After Puerto Rico's House of Representatives rejected a value added tax that would have brought in hundreds of millions of dollars more in the coming fiscal year, Puerto Rico Gov. Alejandro García Padilla is planning a 10.4% cut in spending in the coming year's budget.
Puerto Rico's current fiscal year budget is for $9.56 billion in spending. Puerto Rico Treasury Secretary Juan Zaragoza Gomez told The Bond Buyer that the government expects next fiscal year's budget will be $8.6 billion. This sum is equal to the recurring portion of the current fiscal year's revenue, he said.
The governor is seeking to have a balanced budget in place by the start of the next fiscal year, July 1.
The current budget benefits from $344 million in capitalized interest from Puerto Rico's March 2014 general obligation bond sale. This bond left $75 million in capitalized interest for fiscal year 2016, which starts July 1.
Through the end of March this year's tax collections were $153 million short of projections. Zaragoza Gomez has said that he expects April's collections to come in $100 million to $200 million under budget.
A final factor explaining the comparatively smaller revenue projection for the coming fiscal year is that the current fiscal year's revenues will benefit from several preferential rate and tax amnesty measures, Zaragoza Gomez said.
The Puerto Rico constitution guarantees debt service. In the coming fiscal year General Fund debt service is scheduled to rise by as much as $325 million or 26%. This includes both general obligation and appropriation debt.
Treasury officials have also said that more money is needed for the pension system. If the government allots increased money for pension and debt, it would have to cut discretionary spending by significantly more than the planned 10.4% to achieve a balanced budget.
The governor plans to propose a budget in around two weeks, a professional in the governor's office said. García Padilla and chief of staff Victor Suárez Meléndez are meeting with department heads now to talk about the budget. The governor has said he would try not to cut security, health, and education but that everything else is on the table.
There have been conflicting reports as to whether the government is exploring new taxes or additional tax revenues for the coming fiscal year.
