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Privileged and Confidential; Draft – Subject to Change – Subject to Deliberative Privilege
2020 Fiscal Plan Presentation
May 27, 2020
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Privileged and Confidential; Draft – Subject to Change – Subject to Deliberative Privilege
Macroeconomic Forecast - GNP (%)
The 2020 Fiscal Plan forecasts a $786 million shock in FY2020 followed by an incremental $5.8 billion in FY2021 partially offset by stimulative impact of the Local and Federal stimulus packages
• US GDP is one of the main inputs to the Puerto Rico GNP forecast - US GDP forecast is grounded in the CBO forecast through CY2021, converted to Puerto Rico fiscal year.
• The forecast assumes a 2.5-month lockdown and gradual reopening based on the rate at which unemployment claims declined after the Hurricanes.
• A regression model quantifying the historical relationship between unemployment and output (GNP) is then used to estimate the magnitude of the direct economic losses in FY2020 and FY2021.
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
Monthly nominal GNP - %
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Privileged and Confidential; Draft – Subject to Change – Subject to Deliberative Privilege
Macroeconomic Forecast - Nominal GNP ($)
GNP trend remains the similar to the 5/9 Fiscal Plan, but the aforementioned shocks in FY2020 and FY2021 change the course of economic activity in Puerto Rico over the entire forecast period
• Nominal GNP declines in FY2020 and FY2021 of -3.3% and -7.4%, respectively
• Nominal GNP in the 2020 Fiscal Plan never reaches the same level as the 2/28 Certified Plan in the same year. The levelof economic activity has essentially been shifted out.
• The direct relationship between Nominal GNP and tax revenues result in a commensurate reduction in revenues in the2020 Fiscal Plan.
60,000
65,000
70,000
75,000
80,000
85,000
90,000
95,000
FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033 FY2034 FY2035 FY2036 FY2037 FY2038 FY2039
5/9/19 FOMB CFP 2020 Fiscal Plan
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489
1,730
2,266
646
258 271
PR Stimulative Impact
150,000
285,000
250,000
671,000
1,279,112
United States Funding
Macroeconomic Forecast – Local & Federal Stimulus
The 2020 Fiscal Plan assumes gross stimulus of $12.8 billion (Fed + Local) will yield a $5.7 billion stimulativeimpact in Puerto Rico.
• Because a significant proportion of personal consumption expenditures in Puerto Rico are devoted to imported goods andservices, the stimulative impact of the stimulus funding is less than the gross dollar amount.
2,241
3,000
3,930
1,447
1,623
512
Puerto Rico Funding
Notes: (1) Paycheck Protection Program reflects the initial funding from the CARES Act and the supplemental funding from the Phase 3.5 amendment to the CARES Act.
Total: $2,635 billion Total: $12.8 billion Total: $5.7 billion
($ in millions, unless otherwise noted)
489
1,730
2,266
646
258 271
PR Stimulative Impact
150,000
285,000
250,000
671,000
1,279,112
United States Funding
2,241
3,000
3,930
1,447
1,623
512
Puerto Rico Funding
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Privileged and Confidential; Draft – Subject to Change – Subject to Deliberative Privilege
COVID-19 Update – CARES Funding Deployment
Of the over 2 trillion dollars in CARES funding, Puerto Rico was given approximately
2.2 billion
$2,283 billion
$150 billion
$3 billion
$2.2 billion
The Coronavirus Aid, Relief, and Economic Stability Act or CARES Act
CARES Act Sec. 5001 Coronavirus Relief Funds: Funding Allocation to State and Local Governments1
CARES Act Sec. 5001 Reservation Funds: Funding Allocation to the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa2
CARES Act Sec. 5001 Reservation Fund Portion for Puerto Rico: Based on Relative Population Proportion3
1. CARES Act Title V Sec. 5001. Title VI Sec. 601 (a)(1)2. CARES Act Title V Sec. 5001. Title VI Sec. 601 (a)(2)(A)3. CARES Act Title V Sec. 5001. Title VI Sec. 601 (c)(6)(A) and CARES Act Title V Sec. 5001. Title VI Sec. 601 (c)(6)(B)
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They must be used for necessary expenses incurred as part of the emergency caused by COVID-19
The expenses covered by said funds cannot have been previously budgeted as of March 27, 2020, the date on which the CARES Act was approved
Funds must be incurred between March 1, 2020, and December 30, 2020
COVID-19 Update – CARES Funding Deployment
As part of the creation of the Coronavirus Relief Fund (CRF), Congress stipulated in
Section 5001 of the CARES Act that the funds to be distributed would be subject to
various limitations including three statutory requirements:
In addition to these three main conditions, the U.S. Treasury Department issued
guidelines that interpreted these limitations and established additional parameters for
the disbursement of these funds.
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Privileged and Confidential; Draft – Subject to Change – Subject to Deliberative Privilege
COVID-19 Update – CARES Funding Deployment
Upon receipt of the federal CARES act funding, Puerto Rico quickly established the Puerto Rico
CRF and created a Strategic Disbursement Plan to get money into the hands of Individuals and
Organizations that need it the most, while complying with the federal guidelines on eligible uses of
those funds.
Reserve & reimbursement to the General Fund and the Emergency Reserve for eligible expenses $485,625,864
Private Sector Payroll Protection Program $350,000,000
Small Business Assistance Program $250,000,000
Self-Employed Assistance Program $200,000,000
COVID-19 Testing and Contact Tracing Program $150,000,000
Allocation to the Unemployment Fund Trust $150,000,000
Assistance Program to Private Hospitals $150,000,000
Allocation to the 78 Municipalities for eligible expenses $100,000,000
Acquisition of Materials and Personal Protective Equipment $100,000,000
Medium Businesses Assistance Program $100,000,000
Emergency Assistance to Public Hospitals $50,000,000
Tourism Industry Assistance Program $50,000,000
Distance Work Program of the Government of Puerto Rico $40,000,000
Telemedicine Program of Puerto Rico $40,000,000
COVID-19 Emergency Expenses for Prisons $10,000,000
Workshops and Training Program for SMEs $10,000,000
Programs of Assistance and Care for the Homeless Population $5,000,000
TOTAL $2,240,625,864
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2020 Fiscal Plan Disaster Relief Funds
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Privileged and Confidential; Draft – Subject to Change – Subject to Deliberative Privilege
3,800
4,300
4,800
5,300
5,800
6,300
6,800
7,300 Historical
5/9 CFP
Baseline: 2020 Fiscal Plan
Illustrative Scen 1: COVID-19 + Hurricane Maria Fed Funds
Illustrative Scen 2: COVID-19 Federal Funding Only
Illustrative Scen 3: No Federal Stimulus or Structural Reform
Puerto Rico Real GNP – Constant U.S. Dollars, Millions
Forecast period from FY2020 through FY2039 reflects Real GNP per 2020 Fiscal Plan, as submitted on 5/3/2020.
Begin Forecast Period
Source: Historical Data – Puerto Rico Planning Board; Forecast per 2020 Fiscal Plan
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Puerto Rico Actual and Forecast Population
Begin Forecast Period
The 2020 Fiscal Plan population forecast has been updated to reflect Bureau of Labor Statistics (“BLS”) as of July 2019 resulting in a population variance relative to the May 9th Certified Plan
(Population in thousands)
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1,000
1,200
1,400
1,600
1,800
2,000
2,200
Real GNP per capita (constant U.S. dollars)
Puerto Rico Real GNP Per Capita (Constant U.S. Dollars)
Begin Forecast Period
While Real GNP per Capita shrinks in FY2020 and FY2021, over the medium to long term it aligns with recent history. The declining real GNP forecast does not mean Puerto Rico is getting poorer, it means there are fewer people in Puerto Rico who have the same level of wealth as they had historically.
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General Fund Revenue – FY2020 Forecast
FY2020 General Funds revenues have been updated to reflect preliminary actual resultsthrough March, and the revised Hacienda forecast for the remainder of year which includesCOVID-19 adjustments on account of Executive Actions and Economic Activity
• General fund revenues were updated through March preliminary results, including non-recurring revenue of ~$488million in the first half of the year.
• Certain YTD overperformance (pre-COVID) is assumed to continue for the remainder of the year.
• FY2020 COVID-19 adjustments include Executive Actions, some of which are strictly timing related due to tax deferrals,as well as Economic Activity adjustments.
10,405
488 149 141 (667)(89) (1,176)
(26)
9,225
0
2,000
4,000
6,000
8,000
10,000
12,000
Original Liquidity
Plan Budget
(Incl. Measures)
YTD Variance
Related to Non-
Recurring
Revenue
YTD Variance
Related to Actual
Results (Excl.
COVID)
Adj. to
Remaining
Budget Based on
YTD Actual
Results (Excl.
COVID)
COVID
Adjustments -
Executive
Actions (Timing)
COVID
Adjustments -
Executive
Actions (Non-
Timing)
COVID
Adjustments -
Economic Activity
(Non-Timing)
Tax Reform -
Technical
Adjustments
Total FY2020
General Fund
Revenue
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Privileged and Confidential; Draft – Subject to Change – Subject to Deliberative Privilege
FY2020 Revenue Decline Comparison to Mainland States
The revenue projections in FY2020 and beyond are consistent with the preliminary decreasethat mainland states are seeing.
• Moody’s Investor Services stated that “the crisis is wreaking havoc on state budget forecasts and will cause fiscal 2021tax revenue to fall short of 2019 collections by nearly 15%. It will take years for state revenue to return to 2019 levelswithout tax increases, while recovery to a level where no COVID-19 crisis occurred is unlikely over a five-year horizon”.
• The forecasted decrease in FY2020 revenues as compared to the original budget, after adjusting for timing-relatedadjustments and non-recurring revenues, is in line with the Post-COVID projections provided by mainland States, asshown below.
(1) Source: CBPP / Since the pandemic and economic fallout began, officials in 16 states (including the District of Columbia) have re-estimated revenues for this fiscal year (which ends on June 30 in most states) (2) FY20 includes $667 million in taxes deferred to FY21 / FY20 excludes executive action timing adjustments that are assumed to reverse in FY21 / FY 20 excludes YTD variance for non-recurring revenues (3) FY20 includes $167 million in taxes deferred to FY21, which will be credited to FY20 when collected.
Est. General Fund Revenue Declines in FY2020 (Original vs. Re-forecast due to COVID-19)1
State
Amount
($ in MMs)
% of Pre COVID-19
ProjectionsMaryland 2,800 15%
Puerto Rico: Excluding Act 154 & NRW2 1,149 15%Massachusetts 3,800 - 4,500 13 - 15%Arizona 1,400 12%Michigan 1,000 - 3,000 4 - 12%Alaska 612 11%Kansas 827 11%West Virginia 500 11%
Puerto Rico: Including Act 154 & NRW2 1,266 12%Washington, D. C. 722 9%
Illinois 2,700 7%Oklahoma 447 7%Arkansas 353 6%Connecticut 942 5%South Carolina 507 5%Kentucky 447 - 624 4 - 5%Colorado 451 3%
Vermont3 48 3%
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General Fund Revenue - FY2021 Forecast
General Fund revenues are down ~7% in FY2021 relative to FY2020 after backing out one-timeitems and timing-related adjustments
Percent Change1.7% (-6.7%)
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FY2021 Revenue Decline Comparison to Mainland States
FY2021 revenue projections for Puerto Rico is in line with forecasts of mainland states.
• Moody’s Investor Services stated that “the crisis is wreaking havoc on state budget forecasts and will cause fiscal 2021tax revenue to fall short of 2019 collections by nearly 15%. It will take years for state revenue to return to 2019 levelswithout tax increases, while recovery to a level where no COVID-19 crisis occurred is unlikely over a five-year horizon”.
Source: CBPPNotes: (*) Kentucky: Estimate is for the first two quarters of FY21; Minnesota: Estimate for remainder of 2020-21 biennium; New York: All funds (General fund plus other state funds)(1) FY20 includes $667 million in taxes deferred to FY21 / FY20 excludes executive action timing adjustments that are assumed to reverse in FY21 / FY
PR is slightly below average
of 12%
FY2021 COVID-19 Impact Relative to FY2020
Amount % of Pre-COVID-19 Projections
State ($ in MMs) Low Mid High
New Mexico 1,500 - 2,000 20% 24% 27%
Illinois 7,400 19%
Massachusetts 4,200 - 7,200 14% 19% 23%
Colorado 2,400 18%
Vermont 266 17%
Oklahoma 1,400 16%
Alaska 815 15%
Kentucky half year* 700 - 1,100 11% 14% 17%
New York* 12,000 14%
Connecticut 2,200 11%
Delaware 500 11%
Missouri 1,000 10%
Michigan 1,000 - 4,000 4% 10% 16%
Wisconsin 2,000 10%
Washington, D.C. 774 9%
Puerto Rico: Excluding NRW/Act1541 644 9%
Minnesota* 1,500 - 3,000 5% 7% 9%
Virginia 1,000 - 2,000 4% 7% 9%
Puerto Rico: Including NRW/Act1541 625 7%
Arizona 758 6%
Kansas 446 6%
South Carolina 643 6%
Hawaii 319 4%
Arkansas 206 3%
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General Fund Revenue – Long Term Forecast
Recurring general fund revenue is calculated in FY2020 net of certain adjustments describedbelow, and grown at Nominal GNP thereafter
• The long-term forecast includes certain adjustments which are forecast separately from recurring revenue, includingDRF related revenues, cyclical outperformance, motor vehicles and tax reform.
• Additional adjustments on account of COVID-19 are included as part of the 2020 Fiscal Plan.
• COVID-19 – Timing: extension of certain deadlines to file tax returns which pushes revenues from FY2020 toFY2021.
• COVID-19 – Economic Activity: revenue loss in the short-term revenue primarily on account of the lock-down,which is phased out over three years.
• Long-Term Growth: growth in FY2021 & beyond for the largest revenue concepts is tied to GNP, which capturesthe sharp decrease in FY2021 due to the new COVID-19 economic reality and gradual increase thereafter.
• Over/under performance relative to the budget is non-recurring.
• Measures through FY2020 are embedded in the baseline. Go-forward incremental measures, including Act-40, areforecasted separately as new measures.
8,000
8,500
9,000
9,500
10,000
10,500
11,000
FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033 FY2034 FY2035 FY2036 FY2037 FY2038 FY2039
General Fund Revenue - Post Measures
5/9 Certified Plan 2020 Fiscal Plan
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Expenses – Reinvestment in Puerto Rico
As part of the 2020 Fiscal Plan, Governor Vázquez has developed six initiatives to improve the standard of living in Puerto Rico by accelerating the reconstruction process and protecting some of the most critical career public servants
Governor Initiatives
Uniform Remuneration Plan for Career Government Employees (Excludes At-Will or "Confianza"Employees)
Puerto Rico Police Department Retirement
Solution for the Repeal of Act-29
Disaster Relief Working Capital Fund
Parametric Insurance
Government's Centralized Procurement Act of 2019 (Act 73-2019)
1
2
3
4
5
6
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Fiscal Measures
As a result of the new economic reality, a revised approach was taken on measures including delays and removal of certain measures.
Fiscal Measures
Agency Efficiencies
Healthcare Reform
Tax Reform
Tax Compliance and Fees Enhancement
Reduction of Appropriations
Social Security
1
2
3
4
5
6
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Privileged and Confidential; Draft – Subject to Change – Subject to Deliberative Privilege
2020 Fiscal Plan Structural Reforms