Budget Indicators 2011-12

Budget Indicators

Sergio M. MarxuachPolicy Director

Center for the New EconomyJune 2011

Consolidated Budget

Consolidated Budget

$27,568,459,000

$28,146,886,000

$29,128,862,000

$28,142,842,000

$28,624,086,000

$26,500,000,000

$27,000,000,000

$27,500,000,000

$28,000,000,000

$28,500,000,000

$29,000,000,000

$29,500,000,000

2008 2009 2010 2011 2012

Federal FundsFederal Funds % CB

20.17%

24.95%23.52%

21.91% 22.51%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2008 2009 2010 2011 2012

General Fund General Fund Budget

$9,242,000,000$9,483,792,000

$7,670,000,000

$8,133,500,000

$8,650,000,000

$5,000,000,000

$5,500,000,000

$6,000,000,000

$6,500,000,000

$7,000,000,000

$7,500,000,000

$8,000,000,000

$8,500,000,000

$9,000,000,000

$9,500,000,000

$10,000,000,000

2008 2009 2010 2011 2012

GF PayrollGeneral Fund Payroll

$5,189,758,000

$5,501,074,000

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

$2,000,000,000

$2,500,000,000

$3,000,000,000

$3,500,000,000

$4,000,000,000

$4,500,000,000

$5,000,000,000

$5,500,000,000

$6,000,000,000

2008 2009 2010 2011 2012

Tax Revenues

Tax Revenues GF as % of GNP

12.02%

11.09%

10.89%

11.30%

11.85%

10.20%

10.40%

10.60%

10.80%

11.00%

11.20%

11.40%

11.60%

11.80%

12.00%

12.20%

2008 2009 2010 2011 2012

Structural DeficitGeneral Fund Structural Deficit

($1,326,000,000)

($2,879,000,000)

($1,500,000,000)

($1,257,000,000)($1,341,000,000)

($3,500,000,000)

($3,000,000,000)

($2,500,000,000)

($2,000,000,000)

($1,500,000,000)

($1,000,000,000)

($500,000,000)

$0

2008 2009 2010 2011 2012

Non Recurring Revenues

Non Recurring Revenues

$804,000,000$1,173,107,000

$4,379,000,000

$2,266,171,000

$1,850,672,000

$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

$3,500,000,000

$4,000,000,000

$4,500,000,000

$5,000,000,000

2008 2009 2010 2011 2012

Debt ServiceDebt Service as % of Consolidated Budget

11.03% 11.32%

12.52%13.76%

15.05%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

2008 2009 2010 2011 2012

Debt/GNPDebt/GNP

20

40

60

80

100

120

1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

Debt/GNPPublic

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 EmploymentGovernment Employment

212,879 213,502

201,629

180,095 180,788

160,000

170,000

180,000

190,000

200,000

210,000

220,000

2008 2009 2010 2011 2012

Debt + Pensions

Relative Burden of Combined Pension and Debt

Personal Income GDP Per Capita

% of 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 + ARCFY 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