Puerto Rico's revenue remains $320 million shy of meeting projections for the fiscal year, even after May receipts came in ahead of plan.
The commonwealth reported May revenues 4% above the figure budgeted for the month, a $29 million surplus that was dwarfed by April's $442 million shortfall. Through 11 of the fiscal year's 12 months, Puerto Rico's revenues are still 3.8% below projections.
The Puerto Rico Department of the Treasury sent out a statement Tuesday touting May's results and listing measures the government planned to take to cover the expected revenue shortfall. The commonwealth, which issued $3.5 billion of general obligation bonds in March, is under pressure to improve its economy and stabilize government finances after its debt was downgraded to junk level by the three largest rating agencies.
"It now looks like the island faces a $320 million shortfall (depending on June revenues) for which a series of stop-gap, non-recurring measures are proposed," said Robert Donahue, managing director of Municipal Market Advisors. "The short-term benefits each of these measures provide through this year-end compound the island's considerable challenges, especially as leaders work to deliver on the promised balanced budget" for fiscal 2015.
Because of tax increases adopted for this fiscal year, May's collections were 23% above the collections of May 2013, the Treasury Department said. The growth was primarily due to an increase in excise tax revenue on foreign corporations, which increased $104 million from May 2013. These revenues were $43 million above projections for the month.
The other piece of good news in May came from the "other" category of taxes. The category was $47 million more than expectations, an increase mainly attributable to tax revenues from the electronic and traditional lottery.
A shortfall in corporate taxes was primarily to blame for April's revenue shortfall. In May they came in $25 million short of projections, a 24% shortfall.
The Treasury didn't provide an estimate of what the revenue shortfall will be at the end of the fiscal year, June 30, but said the government is considering three options to address an expected shortfall.
First, it may use a $35 million surplus from a 2009 Puerto Rico Sales Tax Financing Corp. (COFINA) bond issue. Second, the Treasury may use other measures it typically uses at the end of the fiscal year to increase collections. Many corporations applied for extensions to pay their taxes due on April 15. This gave them three months. The Treasury may try to advance their payments to before July 1.
Finally, the government is looking at delaying payments that had been expected by the end of June. Among the payments that may be delayed would be $250 million owed to the Government Development Bank of Puerto Rico and a $90 million contribution to the Central Government Employees Retirement Systems Administration.
"We will submit within the next 90 days a bill of law to establish plans for the repayment of pending amounts both to the GDB and the retirement systems administration," said Carlos Rivas, director of the Office of Management and Budget.
The opinion of the Puerto Rico Department of Justice will affect how Puerto Rico addresses the fiscal year's revenue shortfall, the Treasury said.
The Treasury is now considering whether its revenue projections for the coming fiscal year should be altered based on the current fiscal year, said Melba Acosta Febo, the treasury secretary. It is consulting with outside economists on this.
Finally, Acosta Febo said that a group's work to formulate a reform of the commonwealth's tax structure is advancing.
The Governor's Advisory Group working on this issue has hired consultants from KPMG to aid them. The group is focusing on possible reforms to individual and corporate income taxes, consumer tax systems like the sales and use tax and excise taxes, and property taxes.
The group's recommendations should be available by the end of this calendar year, the Treasury said. The government expects to incorporate their recommendations in the fiscal year 2015-2016 budget.
"It is positive that Puerto Rico's revenues beat estimates, albeit by only 3.8%, after April's corporate income-attributed decline," Municipal Market Advisors' Donahue said.
Acosta Febo fails to say in the Treasury's press release whether she expects Puerto Rico to ever recoup April's $442 million revenue miss, Donahue added.
