The government’s economic team, headed by Puerto Rico Treasury Secretary Melba Acosta and Government Development Bank Interim President José Pagán confirmed the introduction of a bill to expand the Sales Tax Fund Financing Corporation’s (COFINA, by its Spanish acronym) capacity to issue bonds and facilitate the execution of a more cost-effective financing for the Commonwealth.
The bill amending Law 91 of 2006 seek to increase the Sales and Use Tax percentage allocated to COFINA from 2.75 percent to 3.50 percent and to allow the use of these funds for financings related to the Fiscal 2012, 2013 and 2014 budgets.
“Puerto Rico continues to move swiftly toward economic growth and job creation, and a well-financed and stable GDB is critical to continuing the progress the Commonwealth has made to date,” said Acosta. “The proposed amendments are an important step in this direction and will provide a more cost-effective capital injection to support the services Puerto Ricans deserve and to develop the infrastructure projects that will lay the foundation for economic growth.”
The Commonwealth plans to refinance approximately $1.2 billion in debt incurred by the previous administration and finance another $820 million related to the Fiscal 2014 budget. Certain debts incurred before 2014 are on the GDB’s books, government officials said.
“We want to use our most cost-effective financing tool to facilitate the General Fund’s ability to continue meeting its budget obligations and to finance this administration’s new infrastructure projects,” said Acosta. “Since they are backed by sales and use tax revenues, COFINA bonds are the Commonwealth’s best financing source.”
Meanwhile, Pagán said total net savings from issuing COFINA bonds, compared to other available options, are estimated at between $66 million and $132 million for every $1 billion issued in bonds.
“Using COFINA will not have an impact on the General Fund, because sales tax receipts allocated to COFINA will be offset by an equivalent reduction in the debt service payable from the General Fund,” he said.
“The new COFINA structure may increase COFINA’s capacity to issue debt by up to approximately $2 billion,” said Pagán Beauchamp. “However, as we’ve said, the Commonwealth plans to issue between $500 million $1.2 billion in aggregate, including COFINA, during the rest of the calendar year”.
“The bonds issued under the proposed COFINA transaction would be subordinated to current COFINA bondholders. Additional protections would also be included so as to protect the interests of current holders of COFINA bonds,” said Pagán.
The government’s economic team, headed by Gov. Alejandro García-Padilla was in New York this week meeting with credit ratings agencies to inform them of the measures being implemented to keep the island’s debt and ratings under control.