July 9 Puerto Rico's fiscal 2014 budget comes
with welcome tax increases but contains tax-collection risks
that may increase negative drag on the Caribbean island's
near-junk credit rating, Moody's Investor Service said on
"The credit implications of these new taxes are mixed and
the net effect will depend on actual collections," the Wall
Street credit agency said in a written comment.
Puerto Rico policymakers last month okayed a $9.8 billion
general fund budget for the 12 months started on July 1. The
budget is a 5 percent rise over last year's expenses, contains
payments to ease Puerto Rico's severely underfunded pension
plans, and includes new taxes and tax hikes meant to raise $1
But Moody's, which was the first of three Wall Street credit
agencies to cut Puerto Rico to the lowest investment-grade
rating, said the revenue targets may not be met and that the new
taxes may also sting the island's fragile economy.
"If the new revenues do not meet forecasts, a mid-year
budgetary shortfall will emerge in fiscal 2014, increasing
negative pressure on the rating," Moody's said.
Moody's also said an expansion of an island sales tax in the
budget was a credit positive for both the commonwealth
government and the Puerto Rico Sales Tax Financing Authority, a
major issuer of municipal bonds.
"Further weakening of economic growth could result from the
additional corporate and sales taxes, as well as increased tax
compliance and enforcement measures," Moody's said. "Despite the
increase in much-needed recurring revenue for the commonwealth,
weaker economic conditions would also increase negative pressure
on the rating."