Puerto Rico May Redirect Sales-Tax Cash in Fiscal 2017, S&P Saysby
Island may use sales-tax funds before paying bonds, S&P says
Puerto Rico has enough money to make Aug. 1 sales-tax payment
Puerto Rico may decline in the next fiscal year to set aside sale-tax revenue that repays about $15 billion of debt, according to Standard & Poor’s.
At the start of each budget year, which begins in July, the commonwealth directs sales-tax receipts that are used to cover payments on the bonds, known as Cofinas by their Spanish acronym, before the funds flow into the island’s coffers.
The commonwealth’s cash crunch and its apparent unwillingness to prioritize debt payments over other operating costs “lead us to conclude that annual segregation of sales taxes pledged to Cofina that are scheduled to begin again on July 1 may not occur,” S&P analyst David Hitchcock wrote in a report released Monday.
Puerto Rico and its agencies racked up $70 billion of debt after years of borrowing to fill budget gaps. Governor Alejandro Garcia Padilla is seeking to lower those obligations by asking investors to accept losses on their holdings. Puerto Rico is proposing to repay sales-tax bondholders 49 percent of what their owed.
Puerto Rico has already set aside enough cash to cover Cofina’s next payment due Aug. 1, Hitchcock wrote. Garcia Padilla’s administration has tapped other dedicated revenue streams by redirecting funds earmarked for certain rum-tax bonds, highway authority debt and convention center district securities.
S&P expects highway debt and convention center bonds will default Jan. 1 after depleting reserve funds. Such a default “is a virtual certainty by Jan. 1 of next year,” Hitchcock wrote.
Puerto Rico’s general fund this year began receiving sales-tax revenue in January after setting aside $696.3 million to cover Cofina payments through August. The commonwealth expects to collect through June 30 about $2 billion of sales-tax receipts, including revenue used to repay bonds.