Puerto Rico officials are moving forward with plans to find an additional $800 million of savings by reorganizing government agencies and bolstering Treasury Department collections, officials announced Friday during an investor conference call.
Puerto Rico’s goal is to reduce overall spending by $2 billion in order to end its structural imbalance by fiscal 2013.
Officials calculate that the commonwealth will achieve $1.2 billion of savings through a government workforce reduction of about 20,000, and earlier initiatives that cut spending by 10% across the board, among other belt-tightening measures.
That leaves roughly $800 million that the Government Bank for Puerto Rico, the island’s financial adviser, said can be achieved through reducing certain service contracts by 15%, consolidating offices and eliminating service redundancies, and most importantly, expanding the Treasury Department to improve its collection and auditing system to bring more revenue into the island’s coffers.
Assistant treasury secretary Pablo Hymovitz said the tax collection department will grow by 225 collection officers that will focus on obtaining delinquent tax revenue. It will also improve collections via an expanded call center that will help residents with payment plans.
“This is going to increase our presence and this is going to increase our collection activities,” Hymovitz said during Friday’s call with the GDB. “And this is really going to let people know that our tax system is no longer on autopilot. We’re going to have people that are going to make those individuals that don’t pay their taxes be accountable for their activities.”
A total of 500 qualified government employees who received layoff notices earlier this month will transfer over to the Treasury Department. GDB’s president and chairman, Carlos Garcia, said that many of the nearly 17,000 layoffs will begin on Nov. 6,
while certain positions will terminate by Jan. 8.
The GDB continues to work on an upcoming $1 billion sales-tax bond sale, but Garcia did not pinpint during the investor call when Puerto Rico might sell the debt. The proceeds will help finance the $2.5 billion fiscal stabilization plan.
“We’re looking at the market, and depending on market conditions, we will determine when will be the appropriate time,” Garcia said.
First Bank earlier this year extended a $500 million line of credit to the Puerto Rico Sales Tax Financing Corp. The agency can also tap into GDB’s line of credit if need be.
In addition, the GDB said it is in the process of finalizing a debt restructuring plan that would offer debt-service savings in fiscal 2010 and will head to the market with that transaction soon. The bank is also working on about $750 million of qualified school construction bonds offered through the U.S. American Recovery and Reinvestment Act that it anticipates pricing next year.
“We are now in the process of identifying the particular projects that would be eligible for that program so ... we anticipate that this should happen sometime next year,” said Fernando Batlle, GDB’s executive vice president of financing and treasury.
Garcia said early revenue collections are on target with budgeted projections. Combined collections for July and August total $1.03 billion, about $39 million above earlier estimates, and the sales tax is performing similar to last year’s collections, he said.
To give investors and bondholders more insight into Puerto Rico’s economic condition, Garcia said the GDB will begin posting quarterly cash-flow reports, and will publish every month an economic activity index.
That index will be calculated from four sources: salaried employment, cement sales, energy sales, and gas consumption. Those four components have a 98% correlation with Puerto Rico’s gross national product, Garcia said.
The bank is also working on a consumer confidence index that follows methodology of the University of Michigan.
