Governor Luis Fortuno of Puerto Rico, which had its first credit-rating upgrade from Standard & Poor’s this month, said the U.S. territory’s $1 billion budget gap will be closed in two fiscal years.
The Republican told the Municipal Forum of New York that the deficit of $3.3 billion when he took office in January 2009 equaled 44 percent of annual revenue, a greater proportion than in any state. He said actions by his administration to reduce government expenses by 18 percent and boost income by enforcing tax collections lowered the deficit to 11 percent of revenue.
“We have come a long, long way,” Fortuno told municipal-bond professionals in New York today. “We have put forth key reforms to turn our situation around, restore confidence in both investors and consumers, and change the course of Puerto Rico’s future.”
S&P boosted the commonwealth’s general-obligation rating March 7 one level to BBB, the second-lowest of 10 investment grades, because of improved tax collections. Puerto Rico is graded BBB+ by Fitch Ratings, one level above S&P, and A3 by Moody’s Investors Service, two levels higher.
Puerto Rico’s economic activity index, a measure of employment, cement sales, power use and gasoline consumption, fell 2.6 percent in January from a year earlier. It was an improvement from the 6.6 percent decline in January 2010 and tied for the smallest contraction since April 2008, according to the Government Development Bank, Puerto Rico’s borrowing agent.
In January, more than four years after the economy began contracting, the Legislature passed a plan that reduces corporate taxes by an average of 30 percent and individual assessments by half over six years, as long as fiscal and economic targets are met.
Puerto Rico, whose bonds are tax-exempt in any state, sold $356 million of general-obligation debt in February and $250 million this month, a day after its credit rating was lifted.