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A ticking time bomb

Puerto Rico’s fortunes continue to fall. Last week, the legislature voted down a proposed tax that would have helped fund a planned $2 billion bond issue by the territory. Now, the future of that bond issue, which is primarily to restore cash for operations and debt service, is unclear. Puerto Rico is facing enormous problems with liquidity -- it doesn’t have enough cash on hand to keep the government operating -- and is saddled with billions in debt with payment due dates approaching. It has also been in a recession for nearly a decade.

The tax proposal voted down on April 30 would have replaced the commonwealth’s 7 percent sales tax with a 14 percent value-added-tax, a type of consumption tax that a government places on a product whenever value is added at a stage of production and at final sale. A Moody’s Investor’s Service analysis this week said available cash at the end of March fell to $1.1 billion, “and we expect this trend to continue unless the commonwealth can execute the planned bond sale. Without the bond sale or another infusion of cash,” Moody’s continued, “Puerto Rico will face increasingly difficult choices, including potential government shutdowns.”

Faster than a glacier

It takes governments more than half a year on average to file audited year-end financial reports, the Municipal Securities Rulemaking Board found in its annual analysis released this week. This 200-day average is “virtually unchanged” from the previous four years, the report said. When the report accounts for “catch-up” disclosures, submissions made more than 12 months after the end of a fiscal year to correct a prior year’s failure to make a timely submission, the time lapse is much greater. When these cases are included the average time between the end of a fiscal year and the disclosure filing is 448 days, roughly a year and three months. That’s more than three months longer than the 2013 average, a change that the MSRB attributes to a federal initiative last year that encouraged governments to review their disclosures over the past five years and file anything that they may have overlooked before.

Oklahoma feeling the oil price pressure

Low oil and natural gas prices are hurting Oklahoma’s tax collections, State Treasurer Ken Miller announced this week. April’s total intake (which include taxes on income, sales, oil and natural gas, motor vehicle and other sources) was $1.32 billion, just 0.5 percent higher than April 2014. Making a big dent was the collection from gross production taxes on oil and natural gas, which dropped by more than 54 percent from last April, to $33.2 million last month, “levels not seen in more than a dozen years,” according to the treasurer’s office. Producers are also scaling back. The Baker Hughes report on drilling activity this week shows 108 oil wells are in development, the treasurer said, down by 39 percent from a year ago. Notably, zero gas wells are in development this week compared to 17 last May.

Over the last 12 months, oil and gas production receipts have dropped by about 6 percent compared with the prior year. But strong collections from sales and income taxes have helped counter that dip. Total tax collections for the last 12 months are up by 4 percent from the previous year.

“These numbers indicate Oklahoma’s economy is still thriving, but growth is more subdued than during the past few years,” Miller said. “Due to April’s tax filing deadline, income tax collections provided a boost to the bottom line to counter the impact of falling gross production tax receipts.”