Puerto Rico ranks below all 50 US states for its fiscal health, based on its fiscal solvency in five separate categories.
See “Ranking the States by Fiscal Condition” for a complete explanation of the methodology used to calculate Puerto Rico’s fiscal health rankings.
1. Puerto Rico ranks 51st in terms of cash solvency.
Cash solvency measures whether a government has enough cash to cover its short-term bills. The cash ratio is the strictest measure of short-term solvency and only includes the most liquid types of cash available to cover the short run. Generally, a cash ratio of 2 or greater is considered a sign of fiscal stability. Puerto Rico only has 29 percent of the most liquid cash on hand to cover short-term liabilities such as accounts payable. When including less liquid forms of cash such as investments and receivables, the commonwealth has between 54 and 56 percent of the cash needed to cover the short term—far lower than the national average of between 2 and 3 times the cash needed to cover short-term liabilities.
2. Puerto Rico ranks 51st in terms of budget solvency.
Budget solvency measures whether a government can cover its fiscal year spending out of current revenues. Did it run a shortfall during the year? The operating ratio is the proportion of total revenues available to cover total expenses. In FY 2013, Puerto Rico’s revenues covered only 74 percent of expenses, lower than in any of the 50 states, indicating significant budgetary stress and contributing to a deficit per capita of $1,497.
Surplus or deficit per capita
3. Puerto Rico ranks 51st in terms of long-run solvency.
Long-run solvency measures whether a government has a hedge against large, long-term liabilities. Are there enough assets available to cushion the government from potential shocks or long-term fiscal risks? The net asset ratio measures the amount of assets available—after debts have been paid—relative to all assets, including capital stock. Puerto Rico has a net asset ratio of −3.16, which indicates that the commonwealth is engaged in a lot of borrowing, pay as you go, or deficit finance. The long-term liability ratio confirms this picture, indicating that long-term liabilities were 3.45 times larger than assets in FY 2013. The commonwealth’s long-term liability per capita was $15,264, five times larger than the average for the United States.
Net asset ratio
Long-term liability ratio
Long-term liability per capita
4. Puerto Rico ranks 50th in terms of service-level solvency.
Service-level solvency measures how high taxes, revenues, and spending are when compared to personal income. Does the government have enough “fiscal slack”? In FY 2013, total taxes represented 13 percent of the total personal income of Puerto Rico’s residents, more than double the US average of 6 percent. Revenues accounted for one-forth of residents’ income, and total expenses amounted to 33 percent of residents’ income. These measures show that the commonwealth has little fiscal slack and is consuming a significant portion of residents’ income to sustain a high rate of spending.
Tax to income ratio
Revenues to income ratio
Expenses to income ratio
5. Puerto Rico ranks 51st in terms of trust fund solvency.
Trust fund solvency measures how much debt a government has. How large are unfunded pension liabilities, other postemployment benefits (OPEB), and government debt compared to personal income? When valued on a guaranteed-to-be-paid basis, the unfunded pension liability that will be owed to public-sector workers represents 81 percent of Puerto Rico residents’ total income. OPEB, while pay as you go, only account for 4 percent of total income, which is average for the United States. Total debt amounts to 112 percent of residents’ total income, which is 18 times larger than the US average of 6 percent.
Pension to income ratio
OPEB to income ratio
Debt to income ratio
Puerto Rico’s debt
According to a 2014 report by the Federal Reserve Bank of New York, Puerto Rico’s debts amount to $71.9 billion. Of this total, $15.8 billion are general obligation or “full faith and credit” bonds and $15.6 billion consist of bonds issued by the Puerto Rico Sales Tax Financing Corporation, which operates as part of the Government Development Bank. Municipal debt accounts for $13.2 billion. Tax anticipation notes amount to $1.1 billion, and $26.2 billion is debt issued by other public corporations and entities. Total government debt amounts to 112 percent of the total personal income of commonwealth residents—$15,971 per capita, far above the national average. According to the Federal Reserve Bank, Puerto Rico’s total debt exceeds 100 percent of the commonwealth’s gross national product.
General obligation bonds
Total primary government debt
Ratio of debt to personal income
Total Primary debt per capita
Puerto Rico’s pension liability is calculated from the actuarial reports for its pension plans. The commonwealth’s total unfunded pension liability has a market value of $52.1 billion, which is larger than the reported $33.6 billion when calculated on a guaranteed basis. By either measure, Puerto Rico’s pensions have very low funding ratios when compared to the national average.
Unfunded pension liability
Market value of unfunded liability (risk-adjusted discount rate)
Market value of funded liability ratio
Puerto Rico’s OPEB liability is calculated from its FY 2013 Comprehensive Annual Financial Report. The commonwealth’s OPEB liability is relatively small compared to the national average. This liability is unfunded, placing the system on a pay-as-you-go basis, adding to Puerto Rico’s fiscal stress.
Total unfunded OPEB liability