Puerto Rico officials last week affirmed its estimate that the commonwealth will generate $7.67 billion of tax revenue in fiscal 2010, while at the same time its Planning Board projects the local economy will contract by 3.6% this year.
The Government Development Bank for Puerto Rico last week released its January revenue collection results. While year-to-date revenues are $33 million below budgeted estimates, the administration is confident Puerto Rico will meet its budgeted revenue projection of $7.67 billion by the end of the fiscal year. The GDB is Puerto Rico’s financing arm.
“The secretary of the treasury reaffirms [its] estimate of $7.67 billion in tax revenues for the current fiscal year based on estimated collections for the last four months,” according to GDB revenue documents.
July through January tax revenues total $4 billion. While year-to-date individual tax receipts and sales tax revenue were $42 million and $55 million below prior estimates, corporate tax collections and non-resident withholdings came in $27 million and $25 million above budgeted figures.
Gov. Luis Fortuño crafted the fiscal 2010 budget with the assumption Puerto Rico would experience a modest 0.1% real economic growth in fiscal 2010. The Planning Board, which assesses economic growth on the island, expects a contraction of 3.6% in fiscal 2010, according to spokesman Tulio Endi. The board also released its fiscal 2011 growth estimate of 0.4%.
Still, the GDB anticipates reaching the $7.67 billion target as certain federal stimulus funds from the American Recovery and Reinvestment Act that have been delayed are set to be allocated before June 30 and officials expect better tax compliance through enhanced collections will help boost revenue performance. In addition, automobile sales on the island have increased every month since October and property-tax receipts have been performing stronger than anticipated.
“It’s a combination of two factors,” said Fernando Batlle, executive vice president of financing and treasury at the GDB. “It is the improvement of the compliance initiatives in the collections together with the fact that based on tendencies seen after January, we feel comfortable that we’re going to reach the number.”
Sergio Marxuach, policy director at the Center for the New Economy, a nonpartisan, fiscal think tank in San Juan, believes the $7.67 billion revenue projection is “aggressive.” In addition, Marxuach said it is difficult to calculate how fiscal 2010 revenues will perform absent up-to-date gross domestic product figures that are forthcoming from the Planning Board.
“I think that’s aggressive,” Marxuach said. “I would like to see the [gross domestic product] growth numbers to be sure, but it certainly seems to me to be aggressive.”
In addition to Puerto Rico’s GDP estimates, Marxuach said its most recent GDB economic activity index, which calculates payroll figures, cement sales, gasoline consumption, and electric power use, would also serve as a predictor of whether or not the commonwealth will reach its $7.67 billion revenue target.
The GDB EAI was 131.3 in December, compared to 132.9 the month before. The GDB anticipates releasing the data for January today.
“I would like to see at least how they index for the economic activities for January in order to get a better sense of how the economy’s doing because I think that’s going to be the most important driver for tax revenues — how fast or slow is our economy growing — and until we get some data, it’s hard to make an analysis of these numbers.”
The governor will release his fiscal 2011 budget in April or May. The administration anticipates next year’s revenue collections will total $7.8 billion to $8 billion.
Marxuach is more optimistic about fiscal 2011 than the remainder of fiscal 2010, as the government expects to complete its expense reductions this year.
“In the next fiscal year, you will not have the government cutting on the one hand and then trying to stimulate the economy on the other with the federal money, which is what happened during this fiscal year,” he said.
“For the next fiscal year, I would expect that the federal stimulus money will be a net positive and that should have some positive impact on the economy towards the end of this calendar year,” he said. “If that happens, we could expect perhaps to see some positive numbers in terms of economic indicators, but between now and July, I don’t see any positive news, to be honest, or I haven’t seen anything yet.”