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Puerto Rico Governor to Present Balanced Budget and a Four-Year Plan

APR 28, 2014 5:07pm ET
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Puerto Rico Gov. Alejandro García Padilla will propose a balanced budget and a four-year economic plan Tuesday night, his chief of staff told The Bond Buyer.

It will be the first time in more than 20 years that a Puerto Rico governor will present a balanced budget, chief of staff Ingrid Vila Biaggi said in an interview Monday. The proposal will be a "transcendental moment," she said.

In addition the governor will unveil a four-year agenda of measures for economic recovery, Vila Biaggi said. Many of these will be drawn from recommendations from the taskforce on growth and competitiveness that she led, she said.

The government will primarily achieve balance through cuts in government spending, Vila Biaggi said. There will be some revenue increases as well, though.

The governor will propose the consolidation and reorganization of several government agencies starting in the coming fiscal year. Puerto Rico's fiscal year starts on July 1.

The changes will make the government more agile and efficient, though the budget contains no government layoffs, Vila Biaggi said.

The balanced budget will be a tremendous achievement for the government, she said. When the governor came into office in January 2013 there were projections of a government deficit of over $2 billion for the fiscal year. The governor's team reduced that in the early months of 2013. Since then the team has brought the deficit down to $640 million in the current fiscal year, Vila Biaggi said.

The governor originally planned to balance the budget in fiscal year 2016. Now, he will do it a year earlier, in fiscal 2015, she said.

In March 2014, Nuveen Asset Management published a piece questioning the governor's new promise for a balanced budget. In their piece, "Puerto Rico's $3.5 billion GO Deal: Cure or Symptom?," Nuveen vice presidents Shawn O'Leary and Molly Shellhorn said that the March $3.5 billion bond sale included about $423 million in capitalized debt service interest for fiscal years 2014, 2015 and part of 2016. It included $270 million for fiscal year 2015. This money is to be used to pay at least some of the debt service bills coming due, they wrote.

While $270 million would be about 2.6% of fiscal 2014 budget, it is unclear what it will be in the fiscal 2015 since Vila Biaggi declined to release the spending and revenues figures for the budget.

"A budget that relies on bond proceeds to partially pay for debt service as it comes due is, by definition, not a structurally balanced budget," O'Leary and Shellhorn said. "By virtue of earmarking $269.8 million of bond proceeds for fiscal 2015 debt service, Puerto Rico has already failed to deliver on its promise of a balanced budget in fiscal 2015."

Asked about the analysts' statements, Vila Biaggi said that for the first time in a long time the budget has zero deficit financing and repays interest.

The governor's budget and other proposals will be subject to revision and approval or rejection by Puerto Rico's Senate and House of Representatives.

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