Budget Indicators

Sergio M. Marxuach
Policy Director
Center for the New Economy
June 2011
 Consolidated Budget
Co nso lidated Budget

$29,500,000,000
$29,128,862,000

$29,000,000,000
$28,624,086,000

$28,500,000,000
$28,146,886,000 $28,142,842,000

$28,000,000,000
$27,568,459,000
$27,500,000,000

$27,000,000,000

$26,500,000,000
2008 2009 2010 2011 2012
 Federal Funds
Federal Funds %CB

30.00%
24.95%
25.00% 23.52%
21.91% 22.51%
20.17%
20.00%

15.00%

10.00%

5.00%

0.00%
2008 2009 2010 2011 2012
 General Fund
General Fund Budge t

$10,000,000,000
$9,483,792,000
$9,500,000,000 $9,242,000,000

$9,000,000,000 $8,650,000,000
$8,500,000,000 $8,133,500,000
$8,000,000,000 $7,670,000,000
$7,500,000,000
$7,000,000,000
$6,500,000,000
$6,000,000,000
$5,500,000,000
$5,000,000,000
2008 2009 2010 2011 2012
 GF Payroll
General Fund Payro ll

$6,000,000,000
$5,501,074,000
$5,500,000,000 $5,189,758,000

$5,000,000,000
$4,608,861,000 $4,618,242,000 $4,707,323,000
$4,500,000,000

$4,000,000,000

$3,500,000,000

$3,000,000,000

$2,500,000,000

$2,000,000,000
2008 2009 2010 2011 2012
 Tax Revenues
Tax Re ve nues GF as %o f GN P

12.20% 12.02%
12.00% 11.85%
11.80%
11.60%
11.40% 11.30%

11.20% 11.09%

11.00% 10.89%

10.80%
10.60%
10.40%
10.20%
2008 2009 2010 2011 2012
 Structural Deficit
Gene ral Fund Struc tural Defic it

$0
2008 2009 2010 2011 2012
($500,000,000)

($1,000,000,000)

($1,500,000,000) ($1,326,000,000) ($1,257,000,000)

($1,341,000,000)
($1,500,000,000)
($2,000,000,000)

($2,500,000,000)

($3,000,000,000)
($2,879,000,000)

($3,500,000,000)
 Non Recurring Revenues
N o n Recurring Revenues

$5,000,000,000
$4,379,000,000
$4,500,000,000
$4,000,000,000
$3,500,000,000
$3,000,000,000
$2,500,000,000 $2,266,171,000
$1,850,672,000
$2,000,000,000
$1,500,000,000 $1,173,107,000
$804,000,000
$1,000,000,000
$500,000,000
$0
2008 2009 2010 2011 2012
 Debt Service
Debt Service as %o f Co nso lidated Budget

16.00% 15.05%
13.76%
14.00% 12.52%
12.00% 11.03% 11.32%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%
2008 2009 2010 2011 2012
 Debt/GNP
De bt/GN P

120

100

80

60

40

20
1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
 Debt/GNP
Public
FY GNP %Δ Debt %Δ PD/GNP
2000 41,418.6 -- $24,188.8 -- 58.4%
2001 44,046.5 6.3% $27,159.6 12.3% 61.7%
2002 45,071.3 2.3% $30,012.6 10.5% 66.6%
2003 47,479.4 5.3% $32,524.5 8.4% 68.5%
2004 50,708.7 6.8% $37,433.6 15.1% 73.8%
2005 53,752.4 6.0% $40,268.3 7.6% 74.9%
2006 56,732.3 5.5% $43,136.3 7.1% 76.0%
2007 59,520.5 4.9% $46,183.3 7.1% 77.6%
2008 61,665.2 3.6% $53,392.9 15.6% 86.6%
2009 62,677.8 1.6% $58,414.9 9.4% 93.2%
2010 63,291.5 1.0% $62,206.2 6.5% 98.3%
2011 64,973.0 2.7% $63,809.0 2.6% 98.2%
CAGR 4.2% 9.2%
 Government Employment
Go ve rnme nt Emplo yment

220,000
212,879 213,502

210,000
201,629
200,000

190,000
180,095 180,788
180,000

170,000

160,000
2008 2009 2010 2011 2012
Debt + Pensions
 Relative Burden of Combined
Pension and Debt

Personal % of
Income GDP Per Capita Revenue
Hawaii 27.7% 16.2% $ 7,987 210.3%
Puerto Rico 180.4% 94.4% $ 16,157 436.8%

Source: Moody's        
Mandatory Spending + ARC
FY 2011

Contributions to Municipalities $355,000,000

University of Puerto Rico $691,000,000
Judicial Branch $348,000,000
Rent Payments PBA $217,000,000
GO Debt Service $201,000,000
Other Debt Service $517,000,000
ARC for ERS, TRS, & JRS $2,105,000,000

Total Mandatory Spending + ARC $4,434,000,000

Total GF Spending $9,149,500,000

MS/GF 48.5%
ARC/GF 23.0%
 What to Keep in Mind
• Risk of downgrade
• Revenue Performance:
– (1) changes in SUT collections, which are expected to increase 22.5% as a
result of the implementation of the IVU Lotto and
– (2) the performance of the new excise tax on sales by multinationals with
operations in Puerto Rico to their foreign affiliates
• Phase-out of ARRA funds and the depletion of the Fiscal Stabilization
Fund
• Public Pension Reform
• Challenges at the federal level:
– Debt Ceiling
– FY 2012 Budget
– Social Security, Medicare, Medicaid
• Subsidies to Public Corporations
 Conclusions
• The government has achieved significant success in
restraining the growth rate of government spending since
2008
• Federal funds, however, continue to account for more than
one-fifth of all government spending in Puerto Rico
• The medium term trend reflects a decrease in general fund
payroll expenditures
• But the use of ARRA funds, the Stabilization Fund, and debt
refinancing casts some doubt on the true extent of the
reduction in general fund spending
• It is very difficult to accurately forecast tax revenues at this
time because taxpayers, both individual and corporate, are
still adjusting to the new rules
 Conclusions
• The trend with respect to the structural deficit continues to
be negative because it has stayed essentially flat over the
last five fiscal years
• The use of non-recurring funds shows a mixed or uncertain
trend at this time
– Short term trend appears to be downward, especially in contrast
with the peak in 2010
– Medium term trend has shown an increase in the use of non-
recurring funds
• Debt service indicators show a negative trend both absolute
and relative amounts dedicated to debt service have
increased significantly since 2008
• The overall trend with respect to total public indebtedness is
still negative
– Not clear that the slowdown experienced during 2011 will be
permanent
 Conclusions
• Government employment has decreased significantly from
212,879 in 2008 to a projected 180,788 in 2012, a reduction
of 32,091 workers, or 15.1%
• Several short-term risks could further blur the short-term
fiscal picture:
– A GO rating downgrade by Moody’s;
– the implementation of the new, massively amended, tax code;
– the phase-out of ARRA funds and the depletion of the Fiscal
Stabilization Fund;
– the complexity of pension reform;
– budget cuts at the federal level; and
– the need to increase subsidies for public corporations