UPDATE 2-Puerto Rico may delay payments to beat $320 mln tax shortfall

Tue Jun 10, 2014 12:24pm EDT

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By Edward Krudy

NEW YORK, June 10 (Reuters) - Puerto Rico may reschedule payments to the Government Development Bank as well as the pension system for central government employees as it aims to reduce a $320 million tax revenue shortfall by the end of the fiscal year on June 30, the U.S. Commonwealth said on Tuesday.

The government said it is considering restructuring about $250 million in payments to the GDB and $90 million to the Central Government Employees Retirement Systems Administration. It may also use a $35 million surplus from a 2009 sale of sales tax bonds to plug the gap, it said.

News the government seems unable to close this year's shortfall through operational budget cuts or revenue raising measures is likely to heighten scrutiny on the U.S. Commonwealth as it struggles with high debt levels and a sputtering economy.

The move was a worry given Puerto Rico's history of kicking its fiscal troubles further into the future, analysts said. In April, the Commonwealth suffered a $380 million corporate tax revenue shortfall when more than half of corporations applied for a three month extension until July 15.

The Commonwealth said it was considering bringing the deadline forward to help meet the current gap.

Puerto Rico's general obligation debt traded at its lowest level this month. Debt that carries an 8 percent coupon and a maturity date on 2035 traded at an average price of $89.188, according to data from Municipal Market Data, the lowest average price it has traded at since May 29.

Trading in the debt, however, was relatively light with over $10 million of the bonds traded by midday.

Carlos Rivas, director of the Office of Management and Budget, said the move did not signal a return to lax budget practices. He said the Commonwealth would submit a bill in the next 90 days to establish a repayment plan for the amounts to the GDB and the Retirement Systems Administration.

"Although this additional reduction in expenses of $340 million will be based on non-operational cuts, we will continue exerting the same fiscal responsibility," said Rivas.

The measures were announced even as Puerto Rico said May tax collections had rise to $753 million, outstripping the previous year's collections by $141 million, or 23 percent, according to preliminary data from the Treasury department. Collections also beat the government's own estimates by $29 million.

Puerto Rico announced a series of measures to boost revenues in its last budget. They included a new gross receipt tax for corporations, an increased excise tax for foreign companies, and a crackdown on tax evasion.

Those measures have been paying off. So far this year, tax collections have rise to $8.02 billion. That amounts to $614 million, or 8.3 percent, more than the same period last year, the Treasury department said. (Reporting by Edward Krudy; Editing by Grant McCool)

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