Puerto Rico lawmakers are now reviewing Gov. Luis Fortuño’s plan to regulate video lottery terminals in order to generate $220 million of needed revenue for the fiscal 2011 budget.
The plan to legalize and monitor slot machines throughout the island could be the most controversial issue within the governor’s $9.2 billion spending plan. Fortuño did not propose any new broad-based taxes or tax increases in the fiscal 2011 budget proposal.
Instead, the pro-statehood governor is seeking to improve tax collections and capture tax revenue from currently unregulated terminals. The administration anticipates collecting $220 million of slot-machine revenue next year if lawmakers approve the initiative. Fiscal 2011 begins July 1.
While the governor’s New Progressive Party controls both the Senate and the House, the push to legalize video lottery terminals is a contentious issue. Opponents say it would expand gambling on the island, with slot machines in stores and public places.
“They are using them as slot machines in places in Puerto Rico which are not casinos. Puerto Rico will become the casino island, we’re going to have slot machines in every part of Puerto Rico,” said House minority leader and Popular Democratic Party president Hector Ferrer. “Basically what they are doing is they’re betting on new revenue from bets that people make on slot machines.”
Conversely, Treasury Secretary Juan Puig said the goal of the legislation is to actually reduce the number of video lottery terminals by 80,000 to 40,000 and generate additional revenue for the commonwealth’s coffers at the same time.
Carlos Garcia, president of the Government Development Bank for Puerto Rico, last week stressed that the initiative provides safeguards to restrict where slot machines would be located.
“Obviously we share some concerns about where these activities occur and the legislation that has been filed has specific protections,” Garcia said last week during a conference call with bondholders. “Plus it [would] empower the secretary of the Treasury to be able to fiscalize in such a way that it does not affect current tourism activities, and that they are not next to schools or churches and other activities and areas where you do not want to have that activity.”
House Speaker Jenniffer Gonzalez, who supports the gaming measure, said it is the main budget item that might face resistance. She could not say for certain whether she had the necessary votes to pass the bill, as lawmakers received the legislation on Thursday.
Gonzalez said that earlier slot machine bills in prior years have not passed the House. She favors the initiative as an alternative to other types of tax increases.
“I would vote for it because we’re talking about an opportunity to not raise any other taxes,” Gonzalez said. “So, it’s money that’s needed for the general fund.”
In the upper chamber, a Senate aide said it wasn’t clear yet if Senate President Thomas Rivera is putting his support behind the gaming issue, as lawmakers are still reviewing the bill.
Ultimately, rating agencies and market participants are waiting to see what total fiscal 2010 revenues will be, as under performing tax receipts could push the anticipated fiscal 2011 structural deficit beyond $1 billion, and whether lawmakers pass a budget plan by July 1 that does not increase the structural deficit. Last year, the legislature approved the fiscal 2010 budget before the deadline.
Standard & Poor’s analyst Horacio Aldrete said the issue for the credit is not whether the slot-machine initiative passes, but if the island can stay on track towards ending structural deficits by fiscal 2013.
“That [terminal] measure alone is not going to solve the budget gap, just like taking it out of the budget may not necessarily totally deviate the commonwealth from their goals,” Aldrete said. “I think we’re looking at the overall picture to see what the legislature determines is the adequate measures for them to take to get to a balanced budget.”
Since taking office in January 2009, the Fortuño administration has cut the structural deficit to an estimated $1 billion for fiscal 2011 from $3.4 billion in fiscal 2009. July through March revenue collections are $1 million below budgeted estimates, a difference of 0.03%.
In a separate issue, the Puerto Rico Ports Authority plans to redeem $55.6 million of outstanding Series 1991D revenue bonds to help improve its finances, Garcia announced during the conference call. The GDB will extend a line of credit to payoff the bonds.
