Puerto Rico collected $10.4 million more revenue in the past three months than it counted on as the self-governing commonwealth cracks down on tax cheats.
Governor Alejandro Garcia Padilla, 42, who took office in January, increased taxes and implemented new ones to balance the budget for the fiscal year that began July 1. The island, whose credit rating is one step above junk, collected about $1.7 billion for its general fund from July through September. That’s a 5.4 percent increase over the same period last year, according to Treasury Secretary Melba Acosta.
“These results demonstrate progress on the fiscal stabilization and responsibility measures this administration has taken,” Acosta said in a statement. “We remain focused on implementing fiscal oversight measures.”
Investors have been demanding additional yield to buy Puerto Rico debt as an index that tracks the island’s economy fell in August by 5.4 percent compared with the same month in 2012. That was the steepest drop since 2010.
Puerto Rico general-obligation bonds maturing July 2041 traded Oct. 11 with an average yield of 8.79 percent, or 4.5 percentage points more than top-rated munis with similar maturity, data compiled by Bloomberg show. The bonds traded at 10.2 percent on Sept. 9, the highest since the debt first sold in March 2012.
The commonwealth’s ability to raise taxes will help it meet debt obligations, Richard Larkin, director of credit analysis for Fairfield, Connecticut-based Herbert J. Sims & Co., said in a report.
“States as a category have had the lowest default rates of any municipal bond,” Larkin said. “Although Puerto Rico is not a state, it has many of the same sovereign powers that a state has, including the power to tax and legislate without interference from a higher authority.”