Statehood for Puerto Rico and the Potential Fiscal

Impact of Official Bilingualism for the United States

By Don Soifer MARCH 2010

2 Lexington Institute

Statehood for Puerto Rico and

the Potential Fiscal Impact
of Official Bilingualism
for the United States
By DON SOIFER MARCH 2010

Executive Summary

R
ecent developments have advanced the likelihood that voters in Puerto Rico may soon vote
on a sequence of ballot initiatives that could result in the granting of statehood status.
Should Puerto Rico become the 51st state, a number of issues with major implications for
both Puerto Rico and the United States would need to be addressed, including significant
tax issues.

Puerto Rico, which received $18 billion in direct federal expenditures in FY 2008, has a population
with a median national income of $17,741, nearly a third below that for the United States. While
eligibility for many major federal social programs is the same in both jurisdictions, others, like the Food
Stamp Program, include different eligibility requirements. This would likely result in increased federal
expenditures should statehood be achieved, but a lack of comparable data makes cost projections for
such changes difficult.

Reconciling language policies between Puerto Rico, which recognizes both English and Spanish as official
languages, and the United States, would also raise a host of policy concerns for both jurisdictions. For
the United States, which has no official language designation currently, movement toward a Canadian
system of official bilingualism would become a policy possibility.

Canadian bilingualism, which is often attributed to versions of its Official Languages Act, is in actuality
based on a many-layered framework of laws, traditions and regulations. Particularly over the past four
decades, each element of this framework has added specific requirements and responsibilities. A 2009
study by the Fraser Institute concluded that the annual cost of this system of bilingualism was between
C$6 billion and C$1.8 billion in 2006, or C$55 per Canadian.

What would be the potential costs and implications should statehood for Puerto Rico result in
establishing a Canadian-style system of bilingualism in the United States? Through a series of
calculations and estimates, this report arrives at a projected total cost of $25.661 billion, or $85 per
American.

Details follow.
 Lexington institute 3

Introduction

L
ast year, the u.s. House of Representatives’ natural Resources Committee passed the Puerto
Rico Democracy Act of 2009, sponsored by Resident Commissioner Pedro Pierliusi. the bill
has attracted a bipartisan coalition of cosponsors, representing districts from around the
country and across the political spectrum, including stalwarts from both ends of the political
spectrum.

this most recent legislative vehicle proposes a federally-sanctioned, two-step process for the
determination of Puerto Rico’s political status that differs substantially from past ballot measures.
in fact, it is the unique process prescribed under this new plan that has rendered the proposal
controversial.

the question of potential statehood status for Puerto Rico has been considered, and rejected by
a majority of voters, three times since 1967, under different ballot wordings. But the plebiscite
mechanism currently being proposed, with its dual phases of defined voter options, is broadly
considered to be a scenario in which statehood may be more likely to win approval than previous
proposals.

the initial vote would be a two-choice referendum on whether, “Puerto Rico should continue to have
its present form of government,” or if “Puerto Rico should have a different political status.” Voters in
Puerto Rico would then select their preference in accordance with these two choices.

Approval of the first option by a majority of voters would authorize the government of Puerto Rico to
conduct a second plebiscite. these subsequent ballots would include the following three options only:

(1) independence: Puerto Rico would become fully independent from the united states;
(2) sovereignty in Association with the united states: Puerto Rico and the united states should
form a political association between sovereign nations that will not be subject to the territorial
Clause of the united states Constitution; and
(3) statehood: Puerto Rico should be admitted as a state of the union.

A second characteristic defining the version of the Act which passed in 2009 concerns eligibility to vote.
Any plebiscite held under the Act would permit two types of eligible voters:

(1) All eligible voters under the electoral laws in effect in Puerto Rico at the time the plebiscite is
held, and
(2) All united states citizens born in Puerto Rico who comply with all requirements of the Puerto
Rico state elections Commission except residency requirements. Any eligible voter not a
current resident of Puerto Rico at the time of the vote would be entitled to vote by absentee
ballot.

Note: Currency indicated in United States dollars except where noted. C$=Canadian Dollars.
4 Lexington Institute

The proposal directs three highly unusual circumstances for the vote:

1. The latter provision allows those eligible U.S. voters to cast their votes simultaneously in their
state of residence and in the Puerto Rico plebiscite by absentee vote.

2. Additionally, if the initial plebiscite indicates a majority of support for continuing Puerto Rico’s
present form of political status, the plan permits the government of Puerto Rico to conduct
initial ballots at intervals of every eight years.

3. An additional requirement is a Congressional mandate that all ballots include the full contents
printed in both English and Spanish.1

POTENTIAL IMPACT OF STATEHOOD

Background – Current Participation in Federal Social Spending and Taxation
Programs
The Commonwealth of Puerto Rico includes four principal islands in the Greater Antilles, with a
combined 3,421 square miles and a population of some four million people. Its economy, with its $68
billion gross domestic product (GDP), is one of the most dynamic in the Caribbean, largely driven by a
relatively diverse industrial sector.2

Puerto Rico is a self-governing, fiscally autonomous Commonwealth of the United States, under the
terms of its constitution. It received $18 billion in total direct expenditures and obligations during fiscal
year (FY) 2008, or more than 15 states, according to the Consolidated Federal Funds Report.3

The government of Puerto Rico’s FY 2009-2010 budget had a $3.2 billion structural deficit for 2009, and
projected a $500 million structural deficit for 2010.4

The United States Congress passed Public Law 600 in 1950, authorizing the adoption of that constitution
and establishing the framework for the current political, economic and fiscal relationship between the
U.S. and Puerto Rico.

Puerto Rico is granted essentially a hybrid domestic-foreign treatment by the United States for taxation
purposes.5 Many of these policies defining the relationship are designed to incentivize investment
and private-sector hiring in Puerto Rico. Such incentives have often been established with the stated
purpose of offsetting the “additional costs imposed on investing in Puerto Rico because of its status as
a U.S. possession.”6 A Government Accountability Office (GAO) study found that U.S.-owned businesses
accounted for 71 percent of the value added and 54 percent of manufacturing sector employment in
2002.7

Residents pay local, but not federal, income taxes on activity in Puerto Rico, but are responsible for
federal income tax on all income from sources outside Puerto Rico. Residents of the U.S. must pay
federal income tax on income from Puerto Rico. Goods imported into Puerto Rico from the U.S. are
exempt from federal excise taxes.

Employees and employers in Puerto Rico contribute to U.S. federal payroll withholding taxes for
Medicare and Social Security. Companies organized in Puerto Rico are treated as foreign companies for
U.S. tax purposes.8

Residents of Puerto Rico currently share in many, but not all, of the rights enjoyed by U.S. citizens.
They do not vote in U.S. national elections, and their elected representatives do not have voting
rights in the U.S. Congress. Residents of Puerto Rico receive support from federal social programs,
summarized in the chart below (Table 1).9 In general, education and food programs are applied the
same in both places. Terms of their current status render functions including national security, currency
 Lexington Institute 5

and interstate commerce the same as those for other domestic

jurisdictions of the federal government of the United States.
Puerto Rico had a population of 3.8 million as measured by the
2000 Census. Its median age, at 32.1, is three years lower than
that of the United States. Puerto Ricans are citizens of the United
States, and may travel there and return anytime.

According to the most recent available data, Puerto Rico’s median

household income was $17,741, well below the $50,740 median
level for the United States. By way of comparison, Puerto Rico’s
median income is about half that of the populations of Newark,
New Jersey or St. Louis, Missouri, and about two-thirds the median
of the lowest-income large cities in the United States, Detroit and
Cleveland.10 This represents a 2.5 percent decrease from 2006 for
Puerto Rico in inflation-adjusted dollars, while median income in
the United States grew by 1.9 percent over that same period.11

According to research by the GAO, Puerto Rico’s per capita tax burden imposed by all levels of
government (federal, Commonwealth and local) was $3,071 in 2002, well below the $9,426 per
capita obligation in the United States. Nonetheless, this comprised 28 percent of personal income, a
comparable rate to the 30 percent paid in the United States.12

In 1999, 37.1 percent of Puerto Rican households had incomes below $10,000, compared with 9.5
percent of U.S. households.13 Puerto Rico’s poverty rate, at 45.5 percent in 2007, is more than three
times the rate for the United States, and more than twice that of Mississippi and Louisiana, the states
with the two highest rates.14

The unemployment rate (seasonally-adjusted) in October, 2006, was 15.6 percent, well above the U.S.
rate of 10.2 percent and higher than the highest state total (Michigan’s at 15.1 percent).15 Puerto Rico’s
employment has grown over the past 25 years, even though manufacturing jobs have declined, but its
unemployment totals have remained well above those of the United States.16 The minimum wage laws
of the U.S. apply to Puerto Rico.

Contributing to Puerto Rico’s high unemployment rate are effects of the austerity measures initiated by
Governor Luis Fortuno’s administration, including the termination of tens of thousands of public sector
jobs, to focus on private-sector job creation.17

At the end of its 2009 fiscal year (which ends June 30), it posted a $52.9 billion public debt.18 Moody’s
and Standard and Poor’s rate the commonwealth government one step above non-investment grade.

Excise taxes collected from items produced in Puerto Rico and into the United States are generally paid
to the Puerto Rico Treasury. Currently, interests in Puerto Rico and the U.S. Virgin Islands are in heated
debate over the outcome of a “rum war” concerning the treatment of rum subsidies and tax incentives
intended to produce additional revenues for the treasuries of these two territories. With the effect
of such provisions producing incentives for each jurisdiction to boost spirit production, the size and
appropriateness of the subsidies is likely to remain under vigorous debate.19 Because the subsidies
involve special interests not directly related to statehood status, this question will not be considered
dependent upon it.

Puerto Rico’s Participation in Federal Social Programs

Residents of Puerto Rico participate in many federal social programs to the same extent as United States
citizens, as the table below demonstrates. These include most major federal education and housing
funding streams. Federal spending caps in Medicaid and the State Children’s Health Insurance Program
are generally offset by reduced minimum funding requirements, while a GAO analysis described
differences in Medicare eligibility and benefits as “small.”20
6 Lexington Institute

Table 1. Summary of Selected Social Programs in Puerto Rico

Compared to Those in the United States

Same in Puerto Rico and U.S.

Individuals with Disabilities Education Act (IDEA) Part B
Elementary and Secondary Education Act, Title I
Child and Adult Food Care Program
National School Lunch Program
Special Supplemental Nutrition for Women, Infants and Children (WIC)
HOPE VI
Housing Choice Vouchers
Community Development Block Grant
Project-Based Section 8
Public Housing
Section 203b Single Family Mortgage Insurance Program
Operates the same or comparable, Comparison – Same Unless Noted
but financing differs
Food Stamp or Nutrition Programs Eligibility rules differ.
Medicare Small differences in eligibility and benefits.
Medicaid Federal spending limited by statutory caps,
offset by reduced funding requirements to
Centers for Medicare and Medicaid Services.
State Children’s Health Insurance Program Federal spending limited by statutory caps,
(SCHIP) offset by Congressional minimum federal
matching contributions.
Aid to the Aged, Blind or Disabled (AABD) Puerto Rico operates AABD, not
Supplemental Security Income program.
Temporary Assistance for Needy Families Not all funding available in Puerto Rico.
(TANF)
Child Care and Development Fund (CCDF) Not all funding available in Puerto Rico.
Foster Care and Adoption Assistance Not all funding available in Puerto Rico.
HOME Investment Partnerships Puerto Rico subject to funding cap
Some components comparable, some not
Health Grants Method to determine funding amount differs
by grant.

Source: GAO 06-541, May 2006.

 Lexington Institute 7

As of February 1, 2010, Puerto Rico has been awarded $2.3 billion

in funding under the American Recovery and Reinvestment Act
(ARRA) of 2009, of which it has received $448 million. Roughly
half of this funding is through the federal Department of Education
budget.21 Some estimates place the total of ARRA funding Puerto
Rico can expect to receive as high as $6 billion.22 As these funding
levels for Puerto Rico are not determined on the basis of Puerto
Rico’s political status, they will not be considered a statehood issue
for this analysis.

The federal Nutrition Assistance for Puerto Rico program received

$1.76 billion in 2009.23 Only very low income households are
eligible for NAP ($8,004 for a family of four.) Funding equality for
this program between Puerto Rico and the United States has been
raised as a political issue by organizations including the National
Governors Association, and would very likely be addressed should Puerto Rico receive statehood
status. But according to the White House Office of Management and Budget, “the extent of hunger and
malnutrition in Puerto Rico is not known because the major surveys used to measure these conditions
in the United States are not conducted in the Commonwealth.” A lack of such comparable data severely
complicates fiscal projections on the potential results of statehood. But it is extremely likely that
federal funding levels would increase significantly. The same principle applies to some other programs
listed in Table 1.

Puerto Rico constitutes a District in the federal judiciary with its own U.S. District Court. Decisions
can be appealed to the U.S. Court of Appeals for the First Circuit, and ultimately to the U.S. Supreme
Court.24

Tax and Spending Implications for Puerto Rico Statehood

Federal tax policy has had major implications for the economy of Puerto Rico, which has undergone
significant changes since a 1976 visit caused economist Jude Wanniski to describe it in his landmark
supply-side economic treatise, The Way the World Works, as a tax haven at the top of the Laffer
Curve.25 The possession tax credit and the economic activity credit implemented to incentivize
investment in Puerto Rico expired for taxable years beginning after December 31, 2005.26

Wanniski attributed to policies led by Puerto Rico Governor Luis Munoz Martin, who served from 1952-
1965, “the three greatest economic barriers to Puerto Rican statehood: the minimum wage differential,
the ten-year tax exemption for corporate enterprise, and the progressive tax structure.”27

One major development in terms of economic impact has been the phasing out of “936 Provisions”
of the federal Tax Reform Act of 1976, establishing corporate federal tax credits on income earned in
Puerto Rico, ending in 2005.

Most of these tax credits were taken by companies in the pharmaceutical industry, and well over half of
value added during the 1990s was involved in manufacturing.28 With the repeal of the tax credit, many
of these large corporate employers reorganized their activities and holdings.

In contrast, U.S. companies have provided very few jobs – less than 25 percent – in service, wholesale
and retail sectors.29

Researchers have suggested that measuring economic progress in Puerto Rico is generally difficult,
for a variety of reasons. According to one prominent analysis, the 936 Provisions “provided a strong
incentive for U.S. firms to overstate profits earned in Puerto Rico.”30 The size of Puerto Rico’s cash-
based, underground economy, is also a factor defying measurement.

The GAO observed that certain government assistance programs currently underway in Puerto Rico,
namely the Nutrition Assistance Program (Puerto Rico’s food stamp program), and disability insurance,
8 Lexington Institute

“can discourage work, while the U.S. Program that encourages labor force participation – the Earned
Income Tax Credit – is not a part of the tax system in Puerto Rico.”31

A 2006 analysis by the Joint Committee on Taxation of the U.S. Congress analyzed the tax and spending
implications of the three possible outcomes of the proposed plebiscite. The Committee concluded:

Independence: U.S. spending, transfer and entitlement programs would generally end, with
some likely transition for those who have paid into the Social Security and Medicare systems. A
range of issues relating to possible dual citizenship would require deliberation, otherwise dual
citizens could be subject to taxation by both Puerto Rico and the United States. Corporations
would generally continue to be taxed under Puerto Rican law. Excise taxes would no longer be
“covered over” to Puerto Rico.

Sovereignty: There is reason to believe that tax laws would generally not change under this
option. U.S. spending programs would likely be considered by lawmakers, but no specific
changes appear obvious.

Statehood: Puerto Rico’s government and residents would benefit by access to the full range
of federal government services and support, including programs for which they do not currently
have full eligibility, such as Food Stamps, Medicaid, Temporary Assistance for Needy Families,
and Supplemental Security Income. Grants to Puerto Rico would generally be made by direct
Congressional appropriation. Many business enterprises would have greater tax liabilities under
United States tax laws, to which corporations organized in Puerto Rico and foreign corporations
engaged in a trade or business in Puerto Rico would become fully subject. There would be a
large increase in the number of Puerto Rico residents required to file federal tax returns in the
U.S. Many would be eligible for the earned income or child tax credit and other benefits for
low-income filers. Excise taxes would apply equally as with other U.S. residents. Generally,
transition policies would need to be enacted, and it is possible that Puerto Rico would adjust its
tax policies as a result.32

The Committee declined to offer a net revenue estimate for the combined tax and spending effects of
Puerto Rico statehood. It noted that the median household income in Puerto Rico (currently $17,741)
is far below that of the United States. It estimated the net impact of full eligibility of the earned income
tax credit would cost the federal government $2.7 billion for each of the first 5 years, and $5.2 billion
annually thereafter.33

A 1996 study by the GAO concluded that the net impact of Puerto Rico statehood on federal individual
income tax would be approximately zero.34 Various other recent analyses by the Congressional
Research Service, GAO, and others have supported this assertion.

With regard to the potential corporate tax impact of statehood for Puerto Rico, because implications
would depend on various other factors, including decisions made by corporations, the net impact of
such changes falls over too broad a range to be a useful and reliable indicator for the purposes of this
report.

COSTS OF BILINGUALISM
Research on Costs of Current Bilingualism Initiatives
Several informative models for estimating the costs associated with shifting government functions to a
system of mandated bilingualism were designed in a March 2002 report by the Office of Management
and Budget (OMB). That Congressionally-directed report sought to estimate costs and benefits of
implementing Executive Order 13166, “Improving Access to Services for Persons with Limited English
Proficiency,” signed by President Clinton in August 2000.

The Executive Order encourages federal agencies to improve access to programs for non-English
speakers, and requires federal agencies offering financial assistance to issue information in non-English,
native languages.
 Lexington Institute 9

A Department of Justice guidance published the same

year articulates general principles for federal agencies
to ensure that they, and the federally-assisted programs
and activities that they oversee, maintain compliance
through offering adequate access to non-English
speakers.35

It has been noted by the OMB authors and others that

most federal agencies and recipients of federal funds
have taken steps toward serving non-English speaking
populations as a result of the Executive Order (EO). But
quantifying actual dollars spent toward compliance
with EO 13166 has proven extremely problematic,
largely because of the lack of recordkeeping and Puerto Rico Facts:
financial transparency by federal agencies in this Size: 3,421 sq. miles
regard. With this in mind, Representative Virginia Foxx Population: 4.0 million
(R-NC) proposed legislation in 2009 (HR 1414), “The Median household income: $17,741
Multilingual Services Accounting Act,” to eliminate
speculation over costs associated with EO 13166 and Urban population: 98 percent
to include measurable degrees of transparency to the Official languages: Spanish, English
process. Literacy: 94.1 percent
Source: CIA World Factbook, 2010
The authors of the OMB study noted that for federal
agencies pursuing compliance with the order, there is
a “lack of baseline information” preventing the evaluation of incremental costs. For this reason, they
chose a modeling approach to meet their Congressionally-required cost estimate.36

The first model involves California state and local agencies, which are required under the terms of the
Dymally-Alatorre Bilingual Services Act of 1973 to provide information and services in languages other
than English as needed by their constituents. The state law requires agencies that serve a “substantial
number of non-English speaking people” to make available qualified bilingual staff in public contact
positions, as well as translated versions of official documents.

The report selected the California Department of Motor Vehicle Services as its representative case
study, and calculates that the agency spent $2.2 million (constant 2001 dollars) to provide non-English
language services in compliance with Dymally-Altorre. The authors’ compute the hypothetical costs
to the entire nation to provide the same level of minority language services – $10.16 million in 2008
dollars.

In total, the study concludes that the “Limited English Proficient (LEP) Premium” for providing written
and oral communications to non-English speaking populations falls within a range between 1.7 percent
and 15 percent. They argue that most government services are provided much more characteristically
like the case studies falling between the 1-2 percent range than to the 15 percent range.

What are the steps required of a federal agency to ensure compliance with an accurate access
requirement like EO 13166 or a hypothetical federal bilingualism requirement for the United States? A
useful place to begin is a checklist compiled by GAO researchers for a 2005 report about steps taken by
transit agencies to improve their access for LEP customers. The GAO examined language access services
offered by 20 agencies around the country and developed the following list of offerings:

• In-person language assistance;

• Bilingual or multilingual telephone services;
• Translated printed services information;
• Translated signs and notices;
• Bilingual television, radio and newspaper advertisements;
• Bilingual translated material on websites;
• Translated recorded announcements and electronic signs;
• Bilingual electronic service machines.
10 Lexington Institute

The GAO found 78 percent or higher of the agencies surveyed utilized the first 5 language access
services, 52 percent provided bilingual website information, and a third or less offered the last two
services listed.37 Other services to increase language access included providing cultural sensitivity
training to agency employees, communicating directly and regularly with advocates representing the
LEP community served by the agency, and producing Spanish phrase guides for bus drivers and other
employees responsible for direct communication with the public.38

It also deemed that the costs of offering each of these activities were in all cases fully and directly
attributable to improving language access, and not to other agency functions.

Unfortunately, GAO researchers were unable to determine conclusive data on the costs associated with
such activities. The majority of agencies examined were unable to provide much data on the costs of
these measures. GAO noted that a New Jersey state survey of transit agencies on which its work was
partly based was similarly unable to draw conclusions about cost. The GAO report also noted that cost
considerations are acknowledged in the Department of Justice’s regulatory guidance on EO 13166 as a
valid and appropriate measure in determining what constitutes reasonable access.39

The Department of Health and Human Service’s Centers for Medicare and Medicaid Services is
responsible for administering the federal Medicare program for some 45 million Americans. In response
to EO 13166, the agency has translated 87 percent of its documents into Spanish. It does not, however,
have an agencywide policy requiring translation.40

Costs of Canadian Bilingualism

A 2009 paper by the Fraser Institute, Official
Language Policies at the Federal Level in
Canada: Costs and Benefits in 2006, by Francois
Vaillancourt and Olivier Coche, is the most
comprehensive research to date on the cost of
language policies in Canada.41

Prior to the publication of the Fraser Institute

report, the most important research on the
subject was a 2003 book by Canadian Member
of Parliament Scott Reid, Lament for a Notion:
The Life and Death of Canada’s Bilingual Dream.

The methodologies used to determine program

costs in the two reports varied in some
significant ways. Reid rejects many previous
cost estimates as incomprehensive. However, Cost, per Canadian annually,
the most significant difference between the of Official Bilingualism Policies
two is Reid’s inclusion of various provincial
policies in Quebec and their economic effects $73 Reid, Lament for a Notion
in his calculation of the costs for federal $55 Vaillancourt and Coche, Fraser Institute
policies. Reid estimates the official cost to the
Canadian economy of federal language policy
at C$4 billion. He notes that C$2.7 billion can be observed in direct federal expenditures, and projects
C$2 billion is spent annually on private sector compliance costs with federal language regulations
(specifically the Consumer Packaging and Labeling Act), and C$300 million of observable costs of
provincial spending on language programs resulting from federal initiatives.42 Reid argues, perhaps
correctly, that the policies produced negative effects on Quebec’s (and Canada’s) economy.

Reid also devoted much of the discussion in his book to the nature and effects of nonfederal bilingual
policies, such as the costs of administering immigration to Quebec, and certain bilingual policies
pursued by private-sector companies, which the Fraser Institute felt extraneous to measures of costs to
federal policies. The Fraser Institute authors chose to exclude these effects from their study, because
they concluded these were not strictly the result of federal official-languages policies.
 Lexington Institute 11

Similarly, any efforts to estimate the potential costs of comparable federal policies in the United States
need to be attentive to costs of bilingualism not attributable to strictly federal policies. For instance,
state and local laws and regulations in many jurisdictions require translation, publication and other
costs to be consumed at taxpayers’ expense, but such costs are inappropriate to include in estimates of
federal policies only.

After excluding those costs and any others they deemed inappropriate for these and other reasons,
the Fraser Institute analysis of Reid’s findings concluded that using his methodology in all other areas
produced an estimate of C$2.3 billion in costs for federal language programs, updated to 2007 Canadian
dollars.43 With a total Canadian population of 31,612,897 according to the May 16, 2006 Census, this
comes to an average total subsidy of C$73 per Canadian.

Vallaincourt and Coche’s own projections of the total costs of Canada’s official bilingualism policies were
somewhat lower. They calculated these costs to a range of between C$1.6 and C$1.8 billion. This range
averages between C$51 and C$57 dollars per Canadian. It translates to approximately one-tenth of one
percent of GDP.44

Layers of Canada’s Off icial Bilingualism

The terms of Canada’s current system of bilingualism is often discussed as being defined by one
particular law, the Official Languages Act of 1988. But issues relating to the use of French and English
have a long history, and extensive legal framework.

Canada’s current national language policies are generally rooted in the Constitution Act of 1867. The
Official Languages Act of 1969 represented a major legal milestone for official federal bilingualism. The
Canadian Charter of Rights and Freedoms in 1982 advanced that official bilingualism a significant step
further, ensuring that provincial (nonfederal) law could not “negate the status of French or English as
minority languages” within their jurisdiction.45

Finally, the strongest provisions bolstering the French and English languages’ official bilingual status
with equal rights and privileges in all federal institutions, including Parliament and in the administration
of justice were ensured with the enactment of the Official Languages Act of 1988. Official entities of
the federal government are charged with the proactive delivery of services in both official languages,
without waiting to be asked.46 The purpose of the bilingualism policy does not seek to make all
Canadians bilingual.

The 2009 Fraser Institute report utilizes a basic, marginal-cost methodology based on calculating the
extra cost of providing services in the second language, French. To accomplish this, authors Vaillancourt
and Coche sought to first calculate per-pupil costs for English-speakers, derive a notional cost for
providing services to French speakers at the same per-individual cost for English speakers, and finally
subtracting from the actual total expenditure for French speakers to determine the excess cost for the
French (official minority) component.

Detailed cost information from Public Accounts data are utilized on a per-program basis. They proceed
on the assumption that only unilingual French speakers are subsidized – French speakers who also
use English proficiently are not included in their operational definition for “Francophones.” By this
definition, they identified 4,141,850 unilingual Francophones.

Regulatory Requirements
The Regulations for Official Languages (Communications With and Services to the Public) were enacted
in 1992, and reissued in 2007 with modifications. These regulations include the essential definitions for
implementing the Official Languages Act (OLA) and related objectives.

One such definition establishes the thresholds of second language prevalence at which federal bilingual
services must be made available, using data from the most recent census as divided into metropolitan
areas or subdivisions with equivalent population sizes. In Census Metropolitan Areas (CMA) including
at least 5,000 primary users of the minority
language, federal offices must provide services “Important: Under no circumstances should
in both languages. Any federal institution must
maintain a proportional representation to the you directly or indirectly suggest to clients
prevalence of primary language use.47 that they speak your language or oblige
them to do so, even if it is quite obvious that
Census Subdivisions (CSD) where more than they are bilingual.”
500, or 5 percent, of the population make
primary use of the minority language must -- “Good Morning. . . Bonjour”
offer some offices using it. If a CSD includes a (a behavior manual for public servants),
population of 30 percent primary users of the Treasury Board of Canada.
minority language, all federal offices serving
it must make use of both languages.48 As
noted prominently by Scott Reid in his book, Lament for a Notion, this requirement distorts the pool of
candidates eligible to fill these jobs. “Two-thirds of Canada’s bilingual population is made up of native
French speakers,” he observes.49

Reid discusses various economic incentives and effects of Canadian bilingualism that may result for
citizens. Reid draws upon census data to demonstrate that the further one travels from Quebec, the
lower the percentage of English-speakers who are also proficient in French, and the higher the rate of
French speakers also proficient in English.50

He expresses concern that such “government manipulation of the economic value of each language”
also influences the second-language choices of immigrants and others whose home language is neither
French nor English.51

The three major components of Canadian bilingualism outlined in the Regulations are:

• Bilingual Bonus for Federal Employees. In 2006, 71,269 Canadian federal workers held
designated bilingual positions. This amounted to 40.1 percent of all positions in the federal
administration. Of these, 63,756 workers met requirements for bilingual language skills,
and earned premiums of C$800 each. This amounted to C$51 million in direct costs for the
Canadian bilingual premium annually.52

• Language Training for Federal Employees. The total cost appropriated for this training was C$30
million in 2006.53

• Office of the Commissioner of Official Languages. This federal office, originally created in the
1969 legislation, spent C$19.8 million in 2006-07.54

Other laws, including the Department of Canadian Heritage Act of 1995, the Broadcasting Act of 1991,
and the Museums Act of 1990 enforce official bilingualism across those federal entities for which public
outreach represents a core function, and past and current Crown corporations.

Judicial Proceedings
Sections 530-532 of the Canadian Criminal Code provide any accused citizen the right to trial by either
a magistrate or jury proficient in their language. These provisions do not mandate the exclusive use of
either language in trial proceedings.55

In 2008, a new federal program, the Court Challenges Program, was introduced with the specific
purpose of offering funding to support cases related to linguistic rights.

The Federal Courts Act requires all official reports and decisions to be published in both languages.
 Lexington Institute 13

Potential Costs of Off icial Bilingualism in the United States

The following analysis describes the potential costs of applying the Canadian model of official
bilingualism to the United States.

Spanish-Speaking U.S. Populations

It is important to note that the language commonly referred to as Spanish in the United States is
actually a family of closely-related languages characterized by dialects, and that observable distinctions
exist between Spanish usage in Puerto Rico and in other parts of the United States where immigration
patterns produce language usage with stronger similarities to Mexican or South American dialects. The
United States Census Bureau acknowledges such distinctions by using the label “Spanish or Spanish
Creole” to identify Spanish-speakers. While the syntactical similarities between Spanish spoken in
Puerto Rico and, say, Chiapas or Buenos Aires are strong, speakers of one variety can expect to face
some difficulties of translation.

The 2000 Census identified a population of 7,931,850 living in the United States with limited English
proficiency who speak Spanish at home. Chinese was the second most common language minority with
571,125 speakers.

The Census also identified concentrations of linguistically-isolated households, which it defines as one in
which all members at least 14 years of age have at least some difficulty using English. Of the 4.4 million
linguistically-isolated households reported in the United States in 2000, 68 percent were Spanish-
speaking.

These households were concentrated geographically, with the largest populations living in California,
Texas, Arizona, Nevada and New York. Linguistically-isolated households also tend to be concentrated
among the largest metropolitan areas.56

Applying Canadian Bilingualism Models to the United States

An examination of the legal and regulatory framework for the Canadian model of bilingualism invites
various comparisons regarding how each of these models might be applied in the United States. But
any such discussion seeking to establish a meaningful perspective must address the potential costs of
such comparisons. In the interest of such discussion, several assumptions, and some conjecture based
on reasonable assumption are required.

Five Percent Requirement

For example, a major component of the Canadian system’s requirement for when federal entities must
offer bilingual services is based on the rate of minority language speakers in Census Metropolitans
and Census Subdivisions. For purposes of this comparative discussion, counties will be used for U.S.
estimates. According to the 2000 Census, 591 of the nation’s 3,140 counties had at least 5 percent of
their population 5 years and over speaking Spanish at home.

In terms of appropriate population thresholds of Spanish speakers at which bilingual services would be
required in a U.S. -equivalent of the OLA’s requirement for designating bilingual federal positions, the
precedents for setting that bar at 5 percent seem as likely as any. Current federal law requires issuing
bilingual ballots if 5 percent of a county’s residents have limited English proficiency.57 The Office of
Management and Budget also used a 5 percent threshold in their analyses of this issue.

$85 Cost, per American annually,

of implementing Canadian
bilingual model in the U.S.
14 Lexington Institute

Cost Estimates of Comparable U.S. Federal Bilingualism

Cross-Cutting Spending
Canada maintained 71,269 federal bilingual positions in 2006 constituting 40.1 percent of all positions in
the federal administration, according to Vaillancourt and Coche. They identify the cost of their bilingual
bonuses to these employees to be C$51 million.58

The United States had 1.9 million civilian employees in 2008, excluding Postal Service employees.59
The U.S. Postal Service had 656,000 career employees at the start of FY 2009,60 for a total of 2,445,000
federal employees. If 19 percent of these (proportional to the percent of counties above the Spanish-
speaking population thresholds) are each paid an annual bilingual bonus of (adjusted for the buying
power of the USD versus the Canadian dollar) the program cost would be $395 million.

Extrapolating this same principle to the cost of language training for federal employees, the cost of
language training for U.S. federally-designated bilingual employees would be $978 million.

Canada’s GDP was $1.319 trillion in 2008, compared with the United States’ at $14.61 trillion.61 This
ratio of 11.1:1 will be used as a multiplier for arbitrary conjectures, like, for instance, the hypothetical
budget of a U.S. Office of the Commissioner of Official Languages. In this case, that hypothetical agency
would have an annual budget of $208.8 million, which seems a conservative estimate, at least in the
agency’s early years before the forces of bureaucratic mission-creep descent upon it.

Table 2: Cross-Cutting Costs

Projected Costs of Major Components of Federal Bilingualism (in millions)

Item Canadian Cost62 United States Cost

Bilingual bonus C$51 million $395 million
Language Training for bilingual employees C$30 million $978 million
Office of Commissioner of Official Languages C$19.8 million $208.8 million
Federal Interpretation and Translation C$279.3 million $16,280 million
Services
Private sector cost of bilingual packaging and ** $7,800 million
labeling

Private Sector Translation and Interpretation

The Canadian Office of the Commissioner of Official Languages conducted in 1997 the first
comprehensive study of the costs to the private sector of compliance with the Consumer Packaging and
Labeling Act of 1974. That study determined the average recurring compliance cost to be C$0.002 per
dollar of consumer product revenue. While this estimate is substantially lower than estimates used
by Reid and other critics of the program, it serves to provide a conservative basis for comparison here.
Using the process described above, this produces a potential compliance cost to the U.S. private sector
of $7.8 billion.
 Lexington Institute 15

Federal Interpretation and Translation Services Costs

This category of compliance cost is perhaps the most difficult to translate from Canada to the
United States, because it cuts directly to the core of the cultural and other differences between the
federal governments of the two nations. The Fraser Institute researchers calculated observable total
compliance costs of C$279 million across all federal agencies and departments.

Predicting the potential costs of such activities to the United States is more difficult, as the lack of
financial transparency for costs to date of complying with EO 13166 suggests.

By calculating the percentage of overall budget outlays spent on interpretation and translation services
for each Canadian department and agency, and applying that same percentage to the budgets of federal
agencies in the United States, an estimated cost of $16.28 billion can be projected. Further assurance
that this estimate is a conservative one lies in the fact that it falls at the low end of the ranges
estimated by the OMB in their 2002 case studies for offering these services.

Conclusion
As can be seen from this analysis, the question of potential statehood for Puerto Rico carries
significant cost, tax and policy implications for both Puerto Rico and the United States. While many
details essential for precise cost estimates depend on policy decisions and factors that have yet to be
deliberated, enough is known to demonstrate that these costs would be substantial.

For example, the Congressional Joint Committee on Taxation projected in 2006 that the likely net impact
of the Earned Income Tax Credit for Puerto Rico individual federal income tax filers would be $2.7 billion
for each of the first five years following statehood, and $5.2 billion for each subsequent year. And the
adjustment that would likely be made to the federal National Assistance for Puerto Rico program in the
event of statehood could easily double the $1.76 billion funded in FY 2009.

As for the broader potential costs of expanding official bilingualism in the United States, movement
toward the Canadian model seems the most likely policy direction given the present circumstances.
While Canadian bilingualism is based upon a complex framework of legal and regulatory requirements
that constructed over many decades, the potential costs of such a system to the United States -- $26.7
billion annually, or $85 per American – present an important consideration.
16 Lexington Institute

APPENDIX

CONSOLIDATED FEDERAL FUNDS REPORT: Fiscal Year 2008

Selected Programs by Size of Expenditure - Puerto Rico

PROGRAM PROGRAM NAME FY AMOUNT ($ million)

97.022 FLOOD INSURANCE 53,188.9
96.002 SOCIAL SECURITY RETIREMENT INSURANCE 2,960.8
96.001 SOCIAL SECURITY DISABILITY INSURANCE 1,893.9
10.566 NUTRITION ASSISTANCE FOR PUERTO RICO 1,622.5
93.774 MEDICARE-SUPPLEMENTARY MEDICAL INSURANCE 1,498.0
96.004 SOCIAL SECURITY SURVIVORS INSURANCE 1,278.9
93.773 MEDICARE-HOSPITAL INSURANCE 807.7
14.117 MORTGAGE INSURANCE HOMES 745.8
84.063 FEDERAL PELL GRANT PROGRAM 691.2
PC.100 PROCUREMENT CONTRACTS--DEPT OF DEFENSE 592.8
SW.500 SALARIES AND WAGES--ALL FED GOVT CIVILIAN EMP EXCEPT DEFENSE & USPS 566.6
GG.400 TREASURY PYMT TO PUERTO RICO-RETURN OF TAXES & CUSTOMS DUTIES COLLECTED 373.0
64.109 VETERANS COMPENSATION FOR SERVICE-CONNECTED DISABILITY 308.9
84.010 TITLE I GRANTS TO LOCAL EDUCATION AGENCIES 281.8
93.778 MEDICAL ASSISTANCE PROGRAM 280.6
SW.600 SALARIES AND WAGES--U.S. POSTAL SERVICE 273.1
DR.200 FEDERAL RETIREMENT AND DISABILITY PAYMENTS--CIVILIAN 265.3
10.410 VERY LOW TO MODERATE INCOME HOUSING LOANS 259.5
DO.200 UNEMPLOYMENT COMPENSATION BENEFIT PAYMENTS 246.5
PC.200 PROCUREMENT CONTRACTS--ALL FED GOVT AGENCIES OTHER THAN DEFENSE & USPS 227.1
10.557 SPECIAL SUPPLEMENTAL FOOD PROGRAM FOR WOMEN, INFANTS, AND CHILDREN 221.3
84.027 SPECIAL EDUCATION-GRANTS TO STATES 208.2
93.600 HEAD START 208.2
14.850 PUBLIC AND INDIAN HOUSING 201.4
SW.200 SALARIES AND WAGES--DEPT OF DEFENSE (INACTIVE MILITARY EMPLOYEES) 186.4
14.133 MORTGAGE INSURANCE PURCHASE OF UNITS IN CONDOMINIUMS 169.4
14.871 SECTION 8 HOUSING CHOICE VOUCHERS 156.5
14.872 PUBLIC HOUSING CAPITAL FUNDS 137.9
10.555 NATIONAL SCHOOL LUNCH PROGRAM 135.6
64.104 PENSION FOR NON-SERVICE-CONNECTED DISABILITY FOR VETERANS 94.5
84.367 IMPROVING TEACHER QUALITY STATE GRANTS 92.5
DX.970 CUSTOMS AND BORDER PROTECTION, PAYMENTS TO PUERTO RICO 90.0
DX.200 FEDERAL EMPLOYEE LIFE/HEALTH INSURANCE PREMIUM PAYMENTS--EMPLOYER SHARE 88.3
20.507 FEDERAL TRANSIT FORMULA GRANTS 81.3
14.195 SECTION 8 HOUSING ASSISTANCE PAYMENTS PROGRAM-SPECIAL ALLOCATIONS 76.2
93.558 TEMPORARY ASSISTANCE FOR NEEDY FAMILIES 71.5
84.268 FEDERAL DIRECT STUDENT LOANS 68.0
 Lexington Institute 17

PROGRAM PROGRAM NAME FY AMOUNT ($ million)

PC.300 PROCUREMENT CONTRACTS--U.S. POSTAL SERVICE 67.3
93.563 CHILD SUPPORT ENFORCEMENT 62.4
14.218 COMMUNITY DEVELOPMENT BLOCK GRANTS/ENTITLEMENT GRANTS 61.3
93.767 STATE CHILDREN'S INSURANCE PROGRAM (CHIP) 59.2
14.228 COMMUNITY DEVELOPMENT BLOCK GRANTS/STATE'S PROGRAM 47.0
64.110 VETERANS DEPENDENCY & INDEMNITY COMPENSATION FOR SVC-CONNECTED DEATH 44.7
64.105 PENSION TO VETERANS SURVIVING SPOUSES AND CHILDREN 42.6
SW.400 SALARIES AND WAGES--DEPT OF DEFENSE (CIVILIAN EMPLOYEES) 41.2
93.224 COMMUNITY HEALTH CENTERS 40.0
64.114 VETERANS HOUSING GUARANTEED AND INSURED LOANS 37.9
93.777 STATE SURVEY AND CERTIFICATION OF HEALTH CARE PROVIDERS AND SUPPLIERS 37.9
64.103 LIFE INSURANCE FOR VETERANS 37.9
84.287 21ST CENTURY COMMUNITY LEARNING CENTERS 37.3
17.259 WIA YOUTH ACTIVITIES 35.9
17.258 WIA ADULT PROGRAM 35.1
93.389 RESEARCH INFRASTRUCTURE 33.7
93.917 HIV CARE FORMULA GRANTS 32.3
17.260 WIA DISLOCATED WORKERS 31.5
93.575 CHILD CARE AND DEVELOPMENT BLOCK GRANT 31.4
10.553 SCHOOL BREAKFAST PROGRAM 31.3
14.239 HOME INVESTMENT PARTNERSHIPS PROGRAM 30.3
SW.700 SALARIES AND WAGES--U.S. COAST GUARD (UNIFORMED EMPLOYEES) 29.9
93.859 PHARMACOLOGY, PHYSIOLOGY AND BIOLOGICAL CHEMISTRY RESEARCH 29.6
93.570 COMMUNITY SERVICES BLOCK GRANTS DISCRETIONARY AWARDS 27.3
10.558 CHILD AND ADULT CARE FOOD PROGRAM 25.4
59.041 CERTIFIED DEVELOPMENT COMPANY LOANS (504 LOANS) 22.6
12.401 NATIONAL GUARD MILITARY OPERATIONS & MAINTENANCE PROJECTS 22.4
84.031 HIGHER EDUCATION-INSTITUTIONAL AID 22.4
93.959 BLOCK GRANTS FOR PREVENTION AND TREATMENT OF SUBSTANCE ABUSE 21.8
DR.100 FEDERAL RETIREMENT AND DISABILITY PAYMENTS--MILITARY 21.3
17.225 UNEMPLOYMENT INSURANCE 20.3
14.231 EMERGENCY SHELTER GRANTS PROGRAM 19.0
17.FEC FEDERAL EMPLOYEES COMPENSATION 18.6
14.108 REHABILITATION MORTGAGE INSURANCE 18.6
84.048 VOCATIONAL EDUCATION BASIC GRANTS TO STATES 18.4
84.033 FEDERAL WORK STUDY PROGRAM 17.8
59.012 SMALL BUSINESS LOANS 17.6
20.106 AIRPORT IMPROVEMENT PROGRAM 16.5
93.914 HIV EMERGENCY RELIEF PROJECT GRANTS 16.4
66.468 CAPITALIZATION GRANTS FOR DRINKING WATER STATE REVOLVING FUND 16.3
DX.300 LEGAL SERVICES CORPORATION PAYMENTS 16.3

Source: U.S. Census Bureau, Consolidated Federal Funds Report for FY 2008
18 Lexington Institute

CONSOLIDATED FEDERAL FUNDS REPORT: Fiscal Year 2008

Detailed Federal Expenditure Data -Puerto Rico

SUMMARY TOTALS FY 2008 AMOUNT ($ million)

DIRECT EXPENDITURES OR OBLIGATIONS
RETIREMENT / DISABILITY PAYMENTS FOR INDIVIDUALS (DR) 6944.7
OTHER DIRECT PAYMENTS FOR INDIVIDUALS (DO) 3313.0
DIRECT PAYMENTS OTHER THAN FOR INDIVIDUALS (DX) 484.2
GRANTS (BLOCK, FORMULA, PROJECT, AND COOPERATIVE AGREEMENTS) (GG) 5218.9
PROCUREMENT CONTRACTS (PC) 887.3
SALARIES AND WAGES (SW) 1109.7

TOTAL DIRECT EXPENDITURES OR OBLIGATIONS 17958.0

TOTAL DIRECT EXPENDITURES OR OBLIGATIONS - DEFENSE 879.9
TOTAL DIRECT EXPENDITURES OR OBLIGATIONS - NON DEFENSE 17078.1

OTHER FEDERAL ASSISTANCE
DIRECT LOANS (DL) 102.7
GUARANTEED/INSURED LOANS (GL) 1279.4
INSURANCE (II) 5357.0

Source: U.S. Census Bureau, Consolidated Federal Funds Report for FY 2008
 Lexington Institute 19

Endnotes

1 U.S. House of Representatives, H.R. 2499, Report No. 37 GAO-06-52, “Language Access to Transportation
111-294. Services”, Government Accountability Office, November
2 CIA World Factbook, January 15, 2010. 2005.
3 U.S. Census Bureau, Consolidated Federal Funds Report 38 Ibid, p. 37.
for FY 2008. 39 Ibid, p. 26.
4 Puerto Rico Office of Management and Budget, FY 40 GAO-09-753R, “Memo on Centers for Medicare and
2009-2010 Budget. Medicaid Services Language Access Policy”, Government
5 Joint Committee on Taxation, “An Overview of the Accountability Office.
Special Tax Rules Related to Puerto Rico and an Analysis 41 The Fraser Institute , “Official Language Policies at the
of the Tax and Economic Implications of Recent Federal Level in Canada: Costs and Benefits in 2006,”
Legislative Options,” (JCX-24-06), June 23, 2006, p. 3. Francois Vaillancourt and Oliver Coche. May 2009.
6 Ibid. 42 Reid, p. 223.
7 GAO-06-541. Puerto Rico: Fiscal Relations with the 43 Fraser Institute, p. 32.
Federal Government and Economic Trends during the 44 Ibid., p. 7.
Phaseout of the Possessions Tax Credit,. Government 45 Ibid., p. 2.
Accountability Office, See following note.
46 Ibid., p. 16.
8 This summary of the legal relationship of Puerto Rico
to the United States is based on a 2006 Government 47 Ibid., p. 17.
Accountability Office (GAO) analysis, which was also 48 Ibid,, p. 18.
approved by the Governor of Puerto Rico, GAO-06-541. 49 Scott Reid, Lament for a Notion: The Life and Death
9 GAO-06-541 p. 28. of Canada’s Bilingual Dream, Vancouver: Arsenal Pulp
10 U.S. Census Bureau, 2007 American Community Survey. Press, 1993. p. 169.
11 U.S. Census Bureau, 2007 American Community Survey. 50 Ibid., pp. 108-109.
12 GAO-06-541, p. 21. 51 Ibid., p. 93.
13 U.S. Census Bureau, 2000, http://factfinder.census.us. 52 Fraser Institute, p. 3.
14 U.S. Census Bureau, 2007 American Community Survey. 53 Ibid.
15 Bureau of Labor Statistics, Regional and State 54 Ibid.
Unemployment Summary, November 2009. 55 Ibid, p. 18.
16 GAO-06-541, p. 15. 56 U.S. Census Bureau, Census 2000, Summary File 3.
17 “Big Winner on Economic Stimulus and Jobs is… Puerto 57 “Spanish-ballot Suit Clears Hurdle,” Satta Sarmah,
Rico?” Patrik Jonsson, The Christian Science Monitor, Orlando Sentinel, February 5, 2009.
October 31, 2009. 58 Fraser Institute, p. 28.
18 Government Development Bank for Puerto Rico, July 59 Bureau of Labor Statistics, www.bls.gov.
2009. 60 U.S. Postal Service, Postal Facts 2009, www.usps.com.
19 “ARRA Funds, Rum War, Sotomayor Top Stories for 61 CIA World Factbook, February 4, 2010.
Puerto Rico in DC,” Puerto Rican Daily Sun, December 62 Fraser Institute, p. 28.
28, 2009.
20 GAO-06-541, p. 24.
21 www.recovery.gov accessed February 16, 2010.
22 “Puerto Rico Economy Shrank 5.5 Pct in Fiscal ’09,”
Agnes Crane, Reuters, August 21, 2009.
23 White House Office of Management and Budget.
24 Government Development Bank for Puerto Rico,
“Puerto Rico Basic Facts,” 2008.
25 Jude Wanniski, The Way the World Works, Washington,
DC: Regnery Publishing, 2008, p. 287.
26 Joint Committee on Taxation, p. 4.
27 Wanniski, p. 305.
28 GAO-06-541, p. 11.
29 Ibid.
30 Collins, et.al., p. 9.
31 GAO-06-541, p. 0.
32 Joint Committee on Taxation, pp. 65-70.
33 Ibid, p. 72.
34 Tax Policy: Analysis of Certain Potential Effects of
Extending Federal Income Taxation to Puerto Rico, GAO/
GGD-96-127, August 15, 1996.
35 65 Fed. Reg. 50123.
36 Office of Management and Budget, “Report to
Don Soifer is Executive
Congress: Assessment of the Total Benefits and Costs of Vice President of the
Implementing Executive Order No. 13166,” March 14,
2002. Lexington Institute.
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