Bonds

Puerto Rico Q1 revenues 19.7% above projections

Preliminary Puerto Rico net general fund revenues for the first quarter of fiscal 2024 were 19.7% above Oversight Board projections.

Net general fund revenues for July, came in 17.4% above board projections and 16.2% over the collections for July 2022. July net income was $811 million, $121 million more than the board projected. 

Puerto Rico Secretary of the Treasury Francisco Parés Alicea announced the results Wednesday.

Puerto Rico Secretary of the Treasury Francisco Parés Alicea said revenues continue to be greater than expenditures.

Preliminary net revenue for July through September was $2.689 billion.

Calling the results “positive indicators” for fiscal 2024, Parés Alicea said, “Revenues continue to be greater than expenditures and we anticipate that the government’s finances will continue to be stable with a healthy cash flow.”

The board is projecting a 7.7% revenue decrease this fiscal year, which began on July 1, compared to last, if counting the same revenue streams as in past years. For fiscal years 2025 to 2028, the board projects an average annual decrease of 0.4% in revenue.

Starting this fiscal year, income from excise taxes on petroleum fuel products, vehicle license fees, and certain other deposits — which had been attributed to other funds in prior years — will be credited to the general fund.

The board projected these revenue streams will add $731 million in revenue this fiscal year. Still, the board projects a 2% decline in revenue from fiscal 2023.

July’s revenue of $811 million compared to the $698 million collected in July 2022. The categories with the biggest collections were corporate income taxes ($165 million), individual income taxes ($164 million), and the sales and use tax ($128 million).

The categories that exceeded Oversight Board’s projections the most were corporate income taxes ($59 million), motor vehicles ($28 million), and taxes on non-residents ($15 million).

The increase in corporate income taxes was almost entirely due to the passage of Law 52-2022, which replaced the Law 154 excise tax on foreign corporations. Of the $59.3 million exceedance for corporate income taxes, Law 52’s contribution was $57.4 million.

The government stopped collecting the Law 154 excise tax in January 2023.

Parés Alicea noted Puerto Rico’s Planning Board is projecting substantially higher nominal economic growth over the next 10 years than the Oversight Board.

In mid-September the Planning Board projected annual growth of 4.63% from fiscal 2024 to fiscal 2033, while the Oversight Board projects an average 1.62% annual nominal growth rate. Inflation-adjusted growth during the period would be lower.

Neither the Planning Board nor the Oversight Board responded to a request for a comment on the divergency.

Puerto Rico Clearinghouse Principal Cate Long said the Oversight Board “has intentionally, in my view, misrepresented projected economic activity and government revenues to show a lower capacity to repay PREPA’s bondholders.”

Oversight Board projections suggest declining economic activity, she said, although most of federal recovery money — from Hurricane Maria (which hit 2017) — has yet to be spent.

Board projections have “substantially underestimated” the island’s economic performance, she charged. “One has to ask if the missed projections are intentional to increase creditor haircuts.”

The projections will be revised “if appropriate,” Puerto Rico Oversight Board Spokesman Matthias Rieker said. He added, 2023 revenue came in below projections, and declined from the prior year.

“Puerto Rico’s current economic and fiscal recovery is fueled by federal stimulus funding, masking persisting long-term weaknesses,” Rieker said. “Our analysis does not point to sustainable economic growth without these funds.”

When asked, Rieker said he was using the April 2023 revised projection of $12.775 billion, not the January 2022 estimate of $11.146 billion in revenue.

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