COMMONWEALTH OF PUERTO RICO Financial Information and Operating Data Report October 30, 2014 CR 10.30.14 (4); 1 00185871; 1 TABLE OF CONTENTS Page INTRODUCTION .......................................................................................................................... 1 Forward-Looking Statements................................................................................................. 1 BASIC FACTS ABOUT THE COMMONWEALTH ................................................................... 3 Location and Population ........................................................................................................ 3 Relationship with the United States ....................................................................................... 3 Official Languages ................................................................................................................. 3 Government............................................................................................................................ 4 Fiscal Year ............................................................................................................................. 4 General Fund .......................................................................................................................... 4 Principal Officers Responsible for Fiscal Matters ................................................................. 4 RECENT EVENTS ......................................................................................................................... 7 Issuance of Tax and Revenue Anticipation Notes ................................................................. 7 Preliminary General Fund Budgetary Revenues for First Three Months of Fiscal Year 2015.................................................................................................................................. 7 Approval of Fiscal Year 2015 Budget ................................................................................... 7 Enactment of Fiscal Sustainability Act .................................................................................. 7 Enactment of Recovery Act ................................................................................................... 8 Agreement Between PREPA and Certain Bondholders and Lenders .................................... 8 Proposed Legislation to Ensure that the Highways Authority Operates on Self- Sufficient Basis ................................................................................................................ 8 New Health Reform Contracts ............................................................................................... 9 Status of Sales and Use Tax Collection at Ports .................................................................... 9 Downgrade of Bond Ratings .................................................................................................. 9 Condition of Retirement Systems .......................................................................................... 9 Issuance of $3.5 Billion in General Obligation Bonds ........................................................ 10 RISK FACTORS .......................................................................................................................... 11 FISCAL CONDITION.................................................................................................................. 27 Fiscal Stabilization and Economic Growth Plan ................................................................. 27 Other Fiscal Measures.......................................................................................................... 29 Preliminary General Fund Budgetary Revenues for First Three Months of Fiscal Year 2015................................................................................................................................ 29 Preliminary General Fund Budgetary Revenues and Expenditures for Fiscal Year 2014................................................................................................................................ 29 Budget for Fiscal Year 2015 ................................................................................................ 32 New Revenue Raising Measures for Fiscal Year 2015 ....................................................... 35 GDB Funding and Liquidity ................................................................................................ 36 Enactment of Fiscal Sustainability Act ................................................................................ 39 Enactment of Puerto Rico Public Corporations Debt Enforcement and Recovery Act ....... 40 CR 10.30.14 (4); 1 00185871; 1 i Health Insurance .................................................................................................................. 43 Historical General Fund Budget Deficits ............................................................................. 45 THE ECONOMY.......................................................................................................................... 48 Overview .............................................................................................................................. 48 Economic Forecast for Fiscal Years 2014 and 2015 ........................................................... 52 Fiscal Year 2013 .................................................................................................................. 52 Fiscal Year 2012 .................................................................................................................. 53 Economic Growth ................................................................................................................ 53 Employment and Unemployment ........................................................................................ 62 Economic Performance by Sector ........................................................................................ 64 Higher Education ................................................................................................................. 77 Tax and Other Economic Development Initiatives .............................................................. 79 DEBT ............................................................................................................................................ 86 Public Sector Debt ............................................................................................................... 86 Variable Rate Bonds and Mandatory Tender Bonds ........................................................... 91 Interest Rate Exchange Agreements .................................................................................... 91 Commonwealth Guaranteed Debt ........................................................................................ 93 Trends of Public Sector Debt ............................................................................................... 94 Debt of the Public Corporations .......................................................................................... 95 RATINGS ..................................................................................................................................... 97 COMMONWEALTH TAXES, OTHER REVENUES, AND EXPENDITURES ....................... 98 Overview .............................................................................................................................. 98 Preliminary General Fund Budgetary Revenues and Expenditures for Fiscal Year 2014 Compared to Fiscal Year 2013 ........................................................................... 101 General Fund Budgetary Revenues and Expenditures for Fiscal Year 2013 Compared to Fiscal Year 2012 ...................................................................................................... 103 General Fund Revenues and Expenditures for Fiscal Year 2012 Compared to Fiscal Year 2011 ..................................................................................................................... 103 General Fund Budgetary Revenues and Expenditures for Fiscal Year 2011 Compared to Fiscal Year 2010 ...................................................................................................... 104 Income Taxes ..................................................................................................................... 104 Special Excise Tax (Act 154) ............................................................................................ 109 Sales and Use Taxes........................................................................................................... 111 Excise Taxes ...................................................................................................................... 114 Licenses.............................................................................................................................. 115 Property Taxes ................................................................................................................... 115 Other Taxes and Revenues ................................................................................................. 116 Revenues from Non-Commonwealth Sources ................................................................... 116 Administrative Measures to Increase Collections of Income, Sales, and Excise Taxes and Property Taxes .....................................................................................................