Puerto Rico Aims for Triple-B Plus

Puerto Rico officials aim to boost the commonwealth’s general obligation rating to BBB-plus by 2013 and enter the single-A category by 2017, according to the government’s Strategic Model for a New Economy, a plan to cultivate the island’s economy and create job growth.

The formal release of the strategic model comes as officials plan to issue roughly $1 billion of sales tax bonds in the U.S. market and another $750 million of qualified school construction bonds offered through the federal American Recovery and Reinvestment Act.

The commonwealth is ready to head to the market with the sales tax bond deal, according to the Government Development Bank for Puerto Rico, the island’s fiscal agent. No book-runner has been selected yet.

The strategic model comes after last week’s announcement that the administration will slash the government’s workforce by nearly 17,000 to help save $2 billion in its operating budget.

Transferring qualified, laid-off employees to other departments and into the private sector would reduce the amount of actual unemployed government workers to 13,774.

Puerto Rico  currently carries BBB-minus and Baa3 ratings from Standard & Poor’s and Moody’s Investors Service, respectively. Fitch Ratings does not rate the island’s GO debt.

The strategic model labels the 2000s as “the lost decade” for Puerto Rico due to an estimated negative 0.2% of compounded annual growth of real gross national product, according to Puerto Rico’s Planning Board, which evaluates the island’s fiscal health.

Officials are now seeking to achieve real GNP growth of 1.8% in 2013 and 3% in 2017 and produce major boosts in private sector employment to help offset the decreasing government payroll.

In the short term, Puerto Rico is set to receive a total of $6.04 billion of ARRA funds, creating an estimated 42,065 direct and indirect jobs, according to the model.

The commonwealth has disbursed $874 million of the federal stimulus funds to date and officials project a total of $1.77 billion of ARRA funds will enter the local economy by the end of 2010.

Puerto Rico also has a $500 million local stimulus plan, of which $27.4 million has been disbursed.

In addition, the GDB estimates the island will receive $6.21 billion of private capital investment via public-private partnerships during the next two to four years, creating a potential 99,735 jobs.

Sergio Marxuach, policy director at the Center for the New Economy, a ­nonpartisan think tank in San Juan, ­questions the ­government’s ability to ­produce the amount of jobs estimated through P3 agreements during the next few years.

“The notion that P3s will create 99,735 jobs is simply pie in the sky,” Marxuach said via e-mail. “The process for approving PPPs is long, cumbersome, and bureaucratic.”

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER