The Puerto Rico Oversight Board objected to the government of Gov. Ricardo Rosselló granting a total of $521 million of tax credits over the last reported seven months.
“The issuance of tax credits at this volume is concerning and, if continued, expenditures at this level would further exacerbate the fiscal challenges already faced by Puerto Rico’s economy,” Executive Director Natalie Jaresko said in a Wednesday letter to Secretary of the Treasury Teresita Fuentes Marimón and Economic Development Secretary Manuel Laboy Rivera.
At this rate a total of $893.7 million in tax credits will be issued over 12 months, which compares with the current fiscal year’s General Fund budget of $8.76 billion.
“I remind you that the Commonwealth [of Puerto Rico] is currently not paying most of its debt service and that the government’s fiscal situation would be materially worse if there was not a stay on litigation in place from the Title III [bankruptcy] court,” Jaresko wrote.
The conflict over 93 tax credits granted in March through September highlights the lack of coordination between elected officials and the Oversight Board, said Howard Cure, Evercore Wealth Management director of municipal research.
“These types of actions antagonize bond holders and bond insurers and bring into question the fiscal plan projections," Cure said. "It also highlights the problems of not having the Oversight Board commandeering the financial operations of the commonwealth.”
According to Jaresko's letter, “The combined fact that tax credits issuance is on an upward trend and the issuance of tax credits will continue with limited review because the committee was dissolved, calls for urgent collective actions.”
She said the government granted $7.7 million of tax credits in March, $3.6 million in April, $194.3 million in May, $9.6 million in June, $31.2 million in July, $178.4 million in August, $96.6 million in September.
From March 2017 to July of this year the government had used a committee to review and curb tax credit approval, Jaresko said.
The disbanded government committee overseeing tax credits — the Tax Credits and Disbursements Authorization Committee — was comprised of the executive director of the Fiscal Agency and Financial Advisory Authority, secretary of the Treasury, and the executive director of the Office of Management and Budget, or their delegates.
Jaresko told the officials “in order to comply with the Commonwealth Fiscal Plan and to implement best practices, you must: reinstate the tax credit committee, … improve public disclosure, [and] make the tax expenditures report forward looking.” Puerto Rico currently doesn’t have a tax expenditures report. Jaresko called for the government to regularly provide one as part of improving its public disclosure.
A person connected with the Oversight Board said the officials hadn’t responded to the letter as of noon on Friday. The board was looking into whether it had legal powers over tax credits but wasn’t optimistic, the person said, adding that the board is considering including tax credit allotments in future budgets.
The Puerto Rican acts used to authorize tax credits affect areas like tourism, capital investment, affordable housing, conservation easements, and film industry incentives.
