P.R. Gov. Proposes Budget With 86% less for Debt Service

Puerto Rico Gov. Alejandro García Padilla is proposing a budget for the coming fiscal year with 86% less money allocated to paying debt service than the approved current-year budget.

In a speech at 5 p.m. EST on Monday, the governor said his budget includes $209 million for interest payments on the commonwealth's debt. The governor's proposal doesn't including funding for principal payments in the coming fiscal year. Public authorities, municipalities, and the Puerto Rico Sales Tax Finance Corp. (COFINA) may be treated differently, as their debt is not paid from the General Fund.

The current year's budget was approved with payment of $1.475 billion in debt, according to the Puerto Rico Office of Management and Budget in August 2015. The government hasn't disclosed how much of this has been or will be paid through the end of the fiscal year on June 30.

The current fiscal year 2015-2016 budget was approved on June 30 for $9.8 billion.

In the fall 2015 Puerto Rico Secretary of the Treasury Juan Zaragoza G-mez said he was revising his projections for revenue in the fiscal year downward. The projected revenue fell from $9.8 billion to $ 9.292 billion. At this point the commonwealth is on track to meet this projected revenue level.

García Padilla said that his proposed spending level was $9.1 billion in the coming fiscal year. He said this would not require any borrowing or any tax increases.

By cutting Puerto Rico's debt service by $1.266 billion, the governor was able to avoid cutting several programs. He proposes increases in the budget's contributions to certain items like the teachers' and employees' pension systems and the island's Medical Center. He has created a $91 million cash flow reserve and a $20 million emergency fund.

In other Puerto Rico news Tuesday afternoon, the Puerto Rico House of Representatives voted 47 votes in favor to override the governor's veto of the legislature's rejection of an increase in business to business taxes from 4% to 11.5%. The 47 votes are far more than the 34 votes in the 51 seat body to override the veto. The Puerto Rico Senate is expected to vote on whether to override the veto shortly.

If the Senate follows the House lead, the business to business tax would remain at 4%.

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