,387, 382. 24 The total disbursements, less the sum paid out on account of the military government and the provincial diputación, amount to $1,712,970.05 for the first eleven months of the civil administration. This deducted from the available cash subject to the payment of current expenses, leaves the sum of $437,648.57 still on hand for general expenses. So it clearly appears that the civil government in Porto Rico is, by including customs collections on imports into the United States from Porto Rico as well as imports into Porto Rico from all other countries, at least living within its income and laying by money for a rainy day. This will be used in construction of public buildings, roads, schoolhouses, and other improvements. By the refunding act the United States Government set aside for Porto Rico the customs revenues which had been collected in the continental ports on imports from the island since the American occupation up to the passage of the act, amounting to $2,095,455.88. Of this amount, $793,719.88 had been allotted or expended prior to the organization of the civil government. The foregoing deductions are made from information derived from all sources. But it is well to present a view from the standpoint of the auditor's office. The following is a summary of the receipts and disbursements as shown by the records of the auditor's office since the 1st of May, 1900, and up to the 31st of March, 1901: RECEIPTS. Balance to credit of military government at close of business, April 30, 1900 Amounts deposited with treasurer subsequent to April 30, 1900, but per- Total amount of funds transferred from the military government Revenues accruing since May 1, 1900, collected and deposited with $285, 339. 25 65, 566. 37 350, 905. 62 1,766, 342. 12 Total receipts of civil government up to March 31, 1901................ 2, 117, 247. 74 DISBURSEMENTS. Total as shown in Appendix, Chapter IV. 1,753, 753.79 363, 493.95 Balance in treasury at close of business on March 31, 1901 A comparison of the expenditures of the civil government with those of the military government is made by the auditor, as follows: The excess of expenditures of insular revenues over insular receipts during the ten months of the military government, from July 1, 1899, to April 30, 1900, was $188,877.97, being an average of $18,887.79 per month. The excess of expenditures of insular revenues over insular receipts during the eleven months of the civil government, from May 1, 1900, to March 31, 1901, was $121,359.70, being an average of $11,032.70 per month. Thus it will be seen that the total expenses of the civil government in Porto Rico, required to be drawn from the cash reserve on hand, are $7,855.09 less than those of the military government, every month on an average, or $94,261.08 per annum. This comparison does not consider the matter of salaries which, in case of the military officers, are not included by these expenditures; but in the expenses of the civil government all salaries are included. The total net expenditures of the civil government up to March 31, 1901, amount to $1,736,420.30, including small balances in the hands of disbursing officers at that date. Included in the claims paid by the civil government from May 1, 1900, to March 31, 1901, is the sum of $40,783.74, which represents claims and obligations due by the late military government, having accrued prior to May 1, 1900, and which were presented to the civli government subsequent to May 1, 1900, and duly paid. Clearly, in order to better the financial situation of an individual or state, there are two courses open-one to reduce expenses and the other to increase the revenues. Both of these means were attempted. However, owing to the peculiar relative circumstances surrounding the new government just inaugurated the first was very difficult to accomplish for reasons heretofore given; then it remained the more necessary to succeed in the second. As no change in the laws was immediately practicable it was of the first importance that the machinery at hand for raising a revenue should be used to the best advantage. This Dr. Hollander, the treasurer, at once set about to do, and having organized a competent corps of revenue agents succeeded in raising the revenue from internal taxes from the average sum of $19,823.07 per month to $50,870.79 monthly. But all the while, from month to month, the urgent need of a great change in the system of taxation became more and more apparent. The treasurer, with some of the experts in his office, at once set about the preparation of a tax law which should embody the views of the administration on this important subject, and within a few days after the legislative assembly met had the result of their labors ready to submit to the committee on finance in the executive council. With some amendments it was reported to the council, and after having been discussed and amended in both chambers and in a conference committee it was passed and presented for executive approval, which was promptly given. The revenue act consists, in the main, of a property tax, an inheritance tax, and a system of excise taxation. The property tax replaces a territorial tax which was laid upon agricultural estates, though graded according to the quality of the soil, and upon urban propert, took a form of a percentage of the net income. The rate of the new tax for insular purposes, for the fiscal year 1901-1902, and thereafter until otherwise provided by the legislative assembly of Porto Rico, is fixed by the statute of one-half of 1 per cent, and provision is made that the rate levied for local purposes shall in no case exceed an additional one-half per cent. The maximum direct tax upon property in Porto Rico is thus 1 per cent, which is less, probably, than the rate in any community in the United States and certainly in any European country. The tax itself is not noticeably different from the more advanced forms of the property tax as known in the United States. All property, not specifically exempt, is nominally assessed at its present actual market value, but an extensive list of exemptions has been made, including all persons whose property is valued at less than $100; the buildings, appurtenances, and land, not exceeding 5 acres in extent, set apart for educational or charitable purposes, or exclusively for religious worship; household furniture, wearing apparel, fuel, and libraries. Working tools and the crops and products of farmers and planters have been exempted. Provision is made for the exemption of indebtedness to the amount and extent of the assessed credits, and mortgages are treated as an interest in the property, so that the mortgagee will be charged with, and the mortgagor exempt from, the taxes on the value of the property represented by the mortgage, except where the latter contains an unequivocal covenant making the taxes payable by the mortgagor. One noticeable change effected by the new revenue act is the machinery of assessment. Hitherto the assessment of property and income has been made by nearly two hundred separate boards appointed by the councils of the sixty-six municipal districts. There was no central control, no unity of administration, and no uniformity of valuation. Under the present law the whole assessment is in charge of a supervisor appointed by the governor with the consent of the executive council. The supervisor appoints the division assessors, with the consent of the treasurer, and the division assessors nominate, and the treasurer appoints, enough district assessors to complete the assessment within the required period. There is perfect unity of control, and the division assessors, being in closest touch with both the supervisor and the district assessors, secure an equality of valuation hitherto unknown. Tax appeals are heard in the first instance by select groups of division and district assessors sitting as boards of review, and in the last instance by the executive council, sitting as a final board of equalization and appeal. Important changes have also been made in the machinery of collection. Under the Spanish régime direct taxes were collected by a private company for a percentage of the receipts. The military government placed the collection in the hands of public officials, but instead of a salary paid them 8 per cent of their collections. The reform has now been completed by placing the collection in the hands of bonded and salaried collectors appointed by the treasurer. In this connection it may be stated that the severity of the Spanish “appremio," a purely administrative process by which property was sold for delinquent taxes, has been modified by the insertion in the law of a period of redemption, during which property so sold may be redeemed. Corporations have been treated substantially as unincorporated concerns; they will be assessed by the treasurer upon the actual market value of their capital invested in Porto Rico. The spirit of fairness exhibited in this uniform treatment of private and incorporated companies should make Porto Rico a desirable place of business for companies of the latter kind. If a year's trial proves the unsuitableness of this kind of taxation for corporations, the government will thus have what it does not possess at present-the data concerning the assets and profits of corporations which it is necessary to have in order to provide distinct corporation taxes which will be equivalent to the property tax. |