Fiscal board: Bill to expand tax-free holiday lacks alternative revenue source

The Financial Oversight and Management Board says the idea of significantly lengthening the island’s back‑to‑school tax‑free periods may be popular with parents but comes with a price the government has not budgeted for.

By THE STAR STAFF

The Financial Oversight and Management Board is asking Gov. Jenniffer González Colón to halt a bill that would significantly lengthen the island’s back‑to‑school tax‑free periods, warning that the proposal would strain government finances and violate federal fiscal rules.

House Bill (HB) 272, approved by lawmakers late last month, seeks to stretch each of the two annual tax‑free weekends for school supplies into full seven‑day events. The holidays, held in January and July, currently last two days. The change would allow families to buy items such as notebooks, pencils, and uniforms without paying sales tax for nearly two weeks each year.

The oversight board says the idea may be popular with parents but comes with a price the government has not budgeted for. In a letter dated July 13  to the governor, the board estimated the longer holidays would cut about $3.4 million from government and municipal revenues every year. Over five years, the loss would reach nearly $17 million.

According to the oversight board, the problem isn’t just the cost -- it’s that the bill doesn’t identify how the government would make up for the missing revenue. Under Puerto Rico’s certified Fiscal Plan and the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), any tax break must be paired with savings or new income to keep the budget balanced. HB 272 does not include those offsets.

The board also noted that Puerto Rico’s new budget for fiscal year 2027 was recently certified, and the bill was not factored into those calculations. Adding an unfunded measure now, it said, could jeopardize the island’s requirement to maintain a balanced budget.

The letter pointed to recent one‑time relief efforts, including a $554 million allocation for economic assistance to about one million households, as evidence of the government’s limited capacity to absorb additional recurring costs. While the oversight board acknowledged the intent to help families, it warned that expanding tax holidays without a long‑term plan could undermine Puerto Rico’s financial recovery.

The board further cautioned that implementing the bill would likely require a reprogramming of funds -- something that cannot happen without its approval under PROMESA. Because no request has been submitted, the board said signing the bill as written would violate federal law.

It urged the governor to work with lawmakers to identify recurring funding sources before moving forward and asked for assurances that the government would not implement the measure until it is reviewed for compliance. The oversight board also reserved the right to take legal action to block the bill if necessary.