Puerto Rico's fiscal year 2014 deficit came in 4.5% lower than budgeted at the start of the year.
Over the course of the fiscal year Puerto Rico's efforts to reign in its deficit took two steps forward and two steps back, leaving the shortfall close to where it was anticipated to be at the start of the fiscal year.
On Friday Puerto Rico announced that net revenues for the general fund were $9.037 billion in fiscal year 2014, which ended June 30. This was 5.5% better than revenues in fiscal year 2013 but 5.1% below budgeted projections.
The revenue shortfall, which stemmed mostly from missing projections for April, was offset by measures the government took in the winter to reduce expenditures. The government's adoption of two resolutions and an executive order led to a reduction of expenses by $525 million. Puerto Rico's revenue in fiscal year 2014 came in $488 million less than budgeted.
Taken together, the revenue and expenses cut the year's deficit to $783 million instead of the $820 million budgeted. The deficit was 8.47% of expenses instead of the budgeted 8.39% of expenses.
The revenue rise in fiscal 2014 from fiscal 2013 was due to recurring revenue measures passed as part of the fiscal 2014 budget. These included a gross receipt tax, extension of the sales and use tax to certain commercial activities between businesses, and an increase in the foreign corporation excise tax rate.
By far the largest shortfall in revenue collections for fiscal year 2014 came in corporate taxes, which were $509 million less than budgeted. The next biggest shortfall was in the motor vehicle category, which came in $40 million short.
Since revenues came in $488 short of budgeted expectations, if it had not been for the corporate tax shortfall, revenues would have come in ahead of expectations.
Reasons for the corporate tax shortfall included the tax credits taken or acquired that reduced payment of the gross receipt tax.
Puerto Rico Secretary of the Treasury Melba Acosta Febo explained that as part of the fiscal 2014 budget, the government inserted an amendment making the gross receipt tax calculation part of the alternate minimum tax calculation. In effect, the government made payment of the gross receipt tax as something to be included as a component of the income tax.
As a result, Puerto Rico's gross receipt tax revenues were affected by carried tax credits or credits purchased in the market, the Treasury said. While most holders of purchased tax credits did pay appropriate taxes, the payments accrued to third parties, and not to the Treasury.
The government modified this situation when creating the budget for fiscal 2015 and the gross receipt tax is no longer part of the AMT calculation, the Treasury reported.
The Treasury intends to conduct further analysis once corporations that filed for an extension on April 15, 2014, file their returns on July 15, 2014, the due date for the automatic extension.
According to the Treasury, sales and use tax revenues came in $55 million higher than in fiscal year 2013, a 9.3% improvement.
For fiscal 2015 Puerto Rico has approved a budget without future financing measures. This is the first time this has happened in decades and means the budget is balanced, the Treasury said.
Fiscal 2015 will be supported by $270 million in capitalized interest from the March general obligation bond sale, which is 2.8% of the planned $9.565 billion of expenses. Some analysts have said that this means fiscal 2015 budget is not truly balanced.
"We will continue to act with fiscal responsibility and remain committed to stabilizing the government's finances and supporting Puerto Rico's continued economic development," Acosta Febo said.
