Puerto Rico is 7% ahead of cash forecasts as April revenues come in strong
Puerto Rico’s cash position as of May 4 was 7% ahead of its July 2017 forecasts, as April revenues came in 18% stronger than projected.
Despite the impact of Hurricane Maria on Puerto Rico’s economy in the fall, Puerto Rico government’s central bank account, the Treasury Singular Account, held $2.65 billion on May 4. This was $211 million more than the government had anticipated in early July 2017. The Puerto Rico Fiscal Agency and Financial Advisory Authority posted the information to the Electronic Municipal Market Access web site on Wednesday.
Also on Wednesday the Puerto Rico Treasury released information about the General Fund through the end of April that showed that revenues in the first 10 months of the fiscal year fell just 2.2% shy of projections made at the start of the fiscal year on July 1, 2017.
The strength of the island-government’s cash position and revenues “doesn’t come as any surprise to the creditors,” said Rafael Rojo, chairman of the board at Bonistas del Patio, a group of Puerto Rico based bondholders. “The revenues have been surpassing projections.”
This proof of the island’s liquidity won’t help Puerto Rico’s government in the court cases on its debt, Rojo said.
Through the end of April, island-based corporation income tax revenues were $190.5 million (15.5%) above projections, while the Law 154 tax on foreign-based income tax revenues were $173.1 million (10.5%) below projections.
The Law 154 tax was the second-biggest source of revenues in the first 10 months at $1.47 billion. The biggest source was individual income taxes, which came in at $1.65 billion, or 4.3% above expectations.
April revenues totaled $1.42 billion, the strongest for that month in the history of Puerto Rico’s General Fund. April has historically been the month with the biggest revenue draw in Puerto Rico. The April revenue figure was 18.3% above projection.
In dollar terms, the biggest exceedances for the month were for local corporations ($142 million), non-resident withholding ($28.2 million), and individual income taxes ($28 million). The month’s biggest percentage exceedances were 84.9% for non-resident withholding, 67.4% more for the motor vehicle tax, and 41.8% for local corporations.
April’s General Fund collection increased 15.7% from the same month last year.
Puerto Rico’s Treasury Singular Account would have had an additional $151 million if this amount was not outstanding in a loan to the Puerto Rico Electric Power Authority.
Among the threats Puerto Rico identified to its cash reserves in the next few months are a possible loan to the Puerto Rico Aqueduct and Sewer Authority and un-budgeted spending to address hurricane-related damage.
Puerto Rico said its cash reserve position may be stronger in the next few months because the federal government has approved additional Medicaid funding for March through June 2018. In the original Puerto Rico budget, the island government anticipated having to cover $448 million in Medicaid costs in that period.
In the most recent economic activity index release, that for March, the index was down 2.6% from a year earlier. However, this was a rebound from the 19.7% decline in November 2017 from November 2016.
Rojo said many local bondholders have sold their Puerto Rico bonds at large discounts. This ongoing process creates a long-term loss for the economy.
The certification of a deal for the Government Development Bank for Puerto Rico bonds, many of which had already been sold by locals to outsiders at discounts greater than that found in the deal, have meant that former local holders lost more than they needed.
Rojo said the lack of long-term certainty concerning the resolution of the debt situation hurts business investment.