Puerto Rico Governor Signs Oil Tax Rise Bill
Puerto Rico Gov. Alejandro García Padilla signed a bill that will raise oil taxes by 68% to provide support to the Puerto Rico Highways and Transportation Authority and the Government Development Bank for Puerto Rico.
In early December Puerto Rico's House and Senate passed the bill increasing the oil tax to $15.50 a barrel from $9.25 to provide liquidity to the GDB. The bill specifies that the Puerto Rico Infrastructure and Finance Authority should sell bonds and use the proceeds to, among other things, pay the HTA's $2.2 billion debt to the GDB.
The bill specifies that PRIFA sell as much as $2.9 billion of bonds.
While the governor supported the oil tax hike and the proposed bond from the beginning, the Senate had added some provisions that the governor objected to. Since the legislature approved the bill, the governor has been discussing with legislators the possibility of making changes, according to a source close to the governor.
On Thursday afternoon the governor said he planned to send several bills to the legislature to improve the oil tax rise bill, House Bill 2212, and "ensure access to the markets," according to a written statement from the governor's office.
Less than two hours later the governor's office released the text of a bill to amend the oil tax rise bill.
The amendment says the bond should not to be larger than $2.95 billion and not to have a term longer than 30 years. It should have a coupon no higher than 8.5% and a price no lower than 93 cents on the dollar.
The Commonwealth of Puerto Rico would guarantee the bond. If revenues from the oil tax were ever to be inadequate to pay principal and interest payments, the Puerto Rico Treasury would provide money to pay these things.
The oil tax level is to be adjusted every four years for inflation plus an annual 2.5% surcharge, both of these compounded annually. The first adjustment would take place on Sept. 1, 2017. In no cases would the adjustment be less than 0%.
There would be no inflation and surcharge adjustment if the tax brought in an average of $450 million or more in the previous two fiscal years.
The act does not affect diesel oil, which is already taxed at a different rate.
The amendment has 28 sponsors from members in the Puerto Rico House of Representatives, enough to pass it in this body of 51 legislators. The Senate will also have to pass it before the governor has the right to sign it into law.
"My administration is interested in achieving the best compromise that allows us to continue on the path of fiscal responsibility and economic recovery," García Padilla said. "We will continue to work together to find the best solution to the challenges we face."