Puerto Rico governor promises updated ACFRs by mid-year

Puerto Rico Gov. Pedro Pierluisi promised his government would deliver up-to-date annual comprehensive financial reports for Puerto Rico’s central government by the middle of this year.

Pierluisi made the promise as part of his annual state of the territory speech to the Puerto Rico legislature Wednesday night.

The latest ACFR available is for fiscal 2020, which ended June 30, 2020. Puerto Rico’s government released it in October.

Twenty-one months have passed since the end of fiscal 2021. Moody’s Investors Service says it typically expects ACFRs to be released within 12 months of the end of the fiscal year.

To come up to date, the government would have to release both fiscal 2021 and fiscal 2022 ACFRs. Pierluisi said once this was done the government would be up to date for the first time in 12 years.

“I have no idea whether to believe that they’ll produce the numbers and when they do, they will simply reinforce that they could have always paid debt,” said a muni institutional investor who holds Puerto Rico bonds, who asked to remain anonymous.

“But producing consistently accurate and timely data matters,” the investor said. “It’s all about re-establishing credibility and the bar is high for them. In addition to developing faith in their legal framework post-Puerto Rico Oversight, Management, and Economic Stability Act, the commonwealth needs to demonstrate they can be transparent, honest, and competent to access markets again.”

“A one-year delay is still not acceptable,” said Jorge Irizzary, president of Backyard Bondholders, a nonprofit with the stated aim of supporting Puerto Rico creditors though the territory’s restructuring.

“All other issuers of debt in the U.S. muni market release their financial statements within a few months after the closing date,” Irizzary said. “And I do believe Puerto Rico should match that timing before it can return to the market on reasonable terms and regain some measure of credibility.” 

“I also believe Puerto Rico still faces other real challenges,” Irizzary said.

With the release of the fiscal 2020 ACFR, Puerto Rico caught up to California, the worst laggard among U.S. states.

“I think the importance of Puerto Rico filing their overdue audited financials is that they had substantially more capacity to pay their debts than what was represented in the Title III [bankruptcy] proceedings,” said Puerto Rico Clearinghouse Principal Cate Long. “When rating agencies and others study the financials, they will see that Puerto Rico massively increased spending and had increasing revenues.”

Also in his speech, Pierluisi said the territory’s economy was growing after declining for nearly a decade. He pointed to the economic activity index.

In fact, most of Puerto Rico’s recent economic activity index increases took place after the COVID-19 induced downturn. After reaching a peak in March 2022, it generally declined through September. Since then, it has modestly increased. The latest figure, for December, was up 0.6% from the December 2021 figure.

Pierluisi said the island had 112,000 more jobs than at the start of 2021 and had the lowest unemployment rate in the island’s history. In actuality, the latest rate, 6% for February, was near the lowest rate since federal government started collecting monthly figures in Puerto Rico in 1976, which was 5.8% for June through August of 2022.

“The tourism sector has experienced unprecedented, sustained growth,” Pierluisi said. “Today… the industry has surpassed pre-pandemic numbers, there are more jobs in the industry than at any time in our history. Last year we broke the record for the use of the Luis Muñoz Marín Airport [in San Juan] with over 10 million passengers, visitor spending increased 24 percent more than the previous year, revenues to the treasury from taxes on hotel rooms and short-term rentals increased by 53 percent, and projections for this year are even better.”

Advantage Business Consulting President Vicente Feliciano said Puerto Rico’s economy is growing. “Beyond what statistics could show, businesses are having a hard time finding employees and salaries are increasing. There was concern that the increase in minimum wage to $8.50/hr. could have negative consequences. In the end, it has been readily absorbed by businesses, with many going over and above this new level.

“Federal funding is certainly driving this growth,” Feliciano said. “However, it is not the only factor. The plan of adjustment put government finances on a better footing. New tax laws have provided stability to the tax environment of the pharmaceutical industry. The short-term rental industry has propelled the tourism sector to new heights. Growth of the U.S. economy underpins demand for both the tourism sector as well as for some of the manufacturing.”

Heidie Calero, president of H. Calero Consulting, said Puerto Rico’s economy was still growing too slowly. She said the Puerto Rico Planning Board expects just 0.7% growth this fiscal year and the latest economic activity index figure, for December, showed just 0.6% growth from a year earlier.

Most of Puerto Rico’s economic growth is tied to federal funding and this must change, she said.

The governor said he had submitted a significant tax relief bill to the legislature, which impacts the middle class, leaving $262 million in the pocket of the workforce, as well as reducing tax rates on non-exempt corporations.

“The Oversight Board has been briefed on the governor’s tax proposal and is reviewing it,” said Board Spokesman Matthias Rieker. “The Oversight Board has long advocated for a truly comprehensive tax reform that can contribute to Puerto Rico’s economic competitiveness and growth.”

Pierluisi said, “When it comes to legislating, we must be responsible with the people’s money, carry out the necessary economic studies before approving measures, seek the correct balance and fulfill the responsibility that we carry on our shoulders. Only in this way will we guide Puerto Rico on its own footing and will we leave the Oversight Board with our heads held high and with the government standing.”

Pierluisi said that later Tuesday night he would submit a $12.74 billion fiscal 2024 General Fund budget to the Oversight Board. This would compare to the current fiscal year budget of $12.426 billion.

“It was a good report for a corporate board of directors,” University of Puerto Rico political science Professor Jose Garriga Picó said of the governor’s speech. “But, as a rallying cry for his reelection it lacked punch and charisma.

“I don’t know if that will win him a victory in primaries and reelection,” Garriga Picó said. “He has a steep climb in that respect.”