Puerto Rico’s July General Fund revenues were 18% higher than forecast, giving the bankrupt commonwealth government a strong first month of its fiscal year.
The month’s net revenues were $1.046 billion, which was $159 million more than forecast in the fiscal 2020 budget approved by the Oversight Board and $305 million more than the July 2018 total.
Revenue beating forecasts may raise hopes for greater recoveries on bonds being restructured under the Puerto Rico Oversight, Management, and Economic Stability Act. The jump in revenue may prove to be temporary, said Howard Cure, director of municipal bond research at Evercore Wealth Management LLC.
“While I recognize the overall revenue growth," Cure said, "I don’t know how much is attributed to rebuilding efforts from hurricanes Irma and Maria versus general economic growth tied to an expanding U.S. economy and will that hurricane-related growth subside once construction is completed?”
The categories with the biggest revenue hauls were the foreign excise tax (Act 154) with $383 million, corporate income taxes with $256 million, and individual income taxes with $143 million.
The Act 154 revenues were 53% greater than the July 2018 total and 10% more than projected.
Last week U.S. Treasury Secretary Steven Mnuchin told Puerto Rico Gov. Wanda Vázquez that he planned to withdraw a federal credit supporting the Act 154 foreign excise tax. He didn’t provide a timeline as to when he would withdraw it.
“I don’t know the vulnerability to Act 154 receipts" — 18% of revenue in the preceding fiscal year — "and the need for U.S. federal government approval for continuation," Cure said. "90% of these revenues are paid by 10 corporations, so there is an inherent vulnerability on that level due to the concentration. Can Puerto Rico substitute an income tax on foreign corporate subsidiaries for Act 154 receipts that will still generate sufficient commonwealth tax receipts while still maintaining the tax advantages for these corporations?”
Corporate income taxes grew even more than Act 154 receipts, exceeding the July 2018 sum by 186% or $166 million. This type of revenue was up 66% over projections.
Individual income taxes were also up but not by as dramatic percentages as the others. They were 10% above the July 2018 total and 6% higher than the projection.
The July results continued the strong results from the fiscal year that ended June 30, 2019, when Puerto Rico’s General Fund enjoyed revenues 34% higher than had been originally projected.
