The Treasury Department has closed the gap between Puerto Rico’s actual General Fund income and the income estimated by the previous administration by 75 percent, agency chief and government CFO, Melba Acosta-Febo said Monday.
Treasury claims to have reduced the deficit projection of $965 million to $247 million at year end 2012-13.
“Certain measures that are being designed, which are expected to be complete shortly, are expected to close this gap even more. The reduction was achieved through a series of non-recurring fiscal measures, coupled with a reduction in projected overspending at some government agencies,” she said in a statement.
“We managed to lower the fiscal deficit by 75% because once we got into government, we tackled the situation with non-recurring fiscal measures that increased revenues and because the government was able to control and eliminate the projected overspending of $140 million. We will continue to work as we have so far to eliminate Puerto Rico’s budget deficit and stabilize the economy. We are on track,” said Acosta-Febo.
The $965 million revenue deficit was coupled with the projected overspending — which she said was controlled through cuts, freezing of funds and other measures — to the Sales Tax Financing Corp.’s (known as COFINA) $333 million financing deficit and the refinancing of government debt ($775 million), all of which accounted for the $2.1 billion deficit as of January 2013.
Fiscal measures that increased revenues include: the prepayment of $235 million by foreign companies subject to withholding tax on nonresidents, which is associated with the use of patents in the manufacturing process, and the transfer of $ 241 million Debt Redemption Fund to the General Fund.
This money was used as a reserve since 2010 for possible collateral payments in derivatives or “swaps” tied to general obligation bonds of the Government of Puerto Rico with variable interest rates.
“Given the significant reduction in the past two years in the “swaps” portfolio attached to such bonds, this reserve was applied to the deficit. Furthermore, we managed to close at the end of fiscal year $180 million in corporate tax settlements, $80 million more than the amount included in the budget,” she said.
Meanwhile, she said another measure that shored up revenues for the government at year’s-end was the tax amnesty through which Treasury collected $98 million, $8 million of which will be used for oversight measures. The agency also established payment plans under the amnesty for $176 million, for a total of $274 million, exceeding the agency’s initial expectations.
Treasury is currently working on a plan to sell the $176 million in amnesty payment plans, selling prior existing payment plans ($128 million) and two other transactions that were pending at year-end, which will close soon ($127 million). These measures are expected to help cover last year’s remaining deficit and will require legislation to be used at the close of the 2012-13, she said.
The agency is now working on implementing several administrative measures to reinforce compliance, tackle tax evasion and fraud, while increasing collections on a recurring basis.