THE PUBLIC DEBT OF PUERTO
By Teresita
Picó
SISTEM BE EEUOTEMS
RICO
/
INTRODUCTION
Economic development in Puerto Rico is a relatively recent evento
In con-
trast with other countries, the economy of Puerto Rico remained in a primitive
stage during the first three centuries of its colonial history.
It is marked by
a great number of peculiarities which make it stand out from all other colonies of the Spanish Empire of the 15th century as well as the British colonies of the
time. In the New World, Puerto Rico was not a typical Spanish colony.
Spain
»
became conscious of her value in the defense of her empire, and the island
became, rather than a colony, a military post with no emphasis on economic growth as such.
The early years of the 19th century produced two events of
marked importance: 1) a radical change in Spain's economic policy toward her
colony brought about by the promulgation of the "Cédula de Gracias"^, which allowed the island to trade with non-Spanish countries; and 2) a considerable
increase in the immigration.
These two events produced for the first time a
real development in the economy which turned to agriculture as its basis.
The
growth of coffee, sugar and tobacco aimed for exportation constituted the basis
of the first economic cycle.
Commissioner Henry K. Carrol, describing the
island's economy before the American occupation, wrote: The policy which has governed Porto Rico hitherto seems to have been to put all its energy into the production of sugar, coffee, tobacco and cattle and import most of its food supply. . . including rice, flour, fishf, pork and lard, vegetables and canned products, cheese, olive oil and common wines, the food importation (in 1897) reached a value of nearly $8,000,000.
Biblioteca Genera!
SEP
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The official end of Spanish rule came with the Treaty of Paris 1898, - when P. Ro was formally ceded to the United States»
a new chapter in the history of the Island.
December 10,
This event opened
From October 18, 1898, until May 1,
1900, Puerto Rico was under a military government. A provisional charter of
government was granted by the Congress of the United States in 1900 under the
so-called Foraker Act, also referred to as the Organic Act of 1900.
It served
as the island's constitution and determined the operating relationships between
P. R. and the United States.
It was superseded to a large extent by the Jones
Act or Organic Act of 1917 which granted Puerto Ricans American citizenship and unrestricted suffrage for local purposes.
In 1950 at the request of the
people of P. R. , Congress enacted Public Law 600 which upon its acceptance by voters of P. R. in June 1951, provided that those sections of the Organic Act of
1917 which defined the operating relationships between the Federal and Puerto
Rican governments in the political, economic and fiscal fields were to remain
in force and to be known as the Puerto Rican Federal Relations Act.
It also
authorized the p eople of P. R. to draft and approve their own constitution, which was enacted on July 25, 1952.
Thus against this political framework, the people
of P. R. set themselves to solve their economic problems culminating in the
unprecedented 1940 program of economic development. The course of economic development in the island during the half centry of American sovereingty can be considered to fall into three periods from:
1. 2. 3.
1899 to 1927 1928 to 1940 1940 to the present
-3The first period was marked by the extension of the U. S. tariff protection
to P. R. , thus helping to build up the sugar economy to an extraordinary level. It was also characterized by a large inflow into the Island of outside capital,
the consolidation of sugar holdings into private corporations thus substituting
the plantations of the XIX Century. reached a peak in 1927.
It was an era of favorable conditions.
Income
Nevertheless, the economic expansion brought a series
of important problems: 1) economic dependence on the mainland was increased
in grave proportions, due especially to the concentration on a single market (U.S. ) and the one-crop economy, accumulating all economic power in the hands of a small group of sugar corporations; 2) the increase in population prevented
the economic development to bring a rise in the standard of living: tion of the masses of the Island people remains deplorable.
"the condi
Yet, in spite
of the condition of the people, at least an impulse had been given to the economy
especially to sugar. The period 1928-40 was an era of complete stagnation, of business depres sion and mass unemployment.
to fade away.
Tobacco joined the coffee as industries destined
Nature seemed to conspire with two hurricanes striking P>. R.
in the years 1928 and 1932. The year 1941 ushered in a new era, with the coming into office of a new political party, pledged to a program of economic reform and expansion.
Its
central objectives of the so-called "Operation Bootstrap" were clearly defined: 1) accelerating output in keeping with population growth;
ment;
2) reducing unemploy
3) agricultural diversification but more than that, industrialization
of the Island; 4) raising standard of living and income;
-4-
5) working towards reduction of substantial Federal aid upon which the Island had become heavily dependent for its welfare and program of development. ®
The decade of the 1940’s was very much significant for setting the pattern for later development and in creating the necessary institutions and working
tools rather than in actual economic achievement.
Nineteen forty-two marked
the creation of developmental agencies such as Puerto Rico Industrial Develop ment Company (PRIDCO), to aid private enterprise and invest funds in industrial
and agricultural ventures; the Planning Board - in charge of planning future
development of land and of giving cohesion and direction to all activities within
program; and the Government Development Bank, as the fiscal agent for the
government and long-term credit source for industry.
These were followed by
the creation of various public corporations to operate public utilities and bring about a more efficient development of basic services; they were the Water
Resources Authority (1941); the Transportation Authority (1942); Communications Authority (1942); and the Aqueduct and Sewer Authority (1945).
The decade of 1950's produced great achievements.
The Economic Develop
ment Administration (EDA), the basic structure of the economic program, was
created in 1950? and industrialization was achieved under it, changing the eco
nomy from one based on agriculture and related trades and services to one with manufacturing as its chief concern.
Tax exemption was emphasized as incentive
to industrial expansion.
The magnitude of the economic transformation may be best realized by an inspection of economic indicators.
It is significant to notice the change that has
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taken place in the productive sector of the economy.
In 1950
net income
derived from agricultural sources was $149 M. while manufacturing supplied
only $89 M.
By 1958 the importance of these sectors had been sharply reversed;
manufacturing in 1958 contributed $231 millions to Commonwealth net revenues,
representing a growth of 160% since 1950.® By the end of 1957, 500 new in dustries had been established under the program of ’'Fomento”, thug providing employment for over 140, 000 workers.
It has al so contributed to the diversi
fication of the economy especially the manufacturing sector.
Net income, the
most acceptable measure of economic wealth, from 1940-47, increased only 2. 5%.
However, during years 1947-57, rate of increase amounted to 5.4% per
annum.
The study of the public debt is closely related to the path which the economy of Puerto Rico has followed since the early days up to the present time, and its
analysis is better understood and carried through in light of the economic condi
tions of the
different periods.
expansion and development.
It is particularly related to the new program of
In recent years great emphasis and attention has been given by the Island’s
leadership to the field of public finance.
The new program of economic develop
ment has opened new and wider horizons.
The government has set itself on the
march towards creating an industrial climate and raising the standard of living
in the Island.
It has been necessary for the Commonwealth government to finance
much of this expansion program from public funds.
Not only has it had to
provide the traditional basic services without which economic development would
be impossible, but moreover, it has had to invest substantial resources even
before private capital for the creation of industries and manufacturing concerns. After the first years of the new program it was realized that the role of govern ment in industry promotion could not be in direct investment and construction
of industries, but rather it would take the form of creating the facilities basic to
the operation of new industries.
Thus, more and more education, improved
health and housing conditions, a large supply of electric power and water became
aims to be realized which would in turn be fostered to raise levels of living and to increase labor productivity.
Modern roads, airports, would facilitate manu
facture and commerce.
Funds are needed to carry on these operations and they must come from
two principal sources: taxation and borrowings.
Borrowing is generally a sup
plementary expedient of governmental financing.
The greater part of govern
ment's expenditures must be financed out of taxes and current revenues. this seems to be the ideal situation.
Yet,
Favorable condition as such has existed
in Puerto Rico as for example during World War II, a condition prevailing only
-2for a limited period of time.
Financial requirements of a government are, as a
rule, in excess of what can be provided by current revenues.
Continual borrow
ing and perhaps a permanent increasing debt are fiscal possibilities, and in fact, a reality.
The development program in Puerto Rico has demanded large sums
of money, surpassing amount of government revenues.
As a matter of fact,
certain taxes have been eliminated upon agreement that they constituted "drags"
on the economy;^ also emphasis has been given to industrial tax exemption. These cases have meant loss of certain revenues, a fact which throws the budget further out of balance.
Thus the need of fiscal borrowing.
The new program of expansion has given a new meaning to public indebted ness
and credit.
Actually it plays a role of primary importance.
Great
emphasis has been placed on debt management and the scope of public indebted
ness has become far-reaching.
Long-term borrowing - Puerto Rican obligations-
has become the object of serious consideration on the mainland as well as in the Island.
Every aspect of its public debt - the purposes, methods and control of
borrowing, the debt margin, the history of public debt, its policy, its relation to economic growth and other aspects of the economy - have raised important
questions and have acquired a new meaning and interest. Like the power to tax, the power to borrow is inherent in all sovereign
governments, subject only to such limitation as imposed upon themselves by
constitutions or any statute creating a structure of governments.
In 1897 when
Spain gave the Island a constitution establishing self-government, Puerto Rico became legally constituted to frame its laws concerning municipal finances,
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to raise the necessary revenues to cover budgets, to contract a loan or incurr in debt,
The First Organic Act of 1900, enacted by the Congress of the United
States, provided for the issue of bonds and other obligations by Puerto Rico or any municipality to cover expenditures, protect public credit, for reimbursement of money and for other purposes.
Moreover, it limited the debt-incurring
power to 7% of assessed valuation of taxable property:
. . . No public indebtedness of Puerto Rico or of any municipality thereof shall be authorized or allowed in excess of seven per centum of the aggregate tax valuation of its property. 14 In 1917, in view of the necessity for a wider margin especially concerning
the Insular Government and the major municipalities, the Jones Act or Organic Act of 1917 provided for an amendment, raising the limit of Puerto Rico and the municipalities of San Juan, Ponce and Mayagüez to 10% of assessed values.
Moreover, it limited the debt incurring power of any other subdivision of muni cipality to 5% of assessed valuation of taxable property. 1®
The new Constitution enacted in 1952 did not in any way alter the provisions of the Organic Act which deal with the issuance of governmental obligations includ
ing the imposing limitations on debt.
The Puerto Rican Federal Relations Act^
wherein all these provision are now contained, gives the Commonwealth full res ponsibility in the administration and expenditure of public funds and in the incur ring and management of its public debt with exception of its limitation on the incurring capacity.
The municipalities are likewise responsible for the conduct
of their own fiscal affairs.
Concerning the legal limitations on municipal public
debt, the Federal Relations Act extended the margin of 10% which already
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prevailed for some municipalities, to the Municipality of Arecibo. It has become apparent that in view of the continuous economic growth in the
last decade, it will soon become impossible to finance the essential public improve ments within the present debt limits. 17 Thus, for this reason, a Joint Re solution18 ■was passed petitioning Congress to remove from the Federal Relations Act the debt limitations of the Gcmrnonwealth and its municipalities which carried over
from the Organic Act of 1900 and 19 17, the debt limitation to be determined by the Constitution;
Provided, however, that until the Commonwealth of Puerto Rico, by amendment of its constitution, shall have adopted limitations upon its debt-incurring capacity, it shall net exceed limitations upon its public indebtedness set forth in Section 3 of the P. R. Federa. 1 Relations Act. This bill was presented in. Congress.
Meanwhile in the Senate of Puerto
Rico the desired new limitations v/ere presented in the session. includes:
The proposition
1) provision for the retention of the present 10% of assessed values
for general purpose tax borrowing; 2) an additional limit up to 10% for educa
tional purposes and public works such as roads, streets and highways; raise margin of municipalities to a range between 5 to 10%.
3) to
This way it will
prevent the creation of overlapping districts.
Concerning the municipalities, actually the provisions of the Organic Act
are supplemented by insular legislation and by the Municipal Borrowing Law regulating the procedure to be employed in the exercise of their borrowing powers such as the purposes of bond issues, payment of principal and interest,
mechanism of bond ordinance, use of fiscal agent and others.
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It is a sound concept of public finance that while acquisitions of assets with
short useful life should be financed with current income, on the other hand large
expenditures should be the object of long-term borrowing, in this case, munici
pals bonds.
In Puerto Rico there exists three kinds of governmental borrowing
units whose obligations fall within the definition of a municipal bond:^l
1. 2. 3.
The Commonwealth of Puerto Rico Seventy-five municipalities'^ Thirteen public corporations
In classifying long-term borrowing, municipal bonds fall within three categories according to the extent of the liability of the issuing body for payment
and the sources of fund for making payment of interest and principal: 1) tax-
secured bonds which can be general credit obligations or special assessment bonds; 2) revenue bends;
3) double-barrel bonds.
Of this only the general
obligation and the revenue bonds^S are outstanding in Puerto Rico, the latter being the obligations of the public corporations.
The Commonwealth and the municipalities are the units with the power to issue general credit obligations and therefore with the right to levy unlimited
ad-valorem taxes.
These governmental units are empowered to raise a real
and personal property tax, whose proceeds are used for the payment of debt
service.
This tax is unlimited as to rate or amount.
Under the Municipal
Borrowing Law !:the governing body shall in the body ordinance, provide for the annual levy of an ad valorem tax, without limitation of rate or amount, upon all the taxable property in the municipality suf ficient. to pay the principal of and interest of all bonds issued under this Act as they-become due, excluding however, any interest provided to be paid from bond proceedsi'24
-bNot only is this safeguard provided for municipal obligations but moreover, the Constitution of Puerto Rico specifies the servicing of the public debt of the
Commonwealth also as a first charge on revenues:
"interest on the public debt
and amortization thereof shall first be paid". 25
The attitude of the citizens and their public officials toward debt is a primary credit factor.
"The good faith, the credit and the unlimited taxing power are
hereby pledged for the punctual payment. "^6 This attitude of willingness to pay can be gauged in the case of Puerto Rico by the numerous legal and administrative safeguards which have been provided.
The legal ones have been given, as
provided by the Constitution and the Municipal Laws.
Another factor is the exist
ence of a statutory emergency fund to be used in case of public emergencies including situations requiring protection of the credit of the Commonwealth and
its municipalities.
This fund receives up to $1, 500, 000 of any unencumbered
surplus in the general fund of the Commonwealth at the end of each fiscal vear.
The maximum amount to be carried in it is $20, 000, 000.
This fund amounted
to approximately $6, 100, 000 as of June 30, 1959.2^
As it has been seen the legal debt margin is also a safeguard of indebted ness serving as a regulatory measure for the governmental unit when raising
the question of amount issued in bond ordinance.
The ratio of net debt to legal
debt incurring capacity^ serves a similar purpose for it depicts the relation of the debt to its limit and thus giving a picture of how far can it still go and
how much is still available for envisioned future plans.
Furthermore, the
Governor is empowered to veto any municipal bond ordinance where lagally
- 7 available debt margin is not present or where adequate revenues are not or can
not be committed to debt service. The history of public debt in P. R. follows a somewhat similar pattern as the history of the Island's economic development.
Public debt and finance are
very much influenced by the prevailing factors, components of the economic
climate of a particular year, decade or period.
This interrelation of economic
aspects can be traced back to the beginning of economic development in the Island, in the early days of the Spaniards.
In 1813, under guidance of its first
Treasurer, Alejandro Ramirez, government finances improved steadily.
He
successfully sought a decree from the Spanish Crown: free trade and 15-year
tax exemption to immigrants contributed in such a considerable way to stimulate the Island's economy that by 1837 all Treasury obligations had been liquidated and annual contributions were being made to the Spanish government. ^9
When civil government was established in 1901, the Insular Government had
no bonded or floating indebtedness.
The municipalities on the other hand, were
burdened with a debt of approximately $500, 000.
In the early years of the new
century, the Insular Government made little use of its borrowing powers.
The
year 1907 marked the date of the first bond issue; a loan for $1, 000, 000 to be
utilized for the construction of roads.
From thereon public indebtedness stead
ily increased through the next two decades.
Approximately $40 M. were spent
by the government on roads, schoolhouses, municipal utilities, and combined
irrigation and power plants - helping to lay the foundations for economic expansion and increase sugar production.
Government provided essential
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development capital in the form of a variety of public works.
The year
1928 was a heavy indebted year for the Insular Government.
Net debt increased
in a period of five years from $10, 500, 000 to $25, 367, 000.
The following year
indebtedness remained high due specially to the destructive hurricane of
September,1928 which gave rise to extraordinary needs.
was dene to crops and property was destroyed.
Considerable damage
Coffee was hard hit; thus
production fell, income contracted drastically and revenues were easily consumed.
Large sums of money had to be raised. It has been said that the provisions of the Organic Act concerning the muni
cipalities are supplemented by the insular legislation.
This was the case during
the 1930’s depression when provision was made for the Insular Government to
anticipate necessary financial funds to the municipalities for the payment of debt service requirements in the event of emergency due to insufficient revenues. Yet,
even in this decade of business failures and defaults, the municipalities as well as the Commonwealth kept their record of non- default, and non-managed re
fundings. The years of World War II brought favorable financial conditions to Puerto
Rico.
The Treasury found itself the recipient of sizeable sums of revenue from
rum sales on the mainland. 30 The taxes on the rum sales amounted to $65. 8M as demonstrated by 1944 statistics.
1 As may be seen from graph No. 1, public
debt, especially that of the Commonwealth showed a marked descending trend being reduced from $26 millions (in round numbers) in 1941, to $8millions in 1949, through the advanced payments of the greater numbers of bond issues
o
-9able to be redeemed.
These were early years of the new program of economic
expansion, engaged in creating the working tools and setting the pattern, which shows that the government as well as the public corporations already established, profited from this favorable condition in their financial operations.
This surplus was fortunate for it gave the Puerto Rican Government a sort of unearned increment which it quickly applied to the financing of a substantial part of its broad program of economic development. This exceptional source of income was temporary, ending approximately with the close of the conflict.
The new decade of the ’50's marked the rising again of the bonded debt for
both the Commonwealth and the municipalities.
The revenue surplus was gone
but the development program however, was still in high gear.
Therefore, a
steady increase, year after year, is palpable in this period of actual and real achievements.
For instance, in 1954 a bond issue of $21 million was authorised
by the Legislature, the proceeds of which would be used to finance a number of basic projects to speed up the development of the Island.
"
. . . either by facilitating productive activity as the construction of highways, marketing centers, air and maritime port facilities, and rural telephone installations- or by providing the physical plant for expanded and improved social services, such as schools and hospi tals. The largest share of the proceeds, some $7, 593, 000 will be used for road building. The regulatory statutes neither specify nor restrict the purposes for which
debt may be incurred by the governmental units. 34
pUrpOses are regulated
by the need of the people determined to improve their standard of living and by
a government determined to bring it to realization with the knowledge of what is needed and the relative means of action to carry it through.
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Public indebtedness has followed a steady increase since 1950 to the present time.
The question comes up: How much of a burden does it represent against
the prevailing public funds? How does it compare as an actual burden, to the
situation existing in 1940.2
Using the year 1940 as basis of comparison, net
income, increased four times in the period from 1940 to 1953.
Commonwealth
net revenues- funds at the disposal to face debt service payments - showed an increase of nearly 5 1/2 times in that same period.
On the other hand net debt
showed a minimum increase: after having followed a descending trend during the decade of 1940, it raised again to a level exceeding only by $1, 653, 000 the
level of 1940. While determining trends, ratios are commonly used to compare the debt position and debt burden of different years, a group of them confirming the same fact, will give the best answer to such questions.
One ratio commonly
used by municipal analysts is tire one showing the proportion of governmental
revenues absorbed by debt service.
This indicates the strains that are likely to
be caused by a reduction in revenues.
The smaller the ratio, the less likely it
is that a cut in revenues will jeopardize the servicing of the bonded debt.
Apply
ing this ratio to the Commonwealth of P. R. and comparing again with the year 1940: it indicates that debt in 1940 was quite heavy, net debt as a whole repre
sented 98% of total net revenues while 7. 6% of them were absorbed by the debt service requirements of that year.
picture:
The year
1953
shows a different
revenues had increased outstandingly andthus debt represented only
18. 6% of net revenues. ^5 The effects of the new economic program were being
-11Other ratios,
felt.
also indicators of debt position and debt burden such as
that relating debt and debt service requirements to value of property, and to
legal debt incurring capacity; also comparison of debt with figures indicative of community's income and standard of living of inhabitants (see introduction) show the inferior position of public indebtedness .in 1940 - just before the launching of the active program of economic expansion, - in comparison with
1953, when economic activity was already set toward its goal, the second decade
of program had started and just before debt was to start increasing.
Debt ratios and per capita debt burden are closely related to changes in population and economic trends.
If such trends ie, in population, employment,
standard of living, diversification in economy - are in the right direction, they will reflect on the debt paying ability.
the last years.
This has been the case in P. R. in
The continued growth of its economy during the fiscal year of
1957-58, despite the economic readjustments in the United States due to the reces sion, is good evidence of the strength gained by the Puerto Rican economy in the
last decade. ness.
This in turn has shown its effects on the position of public indebted
The fact is that Puerto Rico's debt has remained at a remarkably low
level, the Commonwealth's and even more, that of the municipalities vhich have
shown an increase of only $12 millions since 1940. 37
’’Puerto Rico's proven
capacity to build future progress and improve the welfare of its people largely
out of current income has enabled the Commonwealth to operate with a moderate debt burden" *38 The economic indicators show a high increase - net income
rose to $1, 079. 0 millions in 1958.
Commonwealth debt has increased also, it
-12is true, but compared to the growth of net income it shows a moderate picture.
Net revenues have increased also and only a low percent of 2. 5 has been used to service the debt.
The next question is: How much of a burden does it represent
on the public, being as it is ”a debt of the people.of Puerto Rico1’ $9 To what
extent is it a burden to taxpayers?
First, the relation of per capita net debt and
per capita personal income indicates that public debt is rather conservative and
moderate:
combined per capita net debt of Commonweáth and municipalities
showed an increase of only 14 points from 1953 to 1958, while per capita personal
income showed increase of $80.
This last .figure reached $480 in 1958, a level
higher than that of any republic in Latin America except oil-rich Venezuela.^®
To what extent is public debt a burden to taxpayers?
Long-term debt of the
Commonwealth and the municipalities is paid by means of property taxes levied according to assessed valuation.
These taxes, as it has been pointed out already,
are unlimited as to rate and amount.
They have always been more than sufficient
for the purpose of debt service and sizeable redemption funds have been built up from that source of revenues, amounting to $16, 517, 000 as of December 31,
1958.
41
However, property tax collections constitute only about 5 1/2% of all
Commonwealth revenues, this being a significant fact.
Moreover, with the im
provement in standard of living, a virile economy is being formed, one toward
which more new taxpayers are converging which distributes more widely the
weight of property taxes.
Finally, value of taxable property has shown a steady
increase in the last years and a low ratio in its relation to net debt. ^2 it must be clarified that the preliminary figures for 1959 including the bond issues that
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were to be sold in the course of the year, show increase in this ratio to 5. 41%. 43
In general terms the capacity of the governmental sectors to induce private
capital to invest in Puerto Rican obligations under satisfactory terms depend to a large extent on its financial solvency.
The principal index of this solvency is
found in the relation between the debt service requirements and the capacity to
attend them.
P. R. 's public debt and its financial burden has proven to have
remained well within the economy's debt carrying capacity.
Next to the program of incentives to stimulate new industries, within the new framework of economic development, there is that one aimed, as has been seen, at creating the basic conditions of its best functioning: development of
those factors external to industry but essential to its subsistence.
Next to the
Commonwealth and the municipalities in its bid to raise the standard of living of
its people, to create those basic services, are the public corporations, establish ed as instrumentalities of the government with the purpose of developing with the greatest effort the program of economic expansion aimed at and stated in 1941.
These entities are self-financing, revenue producing enterprises whose
activities and debt are covered exclusively from the revenues of their operations without forming part of the Commonwealth's debt: "The bonds shall not be deemed
to constitute a debt of the Commonwealth of Puerto Rico or of any of its munici palities or other political subdivision. "44 Yet, the Commonwealth recognizes its moral responsibilities with respect to them.
For that reason debt outstanding
of these corporations is carried together with that of the Commonwealth and the municipal governments as part of the overall public debt picture of Puerto Rico.
-14Of the thirteen public corporations 45 authorized to borrow money, two of
them stand out for their ability to borrow funds for the expansion of their oper
ations.
These two are: the Puerto Rico Water Resources Authority which
operates an integrated electric power supply and distribution system selling
over 99% of all the electricity consumed in Puerto Rico;
46
and the Puerto Rico
Aqueduct and Sewer Authority operating and developing all public water supply
and distribution systems and sanitary sewage systems.
Public corporations are relatively new in the history of the economy of Puerto Rico.
to 1941.
With the exception of the Housing Authority, there was none prior
There was an embrionic system, producer of hydroelectric energy
with total assets amounting to $13, 288, 806.
47
In May 2, 1941, the Water Re
sources Authority was created, a body corporate and politic. 48
such it has
power to borrow money and to issue bonds for any of its corporate purposes and to secure their payments by pledge of its revenues.
It is the largest in terms
of assets and net revenues, as well as in terms of outstanding revenue debt. This latter exceeds the combined debt of the Commonwealth and all the munici
palities.
The Authority is constantly expanding its operations to furnish additional electricity for Puerto Rico's growing industry and commerce.
1947
The year
marked the beginning of an extensive Capital Improvement Program.
At
the same time the Authority is engaged in the other aspect of the new economic
program - the raising of the standard of living: It is pushing forward very rapidly with rural electrification.
Since 1952, the United States Rural Electri
-15-
fication Administration (REA) has been purchasing bonds of the Authority under a loan agreement providing for the expansion of electric service in the rural area of P. R. 49
To finance the capital improvement program, by which the present system was
largely created, the Authority issued between January 1947 and December 1958, $181, 800, 000 principal amount of Electric Revenue Bonds, of which $26, 300, 000 were sold to REA.
On January 1959, the outstanding bonded indebtedness
amounted to $163, 738, 000.
It has also financed construction by temporary bank
borrowing which has been subsequently repaid from the proceeds of revenue bond issues.
Earning powers of a public corporation warrant its borrowing through revenue
bonds and notes.
In analyzing the financial condition of the Authority, it is of
primary importance to determine how revenues stand in relation to the annual debt service in a set of years, going backwards, and over the life of the bond issue.
The Water Resources Authority has achieved an excellent record of debt
service coverage as seen in the last period of years.
Debt service coverage in
1953 was 2. 05; in 1958 principal and interest was earned 2.42 times.
This is
the best indicator of its capacity to face debt outstanding, the fact that its revenues are more than sufficient to cover debt service requirements.
More
over, if we look to this relation over the life of the outstanding issues, here
again there is a wide and adequate margin: revenues for the calendar year of 1958, available for payment of debt service were $14,441,000.
The maximum
debt service for any future year on outstanding issues will be$7, 899, 193,
-16indicating a coverage of 1. 82 times. 51 The financial statements of the Authority over a period of years show a
continued increase in long-term debt.
years it has tripled.
In the last decade, in a period of nine
But on the other hand, total revenues have shown a similar
increase in the same period, proof of its financial strength and sound condition. Moreover in keeping with the government’s actual policy of using ordinary
revenues as first choice in capital inversions, the Authority has financed a good part of its program of capital improvement by means of revenues.
In the period
from May 1947 to Dec. 1958, from a total of $201,988, 000 invested, 2.2.aJo had come from revenues.
Yet, still the greater percent comes from bank borrow
ing and the proceeds of bond issues.
Nevertheless, increase and heavy outstand
ing debt finds justification in view of the great apportations of the Water Resources
to the economy of Puerto Rico.
The Commercial and Financial Chronicle testifies
to this contribution:
As the industrial development of Puerto Rico vigorously goes forward, the Puerto Rico Water Resources Authority has been continuously expand ing as it provides the additional electric power required for industry, com merce and homes. 53 The Aqueduct and Sewer Authority came to life in 1945.
Prior to this the
aqueducts were under the ownership and administration of the municipal govern ments.
By the time of its creation all water and sewer facilities were transfer
red to it.
The Authority made no payment for these systems, but undertook to
retire the outstanding bonded debt incurred for their construction.
The debt
amounted to $1, 287, 000 of which $829, 000 remained outstanding on July 1, 1949^4
at which time funds were provided for their payment out of the proceeds of the
o
-17Authority’s first issue of revenue bonds. construction.
This issue also provided funds for new
Subsequent short-term bank loans of $8. 5 millions have also been
applied to construction.
Legislative appropriations and net revenues account
for the rest of capital investment.
The present phase of F. R. 's development, involving as it does both raise
in standard of living and greater industrialization, has made and will continue to make heavy demands upon the provision of adequate water and sewer systems. Similar to the Water Resources Authority, the Aqueduct and Sewer has been engaged in Capital Improvements Programs: 1) one from 1949 to 1956 - of the
expenditures involved in this period ($40,880, 000) 44% came from borrowings,
30% from appropriations by other governmental bodies^5 and 21% from revenues. ~ 2) Current Improvement Program (1957-1961) started with a short-term credit agreement with the Chase Manhattan Bank, to secure funds for the new construct ions.
As of December 19 58, net utility plant was valued at $114, 595, 000 against
debt of $31, 542, 000 consisting of $28, 542 revenue bonds (3 1/2 Term bonds dated
1949) and last issue, Series 1957, and $3, 000, 000 bank loans. 5 7 Like the Water Resources, it has shown an excellent record of debt service coveragefsee graph 3).
This together with its record of financial operations are indicators of the
soundness of the Authority’s growth and present earning status.
Gross revenues
have more than tripled in the first decade of operations and this has corporation to use them as first choice in capital inversions.
enabled the
In the present
Improvement Program it has been accordingly estimated that the total borrowings
for such program will not exceed $24 millions, half of this amount already provided by last bond issue. 58
-18r .
Like the Commonwealth and municipalities, the public corporations have provided legal and administrative safeguards for its revenue bonds and addition al issues of bonds.
For instance, the Aqueduct and Sewer Authority, under the
Trust Indenture, has accorded to deposit all revenues of the system in a revenue fund.
Any remaining amount in the fund after covering operating and maintenance
expenses, are pledged for the payment of principal and interest of the oustand-
ing bonds as well as to create reserves for such purposes.
Deposits are made
in the special fund created and designated the Sinking Fund.
The corporations
have no legal margin as to the amount of debt to be incurred.
Yet, their Trust
Indentures specify a certain ratio of average alnnual net revenues to debt service to be present as a condition for the issue of additional bonds. 6® The Puerto Rico Industrial Development Company stands third in rank as to amount of outstanding bonded indebtedness.
Yet, in the building of the Island’s
new economic structure, in its industrial development, PRIDCO stands first.
In
the early assessment of P. R. ’s economic plight there was recognition of the
limitations of agriculture as a source of employment of an increasing population and thus the need of new industrial enterprises to expand job opportunities.
To
deal with this problem, the Legislature created PRIDCO in 1942 and gave it broad powers. 61 With the creation of the Economic Development Administration (EDA), PRIDCO
was continued, but as corporate subsidiary of EDA.
Its functions in the new set
up were reoriented to enable it to accomplish specific objectives in the industria
lization program: providing for buildings and equipment, technical assistance
and partial loans to new industries. 62 ’'The future of PRIDCO is dedicated to
-19-
attaining Puerto Rico's goal of 2, 500 factories by 1975, with a standard of living then equal to the level now enjoyed by the people of the United States»
Large amounts of funds are needed and invested in PRIDCO programs. Capital expenditures in 1958 reached an unprecedented $18, 100, 000 of which 73% was for construction.
At the end of the year 1958 the Company sold $15, 000, 000 of
General Purpose Revenue Bonds, secured by the majority of gross revenues from rental properties.
The estimated annual rentals.to be received under the lease
contracts amounted to $3,427, 083.
The highest annual principal and interest
payment during the life of the bond amounts to $1, 168, 360, with a coverage, thug,
of 2.93 times; this indicates PRIDCO's financial strength and high earning power.
The proceeds of this bond issue have been used to repay the temporary borrow
ings^ and to continue its program of industrial development.
PRIDCO has
followed most faithfully the policy of financing out of revenues.
Actually its
bonded indebtedness consists only of one bond issue.
A whole section of the
Legislature Act by which it vzas created, is devoted to the authorization and statements of the conditions under which bonds can be issued, i. e. : their
maturity dates shall not exceed 50 years from their respective dates; shall not be considered a debt of Commonwealth or any municipality; are tax-exempt;
legal investment for fiduciaries and collateral security for public deposits and other statements concerning PRIDCO's obligations. Puerto Rican securities- as they include tax-secured bonds of Common wealth and municipalities and revenue bonds of the public corporations are
traded over the counter.
The Government Development Bank serves as their
-20-
fiscal agent. ^6 jn performing the task of official borrowing agent - the Bank
advises, plans, co-ordinates and executes all pertinent technical services. of a single authorized fiscal agent offers certain valuable advantages.
Use
Organized
as a public corporation, the Bank offers flexibility in operations and it eliminates
duplication of organization and effort that would follow if each borrower acted independently.
The Bank's fiscal agency function also avoids disorderly compet
ition for limited funds, as it provides an institutional means of accumulating
financial experience for the benefit of all public borrowers.
The new program and expansion of economic activity has brought with it a greater emphasis on debt management and a working towards the formulation of a sound debt policy in terms of the new economic conditions.
for the realization of what they call a "conservative" policy. of basic points.
They have striven
It consists chiefly
To finance high rate of capital inversions and public improve
ments by means of annual revenues.
Revenues must be the first choice and
borrowings be considered as a complementary measure.
The rapid expansion
of the economy in recent years has made this objective a reality.
Acceleration
in economic activity has been translated into increasing income.
In 1957 the
Commonwealth was financing 64% of its expenditures from revenues.
Munici
palities were sufficient to finance 50% of its capital inversions and corpora tions revenues, 29% of their capital expenditures.^
Hence this factor has made possible another basic point in the delineation of the policy concerning indebtedness.
The norm to follow has been that of keep
ing debt within a moderate level, especially during periods of substantial revenue
-21expansion.
That is, to channel the expansion of public debt in such a way as not
to exceed the growth of the economy and moreover annual service requirements be within a reasonable level, along with other exigencies of revenues arising from other governmental needs that also has to be attained.
To maintain public
indebtedness to a level which is wide within the reach of their financial capacity, with reasonable margins without being used, provides the benefit of establish
ing a better market in the mainland for Puerto Rico's securities; for this is proof of high financial solvency, a quality highly sought in municipal securities.
In giving practical meaning to the new program objectives, the Government has directed all factors to accelerate the improvement of the economic and
financial climate of the island as to be able "to maintain a reasonable flow of mainland investment funds, not only for industrial expansion, but in.the financial
fields, investment in Puerto Rican obligations at satisfactory interest rates.
The immediate objective in carrying out this is the establishment of top-grade ■
rating for them in the United States money-markets.
A step toward this objective
was achieved by the Government Development Bank.
In its effort to promote
economic expansion and strong financial condition of the island, influenced in the passing of an amendment of the Banking Law of the State of New York in February 1954 by means of vhich the obligations of the Commonwealth and its municipalities were to be considered legal inversions for the Savings Banks of
such state.
69
Thus the final objective in the formulation of the debt policy has been stated: the establishment of a sound market for Puerto Rican obligations.
Some years
-22-
O
ago due to the unfamiliarity of many investors with the changes that have been
ta.king in Puerto Rico» s unfamiliarity with the securities themselves, the market was somewhat limited and higher yields prevail in P. R. 's issues as compared
to similar bonds from jurisdictions in the United States. That is the reason why
a major effort has been directed to the securing of credit from external sources of private investment.
’’Economic changes are represented in movements of population and industry,
in the relative prosperity and property of an entire geographic region, in invention and obsolescence”.
70
They will not only affect the ability and willingness of an
obligor to pay, but do and will affect the quality and value of any investment.
And P. R. , as a vivid example, testifies to this fact.
As a matter of fact there
has been an increasing acceptance of their securities in the national market; and
the economic and social progress of the last few years has been a decisive factor.
The relationship of P. R. to the mainland has been in some way influential; yet, this would be worthless without the island's own effort toward greater economic
development.
Now it is more w idely known the fact that the holders of these
securities are protected by constitutional guarantees which make the principal
and interest a first charge on all revenues of the Commonwealth as well as of municipalities; a first charge also for the corporations after operating and maintenance expenses,
The philosophy behind this type of legislation has
undoubtedly contributed to the excellent credit record of the Island which shows
no default or forced refunding on maturing bonds, throughout its history, since the early days of the Spaniards, during the depression of 1930's, right up to
the present time.
O
-23Puerto Rican securities carry with them very highly rated investment
characteristics, more than that, unique among all municipal bond tax-exemption.
issues:
United States municipal bonds are exempted from Federal tax
and state tax on the state issuing the bond; yet that same issue may be taxed
in another state.
Puerto Rican obligations on the other hand, are exempted
from all taxes in Puerto Rico as well as on the mainland, as accorded by the
Organic Act of 1917 and carried now in the Federal Relations Act. Terms of bonds are now an attracting feature as compared with past years. In the early days, bonds were issued for extremely long terms.
For instance,
in 1927, irrigation bonds were issued to run for a period of 64 years, that is, to mature in 1973.
Thus, these bonds are still being paid.
No adequate effort
was made at that time of limiting term cf life so as to avoid unnecessary interest charges and possible financial embarrassment in the future.
Today conditions
are improved which enable bonds to mature in a short period of time.
Today all
bonds are issued for 20 years or less except those issued by public corporations.
There is a prevailing policy of scheduling bonds for retirement within the life of the improvements financed. In general, the low-debt level, the assessed valuations, debt ratios, have placed Puerto Rican securities in a safer position as to safeness of principal and interest is concerned.
Proof of the wider market acceptance is given by the
Government Development Bank in its function as direct market for these securi ties.
The Bank itself has acted as lender, advancing interim credits or short
term funds to public corporations or acting as primary market for many
-24municipality
bonds.
Now, need for the Bank's direct financing is diminished
as greater reliance is given in arranging credit with private institutions.
The development of a growing local market for municipal bond issues, crowns the achievements in this field of P. R. 's economy.
In 1953, 72% of the
public debt, including all sectors was in the hards of United States investors, while only 28% remained in the Island.
In 1955 it had increased to 31% and by
1959, 20% of just the municipal debt was held within the Island.
These figures
indicate that the financial resources have increased to such an extent as to being able to hold such a high proportion of the public debt.
This fact has other
financial significance: first, it helps them to get a lower interest, and secondly, undoubtedly, nart of the returns to many of the local investors, indirectly at
least, finds its way into the Commonwealth's Treasury via some sector of the
tax system.
The tracing of the debt policy has served as synthesis in the study of Puerto Rico's public indebtedness.
Public debt of the three sectors has been analyzed!,
It has proven to be in good position, reasonable in relation to the capacity for
attending it as shown by the economic indicators, among others, of net income,
insular and municipal revenues, legal-debt incurring capacity,- Puerto Rico's over-all public debt and its financial burden have remained well within the economy's debt carrying capacity.
It has been noticed that P. R. has been, for
the last two decades, and is actually now engaged in a program of economic
development, with basic aims as goals:
1. 2. 3.
to create an industrial climate raise standard of living increase productivity
-25-
In accordance with this, indebtedness forms an integral part of the economic
activity directed under the new program.
Thus debt is not looked upon as a detri
mental factor but rather as a symbol of P. R. ’s bid and effort toward better and
improved ways of living which will in turn affect not only the economic but the
social, political and cultural aspects of the Island.
The actual government is
engaged in bringing about permanent improvements with the help of borrowed funds which future generations willenjoy and profit.
It has,moreover, realized the importance of formulating a straight-forward, well-defined debt policy as well as establishing a sound mainland and local market
for Puerto Rican securities, achieved by maintaining basic soundness and attrac tiveness of the Island's obligations.
As it has seen expressed: "To achieve a
greater insight into the conditions and requirements of the money-market as they affect Puerto Rican obligations at any time.
The public debt has been studied, very specially, in 'the light of the new eco nomic program.
In the early days- 1920's, 30's - this economic expansion could
not be foreseen at all. important role.
The building of roads, schools, did not play such an
This has been a hard task; still a lot remains to be done.
But,
a complete understanding and realization of its need and significance has been achieved, and with it the importance and the role played by public indebtedness in the economy of a country: there is need for continued improvement in those public
services basic to a successful economic expansion.
The flow of borrowed funds
which is actually being channeled into basic development, will continue to improve the foundation for future economic expansion.
-26-
APPENDIX I;
FREE BORROWING MARGIN
MUNICIPALITIES: 10% of the estimated 1959-60 assessed valuation for San Juan, Ponce, Mayagüez and Arecibo
$98,888,395
5% of the estimated 1959-60 assessed valuation for the other municipalities
30, 110, 548 $128,998,943
Total
Less: Net Debt Authorized and Proposed Debt
$25,242,797 4,077,000 12,237,000a
Free Borrowing Margin
$ 41,556,797 $ 87,442,146
COMMONWEALTH GOVERNMENT:
10% of the estimated 1959-60 assessed valuation Less: Net Debt Authorized Debt
$159,109,491 $84,922,000 67,200,000b
Free Borrowing Margin
152,122,000
$
6,987,491c
aThe Capital of Puerto Rico has $19, 100, 000 of bonds authorized to be sold during the next four years. ^Authorized: Act #106 of June 27, 1957 Act # 85 of June 23, 1958 Act # 46 of June 17, 1959
$ 5,200,000 30,000,000 32,000,000 $67,200,000
cCalculated from Commonwealth and Municipal Financial Division, Government Development Bank for Puerto Rico
SIGNIFICANT DATA ON PUERTO RICO'S PUBLIC DEBT COMMONWEALTH AND MUNICIPALITIES, FISCAL YEARS 1940, 1954-58* ( In millions )
MUNICIPALITIES
C OMMON WE A LTH ITEM
1958
1957
.1956
1955
1954
1940
1958
1957
1956
1955
1954
1940
Net Public Debt
61.4
48. 6
43. 6
39. 1
33. 5 .26. 8
19.6
22. 0 . 17. 7
16. 1
17. 3
17. 6
Comm. Net Income
1 079.01014.2 956. 1 982. 0 970. 7 228. 0
Net Revenues
203. 6
Net Debt, per capita (dollars)
26. 5
21.4
19. 0
17. 3
157. 5
104.4 104.4
Legal Incurring Capacity Debt Service Require ments
5. 1
197.8 175. 4 161. 1 156. 1
4. 3
4. 1
1079.0 1014. 2 956. 1 982. 0 970. 7 228. 0
27. 5
33. 5
34. 9
32. 2
19. 6
21.4
8. 0
15. 0
14. 3
8. 5
9.6
7. 8
7. 1
8. 0
9.4
92. 8
87. 5
31. 2
9 3. 0
83. 0
83. 0
78. 0
69. 2
21. 5
3.7
2. 5
2. 1
3.4
3. 5
3.4
2. 7
2. 7
2. 8
7. 7
PER CENT
Ratios: Net Debt to: Comm.Net Income
5. 7
4. 8
4. 3
4. 1
3.4
11. 8
1. 8
2.2
1. 8
1. 7
1. 8
Net Revenues
30. 6
24. 6
24. 7
24. 3
21. 5
97. 5
58. 5
63. 0
55. 0
82. 1
80. 9 220. 0
Legal Debt Incurring Capacity
39. 0
46. 6
41. 5
42. 1
38. 3
85.9
21. 1
26. 5
21. 3
21. 0
25. 1
81.9
(Continued from preceding page) Ratios: Debt Service Requirement to:
Comm. Net Income
.5
.4
.4
.4
. 3
1. 0
.3
. 3
. 3
,. 3
. 3
1. 2
Net Revenues
2. 5
2.2
2. 3
2. 3
1. 6
7. 6
10. 1
10. 0
10. 6
13. 8
12. 7
35. 0
Legal Debt Incurring Capacity
3. 2
4. 1
3.9
4. 0
2.9
6. 7
3. 7
4.2
4. 1
3. 5
3.9
13. 0
1573.4 1157.2 1004. 1 982. 0 875. 3
312.0
Assessed valuation of Taxable Property 1573.4 1157.2 1004. 1 982. 0 875. 3 312.0
3.9
4. 2
4. 3
4. 0
3.8
8. 6
1. 2
1.9
1. 8
1. 6
2. 0
* Calculated from: Annual Reports of the Secretary of the Treasury: 1954, 1955, 1956, 1957, 1958, Special Report on the Commonwealth of Puerto Rico, January 1959.
5.6
-2 8 -
Ratio Net Debt to assessed valuation of taxable property
12-280 10 SQUARES TO THE INCH
10 SQUARES
i o THE INCH
o 12-280 37S0-I0 10 SQUARES TO THE INCH
FOOTNOTES
1.
"Cédula de Gracias" was a kind of bill promulgated by Spain in 1815 which provided certain regulations for Puerto Rico. Among other measures: allowed foreign Catholic immigrants, trade of her colonies with non Spanish colonies.
2.
Henry K. Carroll, Report on the Island of Porto Rico (Washington, D. C. : Government Printing Office, 1899), p. 41-42. From Harvey S. Perloff, Puerto Rico's Economic Future (Chicago: The University of Chicago Press, 1950), p. 15.
3.
Harvey S. Perloff, Puerto Rico's Economic Future, p. 2 5.
4.
Victor S. Clark, Porto Rico and Its Problems (Washington, D. C. : The Brookings Institution, 1930), p. XIX.
5.
Biagio Di Venuti, The Economics of Puerto Rico (San Juan, Puerto Rico: . Department of Education, 1957), p. 199-200.
6.
William H. Stead, Fomento - The Economic Development of Puerto Rico (Washington, D. C. : National Planning Association, 1958), p. 13.
7.
Ibid. p. 16
8,
Bureau of Statistics of Planning Board of P. R.
9,
Rafael Pico, with collaboration of Antonio J. Colorado, Dr. Vernon R, Esteves and others, "Puerto Rico(' Las Antillas from Geografía Universal (Barcelona: Montaner and Simón, 1958) Vol. XIX, p. 415.
10.
Ibid. , p. 414.
11,
Biagio Di Venuti, The Economics of Puerto Rico, p. 170.
12.
Constitution Establishing Self-Government in the Island of Puerto Rico by Spain in 1897, Title VIII, Art- 52, 55 and Title IX, Art. 69. Documents on the Constitutional History of Puerto Rico (Washington, D. C.: Office of Puerto Rico), p. 42-43 and p. 45.
13.
"Where necessary to anticipate taxes and revenues, bonds and other obliga tions may be issued by Puerto Rico or any municipal government therein as may be provided by law to provide for expenditures authorized by law, and to protect the public credit, and to reimburse the United States for any money which has been or may be expended out of the emergency fund of the War Department for the relief of the industrial conditions of Puerto Rico caused by the hurricane of August eight eighteen hundred and ninety-nine. ” First Organic Act of Puerto Rico - 1900, Section 38.
-2-
14.
Ibid. , Section. 38.
15.
Organic Act of 1917, Puerto Rico, Section 3.
16.
See above, introduction, p. 2.
17.
See apendix, p.
18.
This is part of a bill - Fernós-Murray Bill, which was referred to the Com mittee on Interior and Insular Affairs to provide for amendments to the compact between the people of Puerto Rico and the United States, the provi sions to be known as "The Articles of Permanent Association of the People of Puerto Rico with the United States. " The new amendments, upon ac ceptance, will reproduce provisions in Section 3 of the Federal Relations Act exempting Puerto Rican bonds from taxation in the United States. The following laws will be repealed as of the effective date of this Act: Organic Act of 1900 and 1917, P. R. Federal Relations Act and any other law incon sistent with provisions of this Act.
19.
Fernós^Murray Bill, Section 5, Art. XV.
20.
Concurrent Resolution of the Senate #24 of Puerto Rico, 3rd Legislative Assembly, May 13, 1958.
21.
Municipal Bonds have been defined as "anevidence of debt incurred by a governmental subdivision for the payment of which, together with interest, the issuer has pledged all or part of its current and future resources", E. H. Davis, "Of the People, By the People, For the People. . . an infor mal analysis of tax-free bonds - Municipal Bonds. (Chicago and New York: John Nuveen and Co. , 1958), p. 2.
22.
A municipality is the only local political subdivision in Puerto Rícq one of of seventy-six combining both an urban (town) and rural area. There are three basic differences between municipal government in P. R. and in the continental U. S. : 1) There are no overlapping local units of government and thus no overlapping in taxation, expenditures or authority. 2) Control of Commonwealth Government over municipal fiscal operations: revenues, expenditures collection of taxes levied by municipalities, approval of debt. 3) The Commonwealth Government assumes responsibilities for many functions usually performed by local governments on the mainland such as fire and police protection, public schools, public welfare.
23.
General obligation is a type of bond within the category of tax-secured bonds which is thus secured by and payable from the proceeds of taxation of pro perty within the boundaries of the issuer without limitation as to rate or amount. Revenue bonds are those secured from earnings of a publicly-owned utility or facility. Ibid. , pp.6-7 and pp. 50-52.
- 3 -
24.
Municipal Borrowing Law, Puerto Rico, Section 13.
25.
Commonwealth of Puerto Rico, Constitution, Art. VI, Sec. 8.
26,
Laws of Puerto Rico (Municipal Law), Section 184, Title 21.
27.
Government Development Bank for Puerto Rico, Special Report on the Com monwealth of P. R. (January, 1959), p. 9.
28.
See significant Data on Public Debt. , p.
29.
’’Debt Record cited as Being Perfect”, The American Banker. (January 5, 1959), p. 23. ~ .......... ~
30.
This is due to one of the essential conditions set within the political and eco nomic relationship between Puerto Rico and the United States: the reimburse ment of taxes on off-shore shipment products manufactured on the island and sold in the United States.
31.
Rafael Picó, Puerto Rico: Las Antillas from Geografía Universal, p. 411.
32.
Biagio Di Venuti, The Economics of Puerto Rico, p. 170.
33.
Commonwealth of Puerto Rico-Department of the Treasury. Annual Report, 1954, p. 20
34.
The only restriction comes from the Municipal Borrowing Law which specifies that no bonds of the municipalities shall be issued to pay for current expenses. They will be financed by the annual budget.
35.
Figures in comparison of years 1940 and 1953 from S. L. Descartes, "La Deuda Pública de Puerto Rico", El Mundo (San Juan, Puerto Rico), February 3-10, 1954.
36.
See significant data on Public Debt, p.
37.
See graph 1.
38.
’’Debt record cited as being perfect"- American Banker, (January 5, 1959)„ p. 2 3.
39.
Biagio Di Venuti, The Economics of Puerto Rico, p. 182.
40.
Figures from Bureau of Economic and Statistics, Puerto Rico Planning Board.
- 4 -
41.
Government Development Bank for P. R., A Special Report on the Common wealth of P. R. , (January, 1959), p. 7.
42.
See significant data on public debt, p.
43.
A Special Report on the Commonwealth of P. R. , p. 7.
44.
Trust Indentures of Puerto Rico Water Resources Authority. Revenue Bonds (Series 1959). (April 8, 1959), p. 20.
45.
The thirteen public corporations, created as instrumentalities of the govern ment, revenue-producing agencies which serve public purposes in the eco nomic and social development of the Commonwealth are the following: Water Resources Authority, Aqueduct and Sewer Authority, Land Authority, Industrial Development Company, Ports Authority, Government Development Bank, University of Puerto Rico, Economic Stabilization Administration, Metropolitan Bus Authority, Urban Renewal and Housing Corporation, Puerto Rico Housing Authority.
46.
Only the town of Cayey in the south central part of the Island and the small outlying islands of Vieques and Culebra, located west of Puerto Rico, remain outside of the Authority's system, representing less than one percent of total electric consumption in P. R.
Prospectus,
47.
This system functioned as a dependency as a dependency of what was then the the Department of the Interior, and in coordination with the irrigation service. S. L. Descartes, "La Deuda Pública de Puerto Rico", p. 7.
48.
Prospectus. Water Resources Authority. April 8, 1959, p. 2.
49.
During 1957-58, service was extended to 12, 146 new customers from facilities constructed with REA funds. Moreover, a Rural Electrification Program has been made possible by acts approved by the P. R. Legislature (years 1952, 1955, 1958) which authorizes the Commonwealth to contract with the Authority to pay the latter annual amounts for maintaining power lines in rural areas. Prospectus, Water Resources Authority, p. 14.
50.
Ibid., p. 15.
51. 52.
Government Development Bank for P. R. , Public Corporations Financing £iv. Water Resources Authority-Prospectus, p.' 12 .
53.
The Commercial and Financial Chronicle, 1. "Growing Nationwide Appeal of Puerto Rican Tax-Exempt Bonds', (May 28, 1959), p. 20.
|
Electric Revenue Bonds (Series 1959)
-5-
54.
Government Development Bank for P. R., A Special Report on P. R. Aqueduct and Sewer Authority, February 1957, p. 8.
55.
Part of these Improvement Programs are financed by appropriations from the Commonwealth and certain municipal governments as their shares in the Authority's projects.
56.
Prospectus - Puerto Rico Aqueduct and Sewer Authority - Revenue Bonds (Series 1957), Feb. 20, 1957, p. 11.
57.
A Special Report on P. R. Aqueduct and Sewer Authority, Feb. 1957, pp. 9-10.
58.
Prospectus - Puerto Rico Aqueduct and Sewer Authority, p. 15.
59.
Trust Indentures of Puerto Rico Water Resources Authority and Puerto Rico Aqueduct and Sewer Authority. Prospectus-Water Resources Autho rity, Electric Revenue Bonds, p. 20-24, and Prospectus - Aqueduct and Sewer Authority, p. 20-24.
60.
Water Resources Authority balance remaining in Revenue Fund after cover ing operating and maintenance expenses averaged for the last 24 months must be equivalent to 1. 50 times the highest debt service requirements during life of bonds, including additional bonds to be issued. For the Aque duct and Sewer Authority, the ratio must be 1. 75 times. When the bonds issued in 1949; of which approximately$16, 500, 000 are outstanding, have been retired, this requirement will be lowered to 1. 50 times, the same as the Water Resources, See respective Trust Indentures.
61.
l)Research and experimentation with the island resources and products that could be manufactured in Puerto Rico. 2) Authorized to make loans to to private producers. 3) To establish and operate manufacturing enter prises; 4) To promote private capital participation in industrial enter prise.
62.
PRIDCO now has a variety of functions concentrated under the following headings: 1) industrial construction which includes land acquisition; 2) industrial assistance; lease of buildings, loans, special incentives; 3) tourist facilities development,specially hotels; 4) commercial develop ment i. e. : supermarkets, shopping centers, etc.; 5) assistance to local industries; 6) the Casals Festival - sponsored by the Festival Casals, Inc. , a wholly-owned subsidiary of PRIDCO; 7) promotion of flow of private capital into industrial investment through reactivation in Dec. 1957 of its subsidiary, the P. R. Industrial Investment Corporation.
-663.
Carlos M. Passalacqua, President and General Manager of PRIDCO. Report of PRIDCO, 1957-58, p. 5
64.
Short term loans amounting to $12,900, 000 of vh ich $7,400, 000 correspond ing to the Government Development Bank for P. R. and $5, 500, 000 to the First National City Bank of New York. PRIDCO, Annual Report 1957-58, p. 24.
65.
Basic legislation creating the P. R. Industrial Development Company and the Economic Development Administration. Act No. 188 of May 11, 1942. William H. Stead, Fomento - The Economic Development of Puerto Rico, p. 127-146.
66.
The present institution is the successor to the "Development Bank of Puerto Rico" which was created by the Legislative Assembly of Puerto Rico in 1942 to provide long-term credit for economic development. In 1948 a new charter was enacted which more clearly defined the institution’s powers and changed its name to Government Development Bank for Puerto Rico. The primary purpose of the reorganization was to enable the Bank to secure long-term credit for the government and its public corporations on the best possible terms in the mainland money-markets. The Bank's basic functions are threefold: 1) to provide loans to private industry; 2) Fiscal agency functions; 3) to provide leadership in the expansion and development of the financial aspects of P. R. 's economy. S. L. Descartes, Financing Economic Development in Puerto Rico, 1941-49. Prepared for meeting of experts on Financing Economic Development, Lake Success, October 24 to November 2, 1949. (San Juan: Department of the Treasury, 1950), p. 13.
67.
Annual Report of the Secretary of the Treasury, 1957, p. 22
68.
Annual Report of Secretary of the Treasury 1955, p. 10.
69.
Annual Report of the Secretary of the Treasury, 1954, p. 28.
70.
Davis E. H. , ”. . . Of the People, By the People, For the People. . . ", p. 109.
71.
. . and all bonds issued by the Government of Puerto Rico, or by its authorities, shall be exempt from taxation by the Government of the United States, or by the Government of Puerto Rico, or of any political or municipal subdivision thereof, or by any county, municipality, or other municipal sub division of any State, Territory, or Possession of the United States, or by the District of Columbia”. Organic Act of 1917, Puerto Rico, Section 3. The Municipal Borrowing Law has a similar provision: "All bonds and notes issued under the provision of this Act and interest thereon shall be exempt from all taxation by the Commonwealth of P. R. and its municipalities. ", Section 17.
Annual
72.
Annual Reports of Secretary of the Treasury 1954, 1955, p. 12. Government Development Bank, Commonwealth and Municipal Financing Division.
73.
Government Development Bank, Annual Report 1957-58, p. 16.
o
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