Young Bill and 1998 Plebiscite

In 1998, Acevedo Vilá participated in a campaign against the Young Bill, a proposed legislative project in the U.S. Congress that sought to resolve the political status of Puerto Rico by defining each proposed status option and calling for a series of referendums. Although the referendum called for in the project would have included the option for Puerto Rico to remain a Commonwealth, the option would have to be renewed by island voters every ten years, until they opted for independence or statehood.

Although the project was not approved, Puerto Rico's elected officials under Governor Pedro Rosselló organized a non-binding plebiscite to define Puerto Rico's political status, in which Puerto Ricans were given five options: Commonwealth, associated republic, Statehood, Independence from the United States, or "none of the above".

Acevedo Vilá and his party believed the definition of the commonwealth option was incorrect because it defined the current political status as territorial. His party campaigned for the "none of the above" option, which ultimately garnered the majority of the votes. (See Puerto Rican status referendums for more information.)

Mixed votes controversy

Sample ballot for 2004 Gubernatorial Election, illustrating the Mixed Vote permissible under CEE Rule 50.

Since Acevedo Vilá's margin of victory was just 3,880 votes, less than one vote per electoral polling room, the result led to a protracted controversy involving appeals to the United States federal courts and the Supreme Court of Puerto Rico. The leaders of the New Progressive Party alleged that some ballots were invalid and should not be counted.

The controversy reached the Supreme Court of Puerto Rico, which ruled 4–3 that the ballots in question were valid. Rosselló challenged the ballots on the United States District Court for the District of Puerto Rico, where District Judge Daniel Domínguez ordered the Puerto Rico Election Commission to count the disputed votes but not adjudicate them to any candidate until he reached a decision on the merits of the case. Acevedo-Vilá and his team challenged this ruling and the case moved up to the United States Court of Appeals for the First Circuit, where three judges ruled the question of whether or not the ballots were properly cast was not a federal constitutional issue and therefore should be decided by the Supreme Court of Puerto Rico at the Commonwealth level. The Supreme Court affirmed its prior 4–3 decision. On 28 December 2004 the recount ended and Acevedo Vilá was certified as winner and therefore elected governor.

Shared government

Acevedo Vilá was finally sworn as Governor on 2 January 2005. During his term, he faced many political challenges, due to the fact that the main opposing party, New Progressive Party (NPP) gained control of the Legislative Assembly of Puerto Rico, the Resident Commissioner in Congress (Luis Fortuño), and Acevedo Vilá's main political rival, Pedro Rosselló (former Governor or Puerto Rico who had just lost the election against Acevedo), managed to gain a seat in the Senate of Puerto Rico after a young first-term Senator from Arecibo unexpectedly resigned shortly after taking the oath of office, and unsuccessfully attempted to topple Senate President Kenneth McClintock.

Because the executive and the legislative branches of the government are controlled by different political parties, Governor Acevedo Vilá called his government a "shared government". During the first months of his term, Acevedo Vilá concentrated his efforts on trying to reach bipartisan support for his bills and for the nominees of his Cabinet. However, this collapsed when Acevedo Vilá vetoed a legislative bill proposed by the NPP, although all members of his Cabinet, but one, were confirmed by the Senate.

During May 2005, confrontations between the executive and the legislative branches reached a new climax when the Puerto Rico legislature voted to override a veto by Acevedo Vilá, thus becoming the first democratically elected governor to have a veto overridden by the legislature. Later in June, Acevedo Vilá and the legislature were frequently at odds about the budget proposal. The budget proposed by the Governor was not accepted by the leaders of the PNP in the legislature and they proposed a different budget, which Acevedo Vilá vetoed in August 2005. As a result, for the first time ever, the previous year's budget remained in force.

During his 2004 campaign, he promised that he would not support a sales tax. The tax was proposed to pay part of the commonwealth's external debt. In spite of all these measures, he was unable to finish his term with a balanced budget. During his term as governor he relied on greater trade with foreign countries. He was also the only governor to speak to the United Nations on the political status of Puerto Rico.

Government shut-down

New tensions surfaced during April 2006, when Acevedo Vilá announced the central government of Puerto Rico did not have enough funds to pay the salary of public employees for the months of May and June. The Governor asked the Legislature to approve a loan of over $500 million so that the government could keep the agencies running. The Senate approved the loan, but the House of Representatives refused to do so. Acevedo Vilá then announced that most of the government agencies would shut down beginning 1 May, and would remain closed unless the House approved the new loan. The government shutdown lasted two weeks, until Governor Acevedo Vilá, the President of the Senate Kenneth McClintock and the Speaker of the House José Aponte-Hernández reached an agreement to end the shutdown. The details of the agreement included the approval of a new loan as well as new fiscal reforms that would, eliminate the 6.6% general excise tax, replace it with a 7% sales tax and require the reduction of operational costs of the central government of the islands.