Puerto Rico gov’t drags $39B deficit, annual report shows

Written by  //  September 16, 2013  //  Government  //  No comments

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Treasury Secretary Melba Acosta

Treasury Secretary Melba Acosta

Puerto Rico’s government agencies, certain corporations and other entities are dragging a combined $39 billion net asset deficit, which represents an increase of approximately $5.3 billion when compared to the fiscal year ended June 30, 2011.

Furthermore, the government’s long-term debt totaled $51.7 billion, $2 billion of which are payable within one year, and showed an increase of $5.9 billion with respect to the previous fiscal year, according to the Commonwealth of Puerto Rico Comprehensive Annual Financial Report for fiscal year 2011-2012 that ended on June 30, 2012, filed Monday by the Treasury Department.

The 2011-2012 CAFR covers the last full fiscal year of former Gov. Luis Fortuño’s administration. Upon filing, Treasury Secretary Melba Acosta reiterated the measures the Gov. Alejandro García-Padilla administration is taking to address the inherited fiscal challenges and strengthen Puerto Rico’s economy.

“Since this administration took office in January 2013, we have taken measures to address in a swift, decisive and unprecedented manner the enormous challenges we inherited and thus achieve fiscal stabilization, promote economic growth, and safeguard and strengthen Puerto Rico’s credit,” she said.

“These measures include: approving a comprehensive reform of the government Employee Retirement System whose net assets were expected to run out as soon as 2014 — this reform gave the System the necessary cash flow to meet pension obligations — and important measures strengthening the operations of our public corporations, such as the Puerto Rico Aqueduct and Sewer Authority, the Highway and Transportation Authority, and the Ports Authority,” said Acosta.

These financial statements include the operations of all the government agencies, public corporations, the University of Puerto Rico, and other component units of the Commonwealth of Puerto Rico. The statements were audited by the firm Deloitte & Touche, LLC, which managed the auditing of the financial statements for the past four fiscal years.

According to the financial statements, the General Fund deficit for the year ended June 30, 2012, was approximately $1.4 billion, before the financing measures were executed. This represents an increase of approximately $256 million, or 24 percent, when compared with the $1.08 billion deficit as of June 30, 2011.

The deficit is the difference between General Fund expenditures in the amount of $9.9 billion and revenue in the amount of $8.573 billion. The FY 2012 deficit was $699.6 million after executing financing measures to alleviate it, including $952 million in Puerto Rico Sales Tax Financing Corporation (COFINA, by its Spanish acronym) issuances.

Meanwhile, General Fund expenses for FY 2012 totaling $9.9 billion represent an $836 million increase with respect to expenses for FY 2011 totaling $9.07 billion. General Fund revenue for FY 2012 totaled $8.5 billion, representing a $580 million increase with respect to revenues for FY 2011 totaling $7.9 billion.

It should be noted that the expenses of the current FY 2014 budget, in the amount of $9.7 billion, are lower than the FY 2012 expenses, set at $9.9 billion

Measures in place
Upon revealing the report, Acosta offered a run-down of the measures taken by the García-Padilla administration to reduce the budget deficit for fiscal year 2012-13, which ended recently, including: the $280 million advance payment made by foreign companies subject to the non-resident withholding tax related to the use of patents in the manufacturing process; the $240 million excess transfer from the Debt Redemption Fund to the General Fund; the use of revenues collected under the tax amnesty, including $98 million in cash and $176 million in payment plans (whose sale to the private sector is being negotiated), and other administrative measures to cut down tax evasion.

According to the financial statements, the General Fund deficit for the year ended June 30, 2012, was approximately $1.4 billion, before the financing measures were executed. (Credit: © Mauricio Pascual)

According to the financial statements, the General Fund deficit for the year ended June 30, 2012, was approximately $1.4 billion, before the financing measures were executed. (Credit: © Mauricio Pascual)

“In shaping the budget for the current fiscal year 2013-2014, we took into consideration the trailing deficit and we lowered the budget revenue base by approximately $1 billion,” she said.

“On top of this adjusted base, new measures were approved injecting $1.3 billion in new revenues and helping us to substantially close the recurrent budget gap, which deepened over the last four years under the past administration,” said Acosta.

The financial statements were filed today — several months after the government vowed to do so earlier this summer — due to the backlogs the García-Padilla administration found when it took office, particularly in regards the issuance of the individual financial statements of each public corporation and other entities, she said.

“These backlogs held back the preparation of the CAFR. This administration is taking the necessary steps to ensure that the 2012-13 combined financial statements are filed on or before May 1, 2014, in compliance with the Commonwealth obligations under the applicable information disclosure regulations,” she said.

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