Gov. Alejandro García Padilla's proposed budget anticipates the continued payment of bonds of the Puerto Rico Sales Tax Finance Authority in fiscal year 2016-2017.
According to a memo from the Puerto Rico Treasury Department posted to a Puerto Rico government web site on the proposed budget, "The projection of total revenues of sales and use tax for 2016-17 is $ 724.1 million distributed to the Corporation Tax Fund (COFINA); this amount would be an increase by $ 28.0 million or 4.0 percent compared to FY 2015-16."
This memo goes on to say that the Treasury is expecting that if the budget is approved, sales and use tax revenues distributed to the General Fund would rise 2.3% from fiscal year 2015-2016. These revenues are distributed to the General Fund after all money due to COFINA is delivered.
Height Securities analyst Daniel Hanson reported Wednesday that Puerto Rico planned not to touch the COFINA bond.
As of Nov. 6, Puerto Rico had $15.2 billion in COFINA debt out of a total of $69.9 billion in public sector debt, according to a Commonwealth Report published on that date.
The governor's proposed General Fund budget allocates $209.8 million for the payment of debt service, according to his proposed budget bills in the Puerto Rico House of Representatives. This compares to what was scheduled to be $1.39 billion in General Fund-supported general obligation and guaranteed debt service. The General Fund would also normally support additional non-guaranteed forms of debt.
The proposed budget bills in the Puerto Rico House of Representatives say the $209.8 million will be distributed "as part of the restructuring process."
The Puerto Rico House of Representatives and Senate will have the option to change the governor's budget. If the U.S. government introduces legislation to introduce a control board in Puerto Rico, the board could make changes to the budget and to the COFINA bond payments.
While the government is more likely to make payments on COFINA bond in the coming months than the GO bonds, the former have been trading lower than the latter on the secondary market. According to data from Markit, on Tuesday the 5% Senior COFINA maturing in 2046 was trading at 59.51 cents on the dollar, the 6% GO maturing in 2039 was trading at 61.25 cents on the dollar, and the 8% GO maturing in 2035 was trading at 65.75 cents on the dollar.
In Puerto Rico's last comprehensive debt restructuring offer made in April, Puerto Rico proposed exchanging existing bonds for "base bonds." In the offer, Puerto Rico was specifying the base bonds would be 80% of face value for GOs, 71% for commonwealth guaranteed debt, and 57% for COFINA bonds. It also offered capital appreciation bonds with 40 to 51 year maturities that would pay out in amounts equal to the difference between current par value and the newly issued base bond par value.
In other Puerto Rico budget-related news, Puerto Rico House Minority Leader Jenniffer González Col-n criticized the governor's budget for proposing an increase of the government payroll by 816 people or 0.6%. She said that while García Padilla has touted the budget as balanced, it doesn't include $2 billion for unpaid bills to suppliers, $300 million owed to Puerto Rico's program for low income health coverage (Administracion de Seguros Salud de Puerto Rico), as well as most of the money due for GO debt.
González Col-n said that the governor was submitting his proposed budget later than any other governor in Puerto Rico history. The legislature has until June 25 to vote on a budget. She said submitting it late was a tactic by the governor to reduce public hearings.