Tax Reform Goes to Governor’s Desk, FOB Objects to Provisions

Governor Ricardo Rosselló has said he will sign a controversial tax reform legislation that passed the legislature without public hearings or debate. The Fiscal Oversight Board (FOB) has said it objects to some of the bill’s provisions, specifically the legalization of slot machines. The Board is concerned that legalizing the machines would reduce government revenues from hotels’ casinos. Rosselló said he did not know if the FOB would allow the law to be implemented, but will sign it into law because it contains all of his administration’s recommendations including a reduction in the Sales and Use Tax (SUT) for processed foods (starting in October 2019), the elimination of most deductions for self-employed individuals, a reinstatement of the Earned Income Tax Credit, and reductions in certain corporate and individual rates, among other provisions.

The Governor left the door open to addressing the slot machine legalization issue should the FOB object to its implementation.

Governor’s Approval Rating at 25%, Trump’s at 17%

El Nuevo Día newspaper published a series of surveys this week indicating an approval rating of just 25% for Governor Rosselló. This is down from 38% in March.

The survey also asked about President Donald Trump and the results were even worse for the Commander in Chief. According to the poll, just 17% of Puerto Rico residents have a favorable opinion of President Trump, with 55% disapproving and another 27% saying his performance is lukewarm. The surveys were conducted between October 31 and November 4, 2018.

Legislature Approves COFINA Debt Restructuring Agreement

Both houses of the Legislature have approved the Sales Tax Corporation Fund (COFINA in Spanish) debt restructuring agreement. The FOB-certified accord would require that the SUT remain at its current 11.5% rate for 40 years. According to the terms of the agreement, some COFINA senior bondholders will receive payments of more than 70 cents on the dollar. The Title III agreement (named after the Title in the PROMESA federal law that establishes the restructuring processes) also represents a savings of $17.5 billion for Puerto Rico. COFINA currently represents close to 24% of the Commonwealth’s $70 billion public debt.

According to Governor Rosselló, who touted the agreement as a “victory” for Puerto Rico, the Restructuring Support Agreement (RSA) provides a 32% reduction of the COFINA debt. The agreement has been met with opposition by several experts and groups who argue that it is too generous to bondholders. Some of these groups held a protest in front of the Capitol in San Juan urging the Legislature to reject the terms of the agreement.

California Governor-elect Appoints FOB Board Member to Cabinet

California Governor-elect Gavin Newsom has appointed FOB Board Member Ana Matosantos as his Cabinet Secretary. Matosantos will help the governor oversee state agencies in what is typically the second-highest ranking cabinet position. According to a FOB spokesperson, Matosantos will also continue with her position on the board. Matosantos previously worked as finance director under the administrations of California Governors Jerry Brown and Arnold Schwarzenegger.​