2020 Fiscal Plan Presentation - aafaf.pr.gov · PR Stimulative Impact 150,000 285,000 250,000 671,000 1,279,112 United States Funding Macroeconomic Forecast –Local & Federal Stimulus

1

Privileged and Confidential; Draft – Subject to Change – Subject to Deliberative Privilege

2020 Fiscal Plan Presentation

May 27, 2020

2


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 - %

3


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

4


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

5


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)

6


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


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.

7



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

8


2020 Fiscal Plan Disaster Relief Funds

9


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

10


Puerto Rico Actual and Forecast Population


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)

11


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)


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.

12


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

13


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%

14


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%)

15


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%

16


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

17


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

18


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

19


2020 Fiscal Plan Structural Reforms

Documents

2020 Fiscal Plan Presentation - aafaf.pr.gov · PR Stimulative Impact 150,000 285,000 250,000 671,000 1,279,112 United States Funding Macroeconomic Forecast –Local & Federal Stimulus