Puerto Rico's Legislature late Monday evening passed a $9.48 billion fiscal 2009 budget that includes the creation of a new fund for direct investment - a plan that could bring in $575 million of funds to help fill a $1 billion deficit in the budget.
The House and Senate Monday also passed a $250 million general obligation bond bill for fiscal 2008, which ended June 30. In addition, officials anticipate refunding previous debt to generate savings that will then be used to meet a $175 million annual payment to the Government Development Bank for Puerto Rico for past Public Improvement Fund loans totalling $1.2 billion that the bank extended to the central government.
Both the $9.48 billion fiscal 2009 budget and the $250 million bond bill have yet to reach Gov. Anibal Acevedo Vila's desk. If the governor, a member of the Popular Democratic Party, does not sign the fiscal 2009 plan or vetoes it, the fiscal 2008 budget - which is $260 million less at $9.22 billion - would then automatically become law.
PDP member and House Minority Leader Hector Ferrer said he anticipates the governor will approve both the $250 million bond bill and the fiscal 2009 budget, although with minor changes to the operating budget.
"I think he will sign it." Ferrer said. "He'll veto-line a few things, but he'll sign it."
In mid-March, Acevedo Vila filed a $9.48 billion fiscal 2009 plan that included a $1 billion deficit. To help fill that gap, the governor proposed selling $500 million of long-term tax-exempt bonds secured by unpaid tax receivables of roughly $2.9 billion that the government anticipates gaining via an improved collection system. The remaining $500 million would have come from the governor's proposal to enter the island's lottery system into a long-term lease agreement, a plan that did not gain support in the Legislature, which is controlled by the New Progressive Party.
Instead, legislators crafted a budget initiative that includes allowing direct investment into the $2.9 billion fund of delinquent tax receipts, a move that could generate $575 million of funds that officials will apply towards the $1 billion deficit.
The remaining $425 million may come from selling sales-tax bonds of an equal amount, although Senate President Kenneth McClintock said he believes the yet-to-be-created fund could see enough investor interest to bring in even more than $575 million of needed revenue if the upcoming gubernatorial election in November gives the island a governor and a Legislature of the same political party. Many anticipate that NPP member and current Resident Commissioner, Luis Fortuno will defeat Acevedo Vila and that the NPP party will maintain its control in the Legislature.
The current administration "seems to be eager to issue bonds, but then again if election day comes around and we have a change in government, we may have a lot more people wanting to invest directly," McClintock said. "Everybody takes it for granted that if and when Fortuno wins, they'll be an added interest in investing in Puerto Rico because then they would see the light at the end of the tunnel, which they don't see now."
Along with the $9.48 billion fiscal 2009 budget, lawmakers approved a $250 million fiscal 2008 bond bill to support public infrastructure projects throughout the island. That borrowing plan stalled in the House as legislators debated whether to cut the governor's proposed bond bill by $175 million.
Typically, Puerto Rico includes $175 million of GO debt in its annual bond bill to pay a yearly loan to the GDB. Instead, NPP House members proposed using revenues derived from a one-time tax measure to meet the $175 million payment, an initiative that Acevedo Vila vetoed last month. Now, officials anticipate refunding previous debt to generate savings of roughly $250 million that will then be used to cover the $175 million annual payment to the GDB.
"They passed another bill in order for the government to refinance interest on other bonds and they expect to get from that around $200 million to $250 million," Ferrer said.
In a separate matter, the Senate did not take up by the end of the regular session, which ended on Monday evening, Acevedo Vila's proposal to decrease the island's sales tax to 2.5% from 7% and implement a revamped 6% excise tax. Of the 7% sales tax, 1% backs $2.6 billion of sales-tax bonds. The governor could ask lawmakers to address the issue when Acevedo Vila calls for an anticipated special legislative session, yet McClintock said a change to the sales tax would not happen.
"He will call a special season," McClintock said. "But if he includes that in the agenda of a special session, we would not even take a look at it."