(Reuters) – Puerto Rico will seek to tap markets for short-term financing after it passes a $9.8 billion budget that will be presented to lawmakers on Wednesday, the chief of staff for the governor of the U.S. territory said on Tuesday.
The island of 3.6 million is in a race against the clock to put in place revenue-raising tax measures, cut spending, and raise financing before it starts to run out of money. Puerto Rico could run out of money by the end of September, according to a government report.
The island has used banks in the past for the financing but this year an impasse over budget measures has raised doubts about its ability to raise the money. Without it, the government may have to curtail public services at the start on the fiscal year on July 1, officials have warned.
Like U.S. municipal governments, Puerto Rico uses tax and revenue anticipation notes, or TRANs, a standard liquidity management tool to cover gaps between expenditures and revenue.
“Once the budget is approved, we will go to the markets to try to obtain the TRANs, which is what provides us with the cash flow to operate in July and during the first months of the fiscal year,” Chief of Staff Víctor Suárez said.
Suárez did provide a time frame for the new financing or say how much he expected Puerto Rico to raise. Last October, Puerto Rico raised $900 million in TRANs financing from a consortium of banks led by JPMorgan Chase & Co <JPM.N>.
Puerto Rico’s Governor Alejandro Garcia Padilla presented new tax proposals to lawmakers on Monday, which the government says will raise an additional $1.2 billion. The key proposal is a hike in the sales tax to 11.5 percent from 7 percent.
Passage of the tax measures and a balanced budget could also help Puerto Rico negotiate a long-term bond deal of up to $2.95 billion. Hedge funds that hold the government’s general obligation debt are expected to be among the principal buyers.
Puerto Rico is facing a bond payment of $655.2 million on its general obligation debt on July 1, according to the Government Development Bank (GDB), Puerto Rico’s financing arm.
The budget plan includes about $600 million in government spending cuts. About 20 government agencies will be consolidated as well as 95 public schools, Suárez said.
(Reporting by a contributor in San Juan; Writing by Edward Krudy; Editing by Dan Grebler and Lisa Shumaker)