Puerto Rico fiscal year 2020 general fund revenues came in 10.7% short of a May 9, 2019, projection but 3.1% ahead of a May 27, 2020, projection.
The Puerto Rico Treasury reported the results Wednesday. The Puerto Rico Oversight Board says it never made the May 27, 2020 projection ascribed to it.
While the January earthquakes hurt collections, the governor’s order to close much of the economy from March to the present was a bigger factor, said Puerto Rico Secretary of the Treasury Francisco Parés Alicea. The secretary said the closure order had cost collections more than $1 billion.
The Treasury estimated total net fiscal year 2020 general fund revenues to have come in at $9.285 billion. On May 9, 2019, the Puerto Rico Oversight Board projected net revenues would be $10.405 billion.
On Wednesday the Puerto Rico Treasury said on May 27, 2020, the board approved a new fiscal plan projecting general fund revenues of $9.012 billion. The board said this isn't the case.
Fiscal year 2020 ran from July 1, 2019, to June 30, 2020.
In order to mitigate the impact of the COVID-19-related economic contraction, the Treasury allowed for sales tax exemptions on prepared foods, basic hygiene goods, and imported merchandise being resold. The Treasury also allowed deferrals on most other tax rates. Parés Alicea said the measures amounted to over $750 million in relief for businesses and taxpayers.
Despite this, “we met our fiscal objectives, exceeded the board’s expectation, which is why we feel very pleased and satisfied,” Parés Alicea said.
From July through January Puerto Rico’s general fund was running 13% ahead of expectations. Revenue came in $838 million or 16.4% ahead of the collections compared to the same months a year earlier.
However, from February through June revenues came in 35% below the May 9, 2019, forecast.
For the fiscal year only the Law 154 excise tax on foreign corporations and motor vehicle tax came in positive compared to the May 9, 2020, projections and these did so only barely.
In dollar terms the biggest shortfalls were for the sales and use tax ($552 million), tax on non-residents ($274 million), and rum tax ($196 million).
On Wednesday evening the Puerto Rico Oversight Board released a statement saying that the Puerto Rico Treasury’s comparison of fiscal year 2020’s revenues with the board’s May 27, 2020’s fiscal plan projections was incorrect.
While the Treasury said that the May 27, 2020 fiscal plan projected revenues would be $9.012 billion, this number isn’t found in the plan. The Treasury arrived at it by what the board spokesman said was subtracting a figure based on incorrect assumptions.
Using the board’s approach, the actual collections for fiscal year 2020 won’t be known for a few months.
The board’s written statement was: “The Puerto Rico Treasury Department (Hacienda) today reported total cash revenue of $9.3 billion for the government’s General Fund in fiscal year 2020 that ended on June 30, 2020. That revenue was not calculated in accordance with modified accrual accounting standards, as required by [the Puerto Rico Oversight, Management, and Economic Stability Act], because it excludes tax payments for fiscal year 2020 that had not been accounted for by June 30. Hacienda’s reported revenue can therefore not be compared to any revenue projection in the certified fiscal plan, which is based on those modified accrual accounting standards."
The board continued: “The certified fiscal plan (exhibit 15) projects General Fund revenue to come in at $9.6 billion (net of Earned Income Tax Credit expenses), including about $600 million of tax revenues that the Oversight Board projected are deferred because the Government will collect income taxes later than usual due to the COVID-19 pandemic. Such deferred tax revenue will be booked in fiscal year 2020 even if the government collects the taxes in fiscal year 2021.
“Therefore, the government’s report of $9.3 billion in revenue is incomplete until all deferred taxes for fiscal year 2020 have been booked,” the board said. “Hacienda’s comparison of June 30 cash revenue to the certified fiscal plan’s projection of revenue that are made under different accounting standards is misleading.”
Puerto Rico Treasury spokespeople didn’t immediately respond to the board’s statement.
