Public corporations are governmental authorities created by modern democratic regimes, particularly under welfare states (which in Puerto Rico began with the New Deal programs of the United States and the social modernization project introduced by the Popular Democratic Party during World War II [1941-1945]). These autonomous state entities, which are different from governmental agencies, have three main purposes: to provide professional efficiency in their operations, to introduce strategic stability and to benefit from institutional continuity in providing public services that are necessary for social and economic life. Another parallel objective, which is perhaps more important from a strategic point of view, was to provide them with operational autonomy to protect them from the negative effects of power struggles between the political groups (parties) that vie for control of the government administration and thus prevent them from being used by the administration in power as tools of political patronage for partisan or special interest benefit. The public administration theory that legitimizes the autonomy of public corporations is based on a basic principle of democratic systems: to limit, as much as possible, the use (and abuse) of political power. Therefore, the fundamental difference between public corporations and regular government agencies is that the former, at least in theory, do not require direct supervision by the executive branch, but rather are set up to provide their services under their own plans that are defined by long-term consensual social policies. The direction and supervision of these corporations lie in the hands of the governing boards, which appoint the top executives, are responsible for general supervision and ensure proper institutional operation.

The governing boards of the public corporations have different names. At the University, for example, it is the Board of Trustees, while at the Aqueduct and Sewer Authority it is called the Board of Directors. All, however, incorporate the powers inherent in the formal structure of public corporations. Although the members of these boards are appointed by the governor, it is expected, at least in theory, that they will represent the public interest over loyalty to the governor. In other words, it is presumed that operational autonomy, because they are providing essential public services to society, protects the public corporations from the ups and downs of elections and from arbitrary policies by the administration in power. While government agencies, including the constitutional departments, are directed and supervised directly by the governor’s administration, the formal links between the executive branch and the public corporations are only indirect. This autonomy, the functional separation from the executive’s authority, at least in formal terms, differentiates the public corporations from the government’s administrative agencies.

As part of this autonomous structure, the governor does not appoint the administrators (top executives) of the public corporations, but rather appoints groups of citizens that make up their governing boards. These appointments are usually made for fixed terms that expire sequentially and do not coincide with electoral periods. This is done so that the boards of directors are not subject to political changes when power is transferred from one party to another. Usually, the links between the public corporations and the executive branch are ensured through the presence of agency heads on the boards of directors. The ad hoc members of a board are designated because of the post they hold in another institution that has interests linked to the public corporation. For example, in the Puerto Rico Public Broadcasting Corporation, the chiefs of the Department of Education, the University of Puerto Rico (UPR) and the Institute of Puerto Rican Culture (ICP for its Spanish acronym) are part of the board, along with private individuals appointed by the governor to represent the public interest. In all cases, however, the ad hoc members are a minority. The directors of a public corporation have the authority to appoint a president and other executive personnel, establish internal rules, oversee compliance with the public service mission, evaluate operational efficiency, supervise financing, ensure good labor relations, adopt medium-term and long-term development goals and approve the annual budget.

The public corporations’ operational autonomy depends not only on its separation from the administration in power, politicians, and the vagaries of elections, but is also based on a source of income not tied to legislative or executive discretion. They do not depend on the general fund (treasury) like regular government agencies. Otherwise, it would not be possible to maintain operational independence. For this reason, most public corporations are authorized by law to generate their own revenues (which are not at the discretion of the administration in office). One method of achieving self-sufficiency is the sale of services (such as the cases of, for example, the Electric Energy Authority, the State Insurance Fund, the Metropolitan Bus Authority, the Aqueduct and Sewer Authority, the Industrial Development Company, the Government Development Bank and the Ports Authority). Another method used to create financial autonomy is based on legislating special taxes whose revenues are automatically assigned to a corporation. The Highway Authority, for example, was created in 1966, during the administration of Roberto Sánchez Vilella (1964-68), to build new highways and maintain the island’s transportation system. Its financing, by law, would come from revenues from gasoline taxes. At the time the authority was created, it was thought that this autonomous and self-sufficient system for meeting the growing needs for a modern highway system would eliminate the need to seek financing outside of Puerto Rico for highway construction, avoiding the need for tolls. The successor to Sánchez Vilella, Luis A. Ferré (1968-1972), decided to send the revenues from the gasoline tax to the General Fund to pay for recurring costs of the government and to borrow money in the international financial markets to pay for highway construction. The repayment of this financing required the implementation of a system of highway tolls that remains today. Public corporations also have the power to issue bonds secured by the corporation’s assets to finance permanent improvements.

The University of Puerto Rico is a special case of another kind of public corporation: one that provides an essential service and is independent of political control, but whose financing depends not on revenues but on allocations from the General Fund. The UPR, based on the Law of 1966, automatically receives 9.6% of the annual tax revenue. The purpose of this formula is to prevent the administration in office from deciding the institution’s budget each year, which would give the political parties extraordinary power over the institution (leading to political patronage and ideological control) and would put the UPR, the national university, at the mercy of changes in electoral power. In this context, the so-called university autonomy has nothing to do with whether the police can or cannot enter the campus when there are disturbances, but rather constitutes the very essence of the idea of a modern national university that is recognized as having the independent authority to establish its own strategic goals, to name its directors and to adopt academic priorities, and to set internal regulations and procedures.

Over time, public corporation status has been extended to institutions that perform specialized functions that do not require daily supervision by the executive branch but are still subject to supervision, and that are assigned operational funds each year by the Legislature, just like regular government agencies. It is presumed, however, that this hybrid class of public corporations, such as the Institute of Puerto Rican Culture, the Symphonic Orchestra Corporation and the Cinema Corporation, will maintain operational autonomy and remain insulated from the interests of political groups, even though they are subject to budgetary allocations that the administration in power wishes to give them. There are other cases of corporations that have altered their relationship with the executive branch over time. The public radio and television states were originally created as an agency under the Department of Education and later, in 1985, an autonomous public corporation was established (the Puerto Rico Public Broadcasting Corporation, or CPRDP for its Spanish acronym) that operated as an affiliate of the Puerto Rico Telephone Company and was financed by it. When the telephone company was privatized in the 1990s, however, the CPRDP retained its status as a public corporation, but like the Institute for Puerto Rican Culture, it now receives an annual allocation from the treasury to cover the majority of its operational expenses.

Currently, the government of Puerto Rico has 22 public corporations. Their legitimacy is based on the universal democratic principle that gives civil society the responsibility and authority to establish its own internal policies. Still, the authoritarian nature of the Puerto Rican political culture and the pressures from the political parties to control all of the institutions of the government, including public corporations, has held back the autonomy of the public corporations, in practice. Many citizens today think there is no difference between these entities and the other agencies of government, so they believe it is proper for the executive to control and supervise them. Additionally, it is considered normal in the current political culture for the political parties to use them as a source of partisan patronage. In the last two decades, for example, it has become common to ask for the resignations of the directors of public corporations when the opposition party wins the elections, even though those directors’ terms have not expired. This is done under the belief that the directors should have the confidence of the new executive, which violates one of the reasons that the very concept of a public corporation exists. A recent case involving the Electric Energy Authority illustrated the de facto control that the governor has exercised over this corporation. The corporation embraced and promoted an infrastructure project that was adopted by the executive branch: specifically, a pipeline to transport gas from Peñuelas to San Juan, crossing the Central Mountain Range, at a huge public cost. Another case that has drawn controversial levels of public attention was the political control exercised by the executive over the University of Puerto Rico in violation of the autonomy it has by law (because of its status as a public corporation and because it is considered essential for the public service it provides).

The status of the public corporations and their relationship with the executive branch is one of the most pressing issues in the public debate in Puerto Rico because of its relevance not only for the quality and stability of services they provide, but also because of the rationality of their strategic goals. The blurring of the line that separates public corporations from the government agencies has been the object of professional and systemic criticism by those who see it as a pre-modern, authoritarian setback, to the detriment of general principles of good government.

Despite the governmental structure and the autonomous role assigned to the public corporations, the practice in Puerto Rico has reverted to traditional patterns of the authoritarian political culture, which reject the principle that they are public institutions that function under their own professional criteria beyond political control, especially that of the executive branch. This contradiction between modern democratic theory and authoritarian atavism has adversely affected the results of the public corporations, distancing them from their daily ties to civil society (which they serve) and substantially increasing their precarious situation and subordination to political powers. The governor’s power to appoint members of the governing boards of the public corporations is not considered sufficient to coordinate the operations of the corporations with the government’s medium-term and long-term policies. Meanwhile, the habit of the party that wins the elections pressuring the directors named by previous governors to resign their posts and leave them open for the new governor to appoint new directors from the winning party has become the norm. Additionally, despite that fact that the formal structure of the public corporations calls for the boards of directors to designate the chairman of the board, in reality it is the governor who does this and the boards are limited to formalizing the appointments. Today, more than ever, the internal dynamic in the executive branch acts as if the executives of the public corporations were agency heads who report directly to the governor.

It is apparent that the consensus that was established in Puerto Rico with respect to the importance of public corporations as essential tools for providing social services has disappeared from the public debate during recent decades (an advanced consensus, both from the technical point of view of public administration and the ethical point of view based on democratic principles of social justice and separation of powers). Today, instead, there is a state of confusion and a public battle between defenders of autonomous institutions and proponents of authoritarianism who justify the need for total political control by the political party in power. The wave of privatization that seeks to displace, all around the world, the traditional social services provided by government as part of the push to globalize the economy and capital, is based on delegitimizing the welfare state, and by extension its autonomous social services institutions (the public corporations). This neo-conservative trend has introduced an authoritarian perspective. The discussion of the issue worldwide, however, has been greatly exacerbated since the economic crisis of 2008 and has generated demonstrations of citizen activism in opposition to the replacement of the welfare state by a corporate state that mainly serves the interests of hegemonic economic institutions. The recent case of Greece and its relationship with the European Union, led by Germany, is one example of a nation state forced to adopt public policies that are detrimental to social well being to prioritize payment of external debts to German financial corporations.

In other words, the issue of public corporations as fundamental institutions in the modern welfare state, their social role, prerogatives, financial structure and relationship to the executive branch, is an essential part of the current political debate. Around the world, including in Puerto Rico, there are power struggles over control of government policies. On one hand are national institutions and on the other are globalized capital interests. Meanwhile, global issues also have an effect on the local level, with the historical cycle of alternation of power by the two main parties that began in 1969 and still continues today. This alternation has had the effect of privileging short-term goals for gaining power through absolute control of government institutions at the expense of long-term stable institutional development on a truly democratic foundation and based on the public interest.

Author: Roberto Gándara Sánchez
Published: September 11, 2014.

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