Puerto Rico currently expects its central government revenues to come in 25% short of budget in this fiscal year.
Geraldo Portelo Franco, Puerto Rico Fiscal Agency and Financial Advisory Authority executive director, shared the estimate after an Oversight Board meeting Tuesday morning. The government of Gov. Ricardo Rosselló and the board will have to address the shortfall as the government struggles to deal with long-term economic decline and with Hurricane Maria’s impact.
The Rosselló administration will also have to deal with the revenue projection when it creates its proposed five-year fiscal plan to be submitted to the board. The board’s 10-year fiscal plan, adopted in March, provided that Puerto Rico’s public sector would pay 24% of its due debt from fiscal year 2017 to fiscal year 2026.
During Tuesday’s meeting Portelo Franco said Puerto Rico’s government currently projects October as having experienced a 37% revenue shortfall from the budgeted amount.
The Board's executive director, Natalie Jaresko, said she expects the island’s gross national product to decline “significantly” this fiscal year and partly recover in fiscal year 2019. What will happen beyond that remains unclear, she said. She said one academic study shows that the impact of hurricanes can last for 15 years.
Jaresko said instituting structural reforms would be key to the success of turning the island’s economy around. She added, “Even before looking at fiscal measures and structural reforms, the number one critical element today is the federal recovery funds – the speed and the amount – and fact that the federal tax reform does not hurt the Puerto Rican business environment.”
Rosselló has asked the federal government for $94 billion in aid to recover from Hurricane Maria.
After the meeting Jaresko said, “The amount of federal funding for rebuilding and its timing will be critical to determining the economic assumptions, projections and capital expenditure plans that will inform the revised fiscal plan.”
Concerning the federal tax reform bills, a representative of Puerto Rico’s Treasury Department said that both the adopted Senate and House of Representatives bills were bad, but that the House version was worse. The House bill would place a 20% excise tax on goods imported from Puerto Rico into the mainland, treating the U.S. territory as a foreign land.
The Treasury Department official said that if this measure passed, Puerto Rico’s government could lose at least a third of its revenues. This 33% contraction only takes into account the resulting shrinkage of the island’s manufacturing and doesn’t consider the indirect effects.
After the meeting Jaresko said the board and the Rosselló government have been focusing on determining assumptions as they work on putting together a revised fiscal plan. Specifically, she said they are looking at how they think Maria should impact the island government’s revenues. They are discussing fiscal measures for the government and how federal funding will fit into the plan.
Also after the meeting the Rosselló government’s non-voting representative to the board, Christian Sobrino, said his side and the board were trying to reach a common understanding about what to expect from the economy. It is up to the Rosselló government to provide a first draft of the plan.
The board has asked that this draft, along with draft revised fiscal plans from the Puerto Rico Electric Power Authority Puerto Rico Aqueduct and Sewer Authority be submitted to it on Dec. 22.
When Maria hit PREPA had about $1.52 billion in cash, Portela Franco said. This is now rapidly declining and, without any intervention, would be expected to reach negative $224 million on Dec. 29. PRASA is also facing declining reserves, and would be expected to hit negative $1 million on Dec. 29.
Portelo Franco said that the government is trying to speed up the federal disbursement of community disaster loan funds to the authorities to prevent them from running out of money.
Board member José González was absent from the meeting.