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Puerto Rico COFINA Constituents Set the Record Straight

Thursday, Mar 15, 2018

Seema Balwada, CFA                                                      

Puerto Rico COFINA Constituents Set the Record Straight

with Facts on Sales and Use Tax Collection Data

News Provided by
Group of COFINA Constituents

NEW YORK, March 15, 2018 /PRNewswire/ -- A group of COFINA constituents that includes Ambac, the COFINA Seniors Coalition, National Public Finance Guarantee Corporation and the Puerto Rico Funds, which collectively accounts for more than $6.5 billion of bonds issued by the Puerto Rico Sales Tax Financing Corporation ("COFINA"), released the following statement today regarding the January 2018 revenue report issued by the Government of Puerto Rico on March 8: 

"As the citizens of Puerto Rico look to their government for leadership and transparency, we are concerned that the public's continued receipt of inaccurate information about the island's financial situation now extends to Sales & Use Tax ("SUT") collections. This troubling pattern is adversely impacting every one of Puerto Rico's residents and stakeholders by extending – rather than accelerating the expensive restructuring process as well as critical post-hurricane recovery efforts intended to revitalize the island. The latest misrepresentations can be found in last week's report on net revenues, which distorts SUT collection data. 

The truth, which was omitted from last week's report, is that post-hurricane SUT collections are strong and they continue to trend upward despite ongoing power outages and the full SUT exemptions that the government invoked for small businesses, mid-size enterprises and prepared foods between November 2017 and January 2018. The government's report did not account for these exemptions, which reduced revenues by approximately $60 million. Adjusting for the government's decision to reduce revenues, year-over-year SUT collections are down approximately 6% through March 2, 2018. This figure is far smaller than the misleading 11% decline reported by the government[1], and it reinforces the fact that SUT collections remain robust even in the aftermath of recent devastating hurricanes. 

In addition, Puerto Rico's Treasury Department attributes lower SUT revenue flowing to the General Fund to the fact that the required buildup of cash within the COFINA structure concluded in February instead of in early January, as was the case in 2017. Last week's report does not mention that the Government of Puerto Rico enacted Law 84, which altered the flow of funds to COFINA by redirecting 0.5% of the SUT to municipalities beginning in July 2017. Had this change not been made, COFINA would have been funded in January 2018. 

Looking ahead, there is real cause for optimism based on data that indicate February 2018 SUT collections are in-line with February 2017 figures. COFINA, which is the most widely-held bond issuance among local savers and retirees, remains Puerto Rico's most affordable vehicle to re-access the capital markets going forward. The structure has consistently provided financing at a lower cost than General Obligation debt. These are just a few of the reasons why we call on the administration to shift from obfuscating the facts and undermining COFINA to driving a transparent, pro-growth agenda for the future."  

[1] Press release titled "Puerto Rico Treasury Reports Net Revenues to the General Fund for January 2018" dated March 8, 2018.

If you have any questions or desire updated information contact your GMS Account Executive. Information taken from sources deemed reliable. This update does not purport to include all available information

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