Puerto Rico Gov. Anibal Acevedo Vila is considering, but has not endorsed, a measure that would cut the island's fiscal 2008 general obligation bond bill by $175 million.
The Senate passed the initiative yesterday in a 18-to-8 vote after House members approved the bill on Monday evening. The measure requires the executive branch to tap into $240 million of revenues to pay the Government Development Bank for Puerto Rico, the island's financing arm, an annual payment of $175 million as opposed to using bond proceeds from the current year's GO borrowing plan.
If Acevedo Vila, a member of the Popular Democratic Party, signs the initiative into law, it would cut the fiscal 2008 bond bill to $250 million from $425 million as the government would not need to borrow $175 million to meet its obligation to the GDB. Speaker of the House Jose Aponte filed the measure earlier this month and the initiative quickly gained support in both chambers, which are controlled by the New Progressive Party.
"We just approved [Aponte's] bill in the Senate, so as soon as [today] that bill will be going to the governor's office for his signature," Senate President Kenneth McClintock said. "And that initiative guarantees that the payment is being made with real money and that we're not taking out a loan to pay a loan. So it's the most responsible way to deal with this."
The central government currently owes the GDB more than $1.15 billion of public improvements fund debt, including loans the bank extended to the commonwealth to help balance previous budgets. In the spring of 2006, officials ended the practice of using GDB funds to fill budget deficits and established a payment plan whereby the government would pay the bank $175 million annually towards the debt.
Now the Legislature would like the commonwealth to make its 2008 payment to the GDB from revenues derived from a one-time, 5% flat tax on retirement fund withdrawals, a move that generated more than $240 million. Yet the administration has said it would like to use those funds to help balance the current budget.
Acevedo Vila has yet to embrace the strategy of paying the GDB from cash instead of bond proceeds. Last week, his spokeswoman, Juanita Columbani, said via e-mail that the governor "would not comment on speculations."
McClintock said he doubted the Legislature would have enough votes to override a potential veto of the bill. The governor has 10 days to sign the proposed law.
"We lack one vote in the Senate and two votes in the House on the majority side to have the capacity to override," McClintock said. "In the history of Puerto Rico, we've only overridden one joint resolution and one bill and both were in this term."
McClintock said he expects the Senate to pass the proposed tax incentive bill today, placing another bill onto the governor's desk. The incentive bill would give companies that invest in energy, technology, or research and development a corporate income tax rate of 4%, down from 8%. Last week, the governor's chief of staff, Jorge Silva Puras, told Caribbean Business that Acevedo Vila would sign the tax incentive measure into law.
Along with the tax incentive measure and the $175 million GDB payment issue, lawmakers have been working on two proposals the governor included in his $9.48 billion 2009 budget, submitted to the Legislature in mid-March. Those initiatives include privatizing the island's lottery and leveraging tax receivables, each generating roughly $500 million of revenue to help balance the budget for the next fiscal year, which begins July 1.
Lawmakers say that while the proposal to sell $500 million of bonds backed by delinquent tax receipts of potentially $2.9 billion may pass through the Legislature, the governor's long-term lease proposal for the lottery - a concession that could generate $3 billion - has yet to gain widespread support.
"I don't think they're going to approve the lottery bill," said House Minority Leader Hector Ferrer, a PDP member. "And so they're going to have a shortage of over $500 million in the budget for fiscal 2009."