By The Star Staff
The Financial Oversight and Management Board on Wednesday issued a financial report in which it provided an analysis of Puerto Rico’s fiscal situation in the first quarter of the current fiscal year 2024 and potential risks to the financial projections in the Fiscal Plan for Puerto Rico.
The report is the first in a new series of updates on Puerto Rico’s financial performance and includes a detailed outline of the Treasury Single Account (TSA), the commonwealth’s main operating account, and its restricted and committed funds.
“The report for the first quarter shows that Puerto Rico’s revenues are higher than previously forecasted, mainly because of higher income tax collections. There are, however, significant pressures on Puerto Rico’s fiscal stability. Puerto Rico faces significant potential financial obligations the Governor and the Legislature must consider when deciding on any initiatives which impact the financial plan,” said Robert F. Mujica, the oversight board’s executive director. “Pressures to increase spending while also reducing taxes contributed to the current fiscal crisis.”
“One-time Federal government emergency and stimulus funds continue to impact the economy temporarily,” Mujica noted. “Taking on additional expenditures or reducing revenue without a sustainable recurring funding source could create a budget imbalance. All risks and Government priorities must be balanced against resources not just today, but over a multi-year planning period.”
Mujica said significant potential future spending obligations include: increased funding for health care; uncertain long-term Medicaid federal funding levels; potential new recurring expenditures currently paid with one-time federal funds, including salary increases for teachers; replacement of non-recurring federal aid currently used to support regular spending; reductions in revenues without commensurate budget actions; potential additional commonwealth contributions to fund disaster relief projects; funding significant capital investments without adequate access to capital markets; and recent spending bills approved by the Legislature.
Those risks will be further evaluated in the regular 2024 revisions to the Fiscal Plan, he said.
General Fund revenues exceeded forecast in the past fiscal year 2023, which ended on June 30. Still, they decreased year over year relative to fiscal year 2022.
In the first quarter of the current fiscal year 2024, General Fund revenue collections were $207 million higher than in the same period a year earlier, and $212 million higher than projected, driven primarily by strong collections of income taxes and motor vehicle taxes.
The characteristics of its tax base challenge the stability and predictability of revenue collections in Puerto Rico, the report underscored. Specifically, taxes on corporations contribute a significantly higher proportion of total General Fund revenues in Puerto Rico. They account for approximately 38%, compared to only 8% in U.S. states and federal revenues. Corporate taxes historically are volatile and difficult to forecast given that they are influenced by the economic-business cycle, sophisticated fiscal strategies of individual corporations, and other factors.
Reported expenditure for the quarter was $609 million below projections; however, it was $177 million higher than the same period a year earlier. Some $270 million in expenditures were identified as incurred but not yet recorded.
Additionally, almost $290 million in underspending is timing related, the report pointed out. These are expenses that have been identified and are expected to be incurred during the fiscal year for operating expenditures, unspent reserves, and capital expenditures.
General Fund expenditures remain uncertain due to such delays in recording actual expenditures and differences in the timing of when expenditures were incurred compared to forecast. Some factors contributing to these challenges are fragmented accounting systems and a lack of enforcement of accounting controls, the report noted.
The deviation of actual revenue and expenditures from projections seen in Puerto Rico, in both the oversight board’s and the government’s own projections, are within expectations, given its high reliance on volatile revenue streams such as corporate taxes, and multiple economic shocks.
As of Sept. 29 of this year, the TSA had an unallocated available net cash balance of $816 million.
The overall TSA account balance was $7.9 billion, but $7.1 billion of those funds are restricted or have committed uses and therefore are unavailable to fund new spending commitments or revenue reducing measures.
Restricted and committed uses include prior year appropriations extended by the government for capital and operating expenditures ($2 billion), statutory and Plan of Adjustment restricted budgets for federal funds with specific allocations and reserves for Plan of Adjustment payments ($2.1 billion), and funding for the Disaster Relief Fund revolver ($741 million), a bridge loan for Puerto Rico Electric Power Authority (PREPA) pension payments of $300 million plus up to $400 million in funding for PREPA administrative expenses ($700 million), and emergency reserve for disaster-related expenses ($1.3 billion).
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