Puerto Rico officials signaled that holders of $8.5 billion of Puerto Rico Electric Power Authority debt should expect repayment delays or reductions as part of the utility's restructuring.
"The resolution for PREPA will require contributions from all stakeholders," Natalia Guzman, advisor to the Government Development Bank of Puerto Rico president, said in an investor webcast on Thursday.
Officials discussing the commonwealth's economic and fiscal struggles also said the Puerto Rico Highways and Transportation Authority would be able to straighten out its finances without using the Debt Enforcement and Recovery Act. The measure was enacted in June to allow the island's public corporations to restructure their debts.
PREPA, after tapping its reserve fund to make a semi-annual debt payment, reached a forbearance agreement with lenders in August that gives it until March to come up with a restructuring plan. The power authority has hired Lisa Donahue of AlixPartners to head the effort.
On Thursday the GDB sent out a press statement saying that a bill submitted to the Puerto Rico House of Representatives on Thursday aims to put the highway authority on the path to self-sufficiency without use of the act.
GDB executive vice president José Coleman Tío said that the Puerto Rico Infrastructure Finance Authority would sell up to $2.9 billion in bonds to refinance PRHTA debt. The government has introduced a bill to do this and to increase total taxes on oil by $6.26 per barrel (see
Also in the webcast, GDB Chairman David Chafey said the Puerto Rico Aqueduct and Sewer Authority would be selling bonds. He didn't disclose the amount or timing of the sale.
Former Director of the Office of Management and Budget Carlos Rivas said that first quarter expenses were 4% below budgeted projections. He said the government is now projecting expenses will come in $6 million less than budgeted. This would be just 0.06% less than budget.
GDB President Melba Acosta Febo said the government is working on tax reforms that would would increase General Fund revenues and focus more on taxing consumption than on taxing work income. The current sales tax would be replaced by a goods and services tax. Some reports have said this would be a value added tax instead of a sales tax, which is currently in effect.
Whereas the latter is collected only by retailers, the former is collected at every step of the sale of goods. Value added taxes are sometimes seen as superior means of eliminating tax evasion, a widespread problem in Puerto Rico.
The goods and service tax would protect the pledge of revenues to COFINA, the Puerto Rico sales tax corporation, Acosta Febo said.
Acosta Febo said that she expects the tax reform to include lower income tax rates and higher minimum incomes for the tax. Countering the negative impact on revenues from these measures, Puerto Rico also plans to eliminate or adjust certain tax expenditures.
The tax reform committee is considering eliminating a gross profits tax on corporations and reducing corporate tax rates. Revenues would be made up by expanding the tax base thorough the repeal of certain business tax expenditures.
Finally, the tax reform committee is working with the island's mayors to consider alternatives to the property tax structure.
The tax reform is being designed based on five year revenue and expense projections to ensure the General Fund meets balanced budget targets throughout the period, Acosta Febo said.
Government officials have talked about approving the tax reform early in the next calendar year and having its measures be retroactive to the start of January.
In the webcast, GDB president Melba Acosta Febo said that Puerto Rico's tax burden was 10.9% of income versus a 33.2% average in Organization of Economic Cooperation and Development countries.
On a topic not covered in the webcast, the GDB announced Thursday that Puerto Rico's economic activity index was up 0.5% in September compared to August. On a year-over-year basis, the index was down 1.8%.
Compared to September 2013, non-farm payroll was up but electric power generation, gasoline consumption, and cement sales were down.
