The Puerto Rico House of Representatives is expected to pass a balanced budget Monday.
The House will pass a budget including $675 million in cuts in government spending to provide space for spending increases on debt service and pensions, House sources said.
Puerto Rico's passage of a balanced budget for fiscal year 2016 would be important to achieve many of its goals. Since investors have lost interest in financing Puerto Rico's deficits, it would be a step to allowing the commonwealth government to fully operate all 12 months without outside help.
The government will still need to borrow short-term at the start of the fiscal year because most of its revenues come in late in the fiscal year. But the passage of a balanced budget that covers debt service and increases spending on pensions would make gaining this short-term financing easier.
Passage of a balanced budget could improve the likelihood of success of all of Puerto Rico's borrowing efforts. On April 24 Standard & Poor's analysts David Hitchcock and Horacio Aldrete-Sanchez wrote, "We believe that passage of a structurally balanced budget by July 1 may improve the odds of accessing the private debt markets to improve liquidity."
Similarly, on May 21 Moody's Investors Service analysts Ted Hampton and Emily Raimes wrote that one factor that could lead to an upgrade of Moody's Caa2 rating of Puerto Rico's general obligation debt would be, "enactment of a sustainable fiscal plan that moves toward structural balance while meeting financial obligations."
The House version of the budget made significant changes to Gov. Alejandro García Padilla's proposed budget, while retaining the same amount of spending cuts.
The budget wouldn't depend on long-term borrowing. Nonprofit organizations' receipts from the budget are at least 90% of what they received in the current year's budget, a House source said.
In other revenue news, Puerto Rico Secretary of the Treasury Juan Zaragoza told the Puerto Rico Senate Treasury Committee Thursday that he was in favor of the creation of an Office of Internal Revenue. Zaragoza said the office would focus on the reduction of tax evasion and should be within his Treasury Department.
Zaragoza said of 2.5 million individual and corporate tax returns submitted each year, just 1,000 are audited. In recent months he has said that 25% of all taxes legally due to the Puerto Rico Treasury are not paid.
The Treasury hired auditors from July 2013 to January 2014. However, Zaragoza told The Bond Buyer, "We hired around 150 people but have not been able to retain then due to low compensation. Right now we still have like 50% of them. We are currently planning to hire additional people and to move people around to strengthen the tax audit division."
Puerto Rico has been seeking to get its economy to start expanding again, partly to generate government revenue to cover various needs. The Bureau of Labor Statistics released labor market data Friday that showed the economy slowing slightly.
The unemployment rate rose to 12.4% in May from 12.2% in April. It was still below the 13.6% rate of May 2014 and the 13.7% rate of December 2014.
The bureau's household survey showed total employment down in May by 0.3% compared to April but up 0.9% from May 2014.
The bureau's establishment survey showed small declines. According to this survey, total nonfarm employment in May was down 0.4% from April and 0.8% from May 2014. Total nonfarm private sector employment fell 0.5% from April and 0.2% from May 2014.
All the labor market statistics are seasonally adjusted.
