Puerto Rico is gearing up to issue approximately $2.55 billion of restructuring and new-money debt before the end of the year amid signs of rising economic activity.
Gov. Luis Fortuño and Government Development Bank for Puerto Rico president Carlos Garcia Thursday told bondholders during an investor conference call that the island will continue to budget conservative revenue projections and strengthen tax collections.
Puerto Rico finished fiscal 2010 on June 30 with $7.69 billion of total revenue, $21 million above budgeted estimates and $18 million more than the year before. The fiscal 2011 budget also reduces the structural deficit to nearly 11% of revenues compared to nearly 46% of revenues collected in fiscal 2009, according to the GDB.
Overall, Puerto Rico has slashed its expenses by $2.12 billion, or 19%, to $9.13 billion in fiscal 2011 from $11.25 billion in fiscal 2009. That decrease is due mostly to a reduction in payroll costs as the administration implemented layoffs and early-retirement incentives.
Fortuño and Garcia are pushing for a credit upgrade or outlook change on Puerto Rico’s $9 billion of outstanding general obligation bonds.
“I am extremely confident [the] fiscal reconstruction progress that we have achieved so far places Puerto Rico in an excellent position to achieve either an upgrade or at least a positive change in outlook,” the governor said during the conference call.
Moody’s Investors Service and Standard & Poor’s rate Puerto Rico A3 and BBB-minus, respectively, with stable outlooks.
Puerto Rico’s upcoming debt issuance for the second half of 2010 includes a $420 million GO restructuring to move debt service costs to future years, a $900 million tax and revenue anticipate note deal, a $150 million Puerto Rico Public Buildings Authority debt restructuring, two qualified school construction bond sales totalling $750 million, and a $330 million GO sale deal that will term out bonds with expiring liquidity facilities.
The transactions are subject to change.
In looking at the fiscal 2011 budget, the $9.13 billion spending plan includes $7.69 billion of base revenue and $442.5 million of new revenue, for a total of $8.13 billion e. Of the $442.5 million, officials expect to increase tax collections by $302.5 million through tougher compliance measures, collect $110 million from a new property-appraisal project, and receive $30 million of additional casino revenue funds. The central government will receive a larger share of casino revenue because the governor abandoned his plan to expand and regulate slot machines on the island.
The commonwealth will use $1 billion of sales-tax bond proceeds for its stabilization fund, which helps close the fiscal 2011 deficit. That amount is down from the $2.5 billion of deficit financing officials budgeted in the fiscal 2010 budget. In the end, the government used $2.14 billion of those bond proceeds in fiscal 2010, according to the GDB. That left $358 million for this year’s $1 billion stabilization fund and also to help support Puerto Rico’s early-retirement program.
Garcia said the $1 billion stabilization fund for the fiscal 2011 budget is ready to go and does not rely upon issuance of another sales-tax bond deal.
“The stabilization fund is already fully funded, partly from the transfer of the excess monies of last year and also from additional monies from the latest [sales-tax bond] offering that was carried out in the month of June,” Garcia told investors. “So, the $1 billion is already available for this current budget.”
He said the fiscal 2011 budget is not dependant upon funds from the Federal Medicaid Assistance Percentages program that Congress has yet to pass.
Officials expect debt service costs to account for nearly 8% of the $9.13 billion fiscal 2011 budget, after the GDB issues the GO and PBA debt restructurings.
Completion of the fiscal 2009 audit is taking longer than expected, Garcia said. The GDB expects to release that audit by Oct. 30 and to release unaudited fiscal 2009 data around Aug. 15.
Along with the $21 million of addition revenue in fiscal 2010, Puerto Rico’s cash balance of $87 million, as of June 30, is $4 million above estimates. The GDB economic activity index rose for the fifth consecutive month to a negative 3% in June from a negative 7.1% in January.
While year-over-year consumption indicators and private-sector employment numbers have increased, the island’s unemployment rate continues to be high, at 16.3% in June, according to preliminary data from the U.S. Bureau of Labor Statistics.
The administration continues to move forward with its public-private partnership initiatives. Officials anticipate releasing on Aug. 26 a request for qualifications for the Luis Muñoz Marin International Airport in San Juan, to enter the facility into a potential P3 agreement. Luis Muñoz Marin is the busiest airport in the Caribbean.
The commonwealth will also release in August several request for proposals for school construction, water and energy projects, and toll road concession agreements.
Officials are also working on a tax-reform initiative that aims to stimulate economic growth, which Garcia anticipates presenting to the Legislature at the end of September. He said the first phase will be revenue-neutral to the government, including an earned-income credit to carry tax-rate reductions and expanded tax brackets to individuals and corporations.
“That will be fully financed by the additional tax-compliance measures and the elimination of subsidies that are not providing economic activity,” Garcia said.