OVERSIGHT BOARD ISSUES FULL-YEAR FINANCIAL REPORT FOR PUERTO RICO
Commonwealth Income from Taxes and Fees in FY2024 Exceeded Projections by 1.1%; Trend Consistent with U.S. States; General Fund Expenditures Exclude About $1.3 billion in Appropriations Not Disbursed; Economic Growth Slowed Towards the End of FY2024; Efficient Deployment of Federal Funds Key to Continued Recovery
San Juan, PR – December 12, 2024 – The Financial Oversight and Management Board for Puerto Rico today issued the financial report for the last quarter of the fiscal year that ended June 30, 2024, providing a detailed analysis of Puerto Rico’s fiscal situation and potential risks to the financial projections in the Fiscal Plan for Puerto Rico.
The Commonwealth’s income from taxes and fees of $13.9 billion in the fiscal year 2024 exceeded the projections in the June 2024 Fiscal Plan for Puerto Rico by $158 million, or 1.1%, primarily because of higher-than-projected collections from sales and use taxes and petroleum products. The General Fund revenue collections were $233 million, or 1.7%, higher than in FY2023. This slight increase in FY2024 revenues is consistent with projections in the U.S. states.
“Puerto Rico’s economic recovery driven by the disaster recovery and COVID 19 federal stimulus funding continued in the fiscal year 2024 but showed signs of slowing,” said Executive Director Robert F. Mujica, Jr. “Future growth is highly dependent on the ability of the Government and the Puerto Rico Electric Power Authority to efficiently deploy this money before any of this funding expires.”
General Fund expenditures in FY2024 continue to remain uncertain due to delays in recording actual expenditures and differences in the timing of expenditure incurrence compared to projections. Officially recorded expenditures for FY2024 were $10.5 billion, about $1.8 billion below the projection in the June 2024 Fiscal Plan. The lower-than projected expenditure excludes about $1.3 billion in appropriations that have been extended beyond FY2024 but have not yet been disbursed.
Cash Balances
The Treasury Single Account (TSA), the Commonwealth’s main operational bank account in which most receipts from Governmental funds are deposited and from which most expenses are disbursed, had a balance of $10 billion on June 30, 2024, with $8.9 billion of the cash balance restricted or committed for specific purposes. For the same period last year, the TSA had a total cash balance of $8.3 billion, with $7.8 billion of the cash balance restricted or committed for specific purposes.
Source: TSA liquidity report (June 30, 2024)
Economic Outlook
While official statistics from the Government of Puerto Rico on real GNP performance are not yet available for FY2024, other proxies such as the Economic Activity Index (EAI) suggest an economic contraction that may have come earlier than expected, starting in the second half of FY2024. From November 2023 on, the EAI showed six consecutive months of month-over-month contraction. GNP in April 2024 was 2.8% below the October 2023 peak and at its lowest growth rate since January 2023. Despite showing a slight rebound over the last two months of FY2024, the January to June 2024 period weakened by 0.2% compared to the same period a year earlier.
The outlook for FY2025, which started on July 1, 2024, remains uncertain. The unprecedented influx of federal funds in recent years may be masking underlying weaknesses in the Puerto Rico economy.
Risks
The multi-year financial projections assume fiscal discipline throughout the plan period and that the government only takes on additional spending commitments or revenue reducing measures that are affordable given the resources available. Increasing expenditures without a sustainable recurring funding source could create a budget imbalance sooner than FY2028. In June 2024, just as the fiscal year neared its end, the Puerto Rico Legislative Assembly passed bills with an estimated cost of approximately $1 billion in FY2024 alone, and more than $3.5 billion over the next five years, materially compromising the projection for outyear budget balances.
There are significant risks to the forward-looking Financial Plan that will continue to be monitored, including
- uncertain long-term Medicaid federal funding levels
- potential new recurring expenditures currently paid with one-time federal funds
- potential additional Commonwealth contributions to fund disaster relief projects
- the need to fund major capital investments without adequate access to capital markets
Further, the amount of Medicaid federal funds available in the long term is uncertain. The 2023 Consolidated Appropriations Act gave Puerto Rico access to more than $19 billion in Medicaid funding over the federal fiscal years 2023 to 2027, with an effective Federal Medical Assistance Percentage (FMAP) of 76% to be used through federal fiscal year 2027.
The most recent quarterly report provides more detail on Medicaid. As in other U.S. states, Medicaid is the Commonwealth’s largest annual expenditure, at a total program cost of $4.6 billion per year. Medicaid – known locally as “Plan Vital” – plays a crucial role in Puerto Rico’s health care system, covering close to 50% of the entire population, or 1.4 million people, a significantly larger share than that seen in any U.S. state.
Beginning in FY2028, unless Congress acts, the Commonwealth may face a “Medicaid fiscal cliff” where it could become responsible for a significantly higher portion of Medicaid costs. The CBO estimates that in October 2027, the federal Medicaid funding cap for Puerto Rico will fall from $4 billion to approximately $500 million annually.
Link for Full-Year Financial Report – FY2024