CONSOLIDATED RESOURCES OF THE GOVERNMENT OF PUERTO RICO

The Government of Puerto Rico relies on the following basic funds and resources: the General Fund, the Public Improvements Fund, the State Special Funds, Income (sale of services), Loans and Bond Issues, Federal Grants, and Other Sources (trust funds and/or funds that normally do not represent any operational income).

In utilizing the resources, our government is determined to offer quality services, educate the Puerto Rican youth with the necessary skills to elevate the competitive capacity; render medical-hospital accessibility and high quality services; attack crime; integrate recreation, tourism and the enjoyment of our natural resources; accelerate and give incentives to public works, and sponsor the citizenship and the private enterprise participation, among other great challenges.  This agenda is shared by the Central Government and the Public Corporations through an integrated and balanced strategy in order to lead the welfare of the Puerto Rican society.

Government collections, specifically those deposited to the General Fund, are sensitive to a series of internal particulars as well as others that are foreign to our governmental practice.  Among the internal particulars we can mention the practices by the Department of the Treasurer, as well as those that are performed by other agencies in coordination with the Department, and fall into the economic activity.  Among the external factors we should mention the natural performance of our local economy, as well as the effect that the Federal Government policies have over it.  The government's image and the projection before the different participants of our tax system is essential for the improvement of the public treasury's fiscal health without having to resort to measures that significantly affect its equity level.

CONSOLIDATED RESOURCES

The government's consolidated resources for the 2001 fiscal year ascend to $21.3 billion.  The most significant sources for the Government of Puerto Rico are the General Fund, Income, and the Public Improvements Fund, which nurture from bond issuance.

General Fund

Beginning fiscal year starting July 1, 1999 (Law Num. 93 of August 20, 1997) the General Fund consists of the net income and other collections, transfers and sales of fixed assets, which are not income, and the balance at the beginning of the fiscal year.  Net income and other collections are itemized in internal sources of income that include taxes and non-taxes, like the Lottery, and miscellaneous income; and in External Sources that include Customs and Shipping Duties.  The total resources of the General Fund is of $7,574.4 million for the 2001 fiscal year.

The estimates of net income of the General Fund reviewed and certified by the Department of the Treasurer for the 2000 and 2001 fiscal years ascend to $7,043.0 and $7,505.0 million respectively.  The estimate shows a $462.0 million increase.  For the 1999 fiscal year the income closed at $6,507.0 million, an increase of $604.5 million if compared to the 1998 fiscal year.

In Fiscal Year 1992 another Tax Amnesty was decreed in view of local economy performance as a result of the United States economic recession.  The revenues for this concept ascended to $216 million and $185.1 million were transferred to the General Fund through transfer lines and not from net income as in 1989.

In fiscal year 1994 the tax reform was approved.  This reform brought equity in all classes and expanded the base utilized.  It was designed to cut tax evasion and increase economy. As an integral part of economic development, during the year 2001, a new round of tax reductions will be implemented for the benefit of the people. The benefit of this action translates into $839 million of resources returned to taxpayers, of which $534 million will be atributable to the Tax Reform of 1994, $282 million to the Tax Reduction of 1999 and $23 million to other awarded beneficiaries.  Chart 1 shows the General Fund Net Income growth pattern ascending.  Since 1990 it has increased an annual average of 378.8%.  However, starting fiscal year 1993 we see a steady growth. Average increase, between 1993 to 2001 is $3,479.7 in million or 86.4%.

Chart 1
General Fund's Net Revenue
(In million of dollars)

		Change
Fiscal Year	Net Income	Absolute	Percentage
1990	3,648.1	83.7	2.3
1991	3,882.0	233.9	6.4
1992	3,861.1	(20.9)	(0.5)
1993	4,025.3	164.2	4.3
1994	4,665.3	640.0	15.9
1995	5,080.1	414.8	8.9
1996	5,247.6	167.5	3.3
1997	5,600.7	353.1	6.7
1998	5,902.5	301.8	5.4
1999	6,507.0	604.5	10.2
2000*	7,043.0	536.0	8.2
2001*	7,505.0	462.0	6.6

The General Fund net income is an indicator of the economic situation.  Through analysis of the income, trends from different economic sectors can be observed, therefore determining the economic profile.

Comparison of the Estimates of the General Fund Revenues for Fiscal Years 1999 and 2000

Upon comparison, the revised 2000 fiscal year revenue estimate against the end of the 1999 fiscal year, a $536.0 million or 8.2% increase is observed. (see Chart 2)

In the following chart the General Fund itemized net income may be observed at the end of the 1999 fiscal year and the 2000 revision done January 2000.

CHART 2
COMPARISON OF GENERAL FUND NET INCOME BY ITEM TYPE
(In million of dollars)

Concept	Fiscal Years		Change
	1999	2000	Absolute	Percentage
Total	6,507.0	7,043.0	536.0	8.2
From State Funds	6,228.3	6,764.0	535.7	8.6
Taxes	5,939.4	6,452.0	512.6	8.6
Property Taxes	2.2	0.0	(2.0)	(100.0)
Income Tax	4,390.8	4,871.0	480.2	10.9
Individual	2,310.4	2,576.0	265.6	11.5
Corporate	1,544.8	1,673.0	128.2	8.3
Partnerships	2.1	3.0	0.9	42.9
Withholdings from non-residents	369.4	453.0	83.6	22.6
Tollgate Tax	114.5	115.0	0.5	0.4
Interests subject to 17%	10.6	12.0	1.4	13.2
Interest over dividends at 10%	39.0	39.0	0.0	0.0
Inheritance and Gift Tax	1.8	2.0	0.2	11.1
Duties, Grand Total	1,473.8	1,504.0	30.2	2.0
Alcoholic Beverages	243.4	249.0	5.6	2.3
Distilled Spirits	47.5	50.0	2.5	5.3
Beer	181.3	183.0	1.7	0.9
Other beverages	14.6	16.0	1.4	9.6
General Duties, Total	1,230.4	1,255.0	24.6	2.0
Cigarettes	119.1	119.0	(0.1)	(0.1)
Motor Vehicles and accessories	411.6	411.0	(0.6)	(0.1)
Crude oil and their by products	70.0	50.0	(20.0)	(28.6)
Other duties	629.7	675.0	45.3	7.2
Licenses	70.8	75.0	4.2	5.9
Motor Vehicles	46.8	49.0	2.2	4.7
Other licenses	24.0	26.0	2.0	8.3
Non- Taxable	288.9	312.0	23.1	8.0
Lottery revenues	59.2	61.0	1.8	3.0
Electronic lottery revenues	53.0	62.0	9.0	17.0
Miscellaneous revenues, Total	176.7	189.0	12.3	7.0
Other collections (External sources)	278.7	279.0	0.3	0.1
Customs rights	61.4	55.0	(6.4)	(10.4)
Shipping fees	217.3	224.0	6.7	3.1

Comparison of the Estimates of the General Fund Revenues for the 2000 and 2001 Fiscal Years

Upon comparison, for Fiscal Years 2001 and the 2000 fiscal year revenues reflect, an increase of $462.0 million or 6.6% growth.  Similar to previous years, the main line are tax revenues, composed of income taxes and duties.  For the production of this estimate, the Department of Treasury sets out several hypotheses.  First, withdrawn tax from employers does not continue its descending trend; second, to have $94.0 million in tollgate tax collected independently from the change in local or federal legislature; and third, that the extraordinary motor vehicle sales as a consequence to the new law be kept the same.  Chart 3 demonstrates the comparison among the 2000 and 2001 fiscal years net income by item type.

CHART 3
COMPARISON OF GENERAL FUND NET INCOME BY ITEM TYPE
(in million of dollars)

Concept	Fiscal Years		Change
	2000	2001	Absolute	Percentage
Total	7,043.0	7,505.0	462.0	6.6
From State Funds	6,764.0	7,156.0	392.0	5.8
Taxes	6,452.0	6,835.0	383.0	5.9
Income Tax	4,871.0	5,171.0	300.0	6.2
Individual	2,576.0	2,729.0	153.0	5.9
Corporate	1,673.0	1,767.0	94.0	5.6
Partnerships	3.0	3.0	0.0	0.0
Withholdings from non-residents	453.0	525.0	72.0	15.9
Tollgate Tax	115.0	94.0	(21.0)	(18.3)
17% Interests	12.0	13.0	1.0	8.3
Interest over 10% Dividends	39.0	40.0	1.0	2.6
Inheritance and Gift Tax	2.0	2.0	0.0	0.0
Duties, Grand Total	1,504.0	1,584.0	80.0	5.3
Alcoholic Beverages	249.0	258.0	9.0	3.6
Distilled Spirits	50.0	51.0	1.0	2.0
Beer	183.0	190.0	7.0	3.8
Other beverages	16.0	17.0	1.0	6.3
General Duties, Total	1,255.0	1,326.0	71.0	5.7
Cigarettes	119.0	119.0	0.0	0.0
Motor Vehicles and accessories	411.0	441.0	30.0	7.3
Crude oil and its by products	50.0	70.0	20.0	40.0
Other duties	675.0	696.0	21.0	3.1
Licenses	75.0	78.0	3.0	4.0
Motor Vehicles	49.0	51.0	2.0	4.1
Other licenses	26.0	27.0	1.0	3.8
Non- Taxable	312.0	321.0	9.0	2.9
Lottery revenues	61.0	58.0	(3.0)	(4.9)
Electronic lottery revenues	62.0	63.0	1.0	1.6
Miscellaneous revenues Total	189.0	200.0	11.0	5.8
Other collections (External sources)	279.0	349.0	70.0	25.1
Customs rights	55.0	58.0	3.0	5.5
Shipping fees	224.0	291.0	67.0	29.9

Income Tax

Chart 4 shows the performance of the total income tax collection, separated, by individual and corporations.  A constant growth of the income tax total is observed since the 1990 to the 2001 fiscal years.  Another interesting fact is the increase in the corporate participation in their income distribution.

Chart 4
Income Tax
(In million of dollars)

Fiscal Year	Individual	Corporations	Income Tax Total
1990	1,025	836	2,061
1991	1,124	932	2,326
1992	1,122	1,019	2,336
1993	1,242	975	2,401
1994	1,410	1,107	2,856
1995	1,578	1,305	3,221
1996	1,709	1,348	3,368
1997	1,825	1,441	3,610
1998	2,027	1,527	3,973
1999	2,310	1,545	4,391
2000*	2,576	1,673	4,871
2001*	2,729	1,767	5,171

Individual Income Tax

For fiscal year 1999, a $2,310.4 million collection individual income tax was made.  For fiscal year 2000, the estimate ascends to $2,576.0 million and $2,729.0 million for fiscal year 2001.  This revenue represents one third of the total of collections from the General Fund.

As Chart 4 shows, the only reductions occurred in 1992; these were a result of the amnesty.

Corporate Tax Income

For the 1999 fiscal year $1,544.8 million were collected.  In the 2000 and 2001 fiscal years a collection of $1,673.0 and $1,767.0 million, respectively, is contemplated (table 4).

Duties

Duties form part of the country's tax plan.  These are revenues based on internal and external economic activity.  This Duty line was amended as part of the Tax Reform, since a series of articles began paying a five percent general tax. These duties are composed of alcoholic beverages, and other general duties as cigarettes, petroleum products, motor vehicles, horse racing, crude oil and its by products, among others.  The Tax Reform was established in order to be fair to the laborer and sponsor foundations for investments and savings, among other purposes.

For fiscal year 2001 a collection of $1,584.0 million is estimated.  This represents an increase of $80.0 million against the estimated for 2000 which is $1,504.0 million. Next we itemize the particulars of the most relevant duties.

Alcoholic Beverages

Within duties, income from alcoholic beverages stand out.  Chart 5 shows collection from this duty itemized into distilled spirits, beer, and other beverages. In fiscal year 1990, the duty for beer registered the highest increase with a 36.6%, due to a new tax on beer and other beverages by Law No. 22 of July 14, 1989.

The estimate for this duty in fiscal year 2001 is $258.0 million, which depicts an increase of 3.6% in comparison to 2000.

Chart 5
Duty Net Income over Alcoholic Beverages
(In million of dollars)

Chart 6 shows in gallons the local production of beer versus the imports.  This shows that the relation is reversed the less local production, the more imports. The local production as well as the imports can be used as beer consumption indicator (not considering the inventory element).

Chart 6
Beer Production and Imports
(in million of gallons)

Fiscal Year	Production	Imports
1990	16.6	48.0
1991	17.0	49.4
1992	14.4	51.9
1993	10.5	53.6
1994	9.6	56.2
1995	8.7	56.1
1996	7.9	59.8
1997	7.0	59.3
1998	5.8	59.7
1999	5.7	65.8

Motor Vehicles

Motor vehicle fees are being affected in two ways.  First, the price hike in new cars, especially Japanese, dropping the demand for new ones.  Second, the rise of imported used cars, due to the hike in the new cars.

Used car fees are lower than new ones since its depreciation is taken into consideration.  This combination of elements consequently has brought a decrease in this kind of tax.

Law No. 80 of October 17, 1992, amends the law for duties and fees contributes to the clear and reasonably priced sale of motor vehicles.  Moreover, this law simplifies the tributary structure adopting a reduced number of tax rates.  This will ease the Department of the Treasurer of the execution, administration, and inspection of the law and will provide consumers with a better understanding of the system.  It also changes the method of determining the automobile tax; the cost is no longer used as tax base in Puerto Rico; and introduces the suggested sales price concept to the consumer as the new base, this one actually being the one on which the transaction is made.

In fiscal year 1999, $411.6 million were collected.  For 2000 and 2001 a collection is projected of $411.0 and $441.0 million respectively.  Chart 7 shows the tax yield over motor vehicles and imports.  A direct relation is noted between imports and motor vehicle fees. From fiscal year 1992 and on, there is a noticed growth in imports as well as in fees, except for the 1996 and 1998 fiscal year.

Chart 7
Motor vehicles and imports excise tax
(in million of dollars)

Fiscal Year	Fee	Imports
1990	178.9	604.8
1991	172.3	534.0
1992	178.3	583.3
1993	217.0	846.5
1994	275.7	1,063.9
1995	319.7	1,265.9
1996	307.9	1,203.2
1997	365.8	1,461.0
1998	350.0	1,404.5
1999	411.6	1,749.5
2000*	411.0
2001*	441.0

Other Collections

These are composed of the federal fee for shipments of rum to the United States and transferred collections by Federal Customs.  Notice in Chart 8 that from 1985 to 1986 a sharp drop in these collections is registered.  This was due to the elimination by the United States Congress of a plan known as "Neutral Spirits".  On the other hand, during the past fiscal year a standstill had been noted in the rum shipment fees.  This is mainly due to the impact of more restrictive laws over the retail selling and use of alcoholic beverages in the United States and the two-dollar per gallon increase.

The total fee collection for shipping and customs rights for the 1999 fiscal year was $278.7 million.  The estimate for the 2000 and 2001 are $279.0 million and $349.0 million, respectively.

Chart 8
Revenues from Other Collections
(in million of dollars)

Fiscal Year	Shipping  fees	Percentage Change	Customs Rights	Percentage Change	Total	Percentage Change
1990	213.7	2.9	89.3	(15.3)	303.0	(3.2)
1991	198.8	(7.0)	94.4	5.7	293.2	(3.2)
1992	195.0	(1.9)	93.1	(1.4)	288.1	(1.7)
1993	167.7	(14.0)	89.7	(3.7)	257.4	(10.7)
1994	185.3	10.5	122.5	36.6	307.8	19.6
1995	187.5	1.2	112.2	(8.4)	299.7	(2.6)
1996	194.9	3.9	77.8	(30.7)	272.7	(9.0)
1997	203.8	4.6	61.1	(21.5)	264.9	(2.9)
1998	200.3	(1.7)	72.2	18.1	272.5	2.9
1999	217.3	8.5	61.4	(15.0)	278.7	2.3
2000*	224.0	3.1	55.0	(10.4)	279.0	0.1
2001*	291.0	29.9	58.0	5.5	349.0	25.1

Public Improvements Fund

Public Improvements Fund resources are nurtured from bond issuance sales from the Government of Puerto Rico.  The bond issuance assignments deposited are limited to the Government's permanent improvements for specific public means.  This is the main Central Government main Fund to accomplish permanent works.  This fund is also used to aid with several public corporations improvements plans that render priority services to the people.  For fiscal year 2001 an issue for $425.0 million is proposed.  This Fund is of vital importance for the country's economy, since it is one of the main resources of infrastructure development.

Special State Funds

The Special State Funds are created under law with a purpose specified by law itself.  The law indicates the revenue sources from which the fund will nourish.  For fiscal year 2001 these funds will ascend to $401.3 million, showing a $20.1 increase.  Chart 9 demonstrates the itemized funds since the 1996 fiscal year.

CHART 9
Special State Fund Resources
(In million of dollars)

Origin of Resources	1996	1997	1998	1999	2000	2001
Special State Funds Total	$424.8	367.3	391.9	448.1	381.2	401.3
Balance of Funds at the beginning of the year	105.2	57.9	55.9	32.3	7.3	5.0
Taxable Total	131.9	136.6	160.9	196.0	204.6	203.0
Bonds Redemption Fund	65.0	65.0	90.4	94.9	99.7	92.5
Horse Racing and Slot Machines Tax (Educational Fund)	29.4	28.1	29.0	47.9	49.5	52.0
5 percent on hotel occupancy (Recreation Development Company)	13.7	14.6	13.9	13.9	16.0	17.0
Scientific Research Companies Fund	16.3	22.8	23.1	34.9	35.0	37.0
Child Health Fund	6.9	5.6	4.0	3.9	4.0	4.0
Other taxable funds	0.6	0.5	0.5	0.5	0.4	0.5
Other State funds	187.7	172.8	175.1	219.8	169.3	193.3
Shipping fees for barrels of rum (Promotion of rum fund)	15.3	15.3	16.9	0.0	0.0	0.0
Investment interests	1.1	1.0	1.4	1.8	1.9	2.0
Others	171.3	156.5	156.8	218.0	167.4	191.3

Bond Redemption Fund

This fund nurtures from a 1.03 percent contribution over every non-exempt personal and property value in Puerto Rico.

In order to determine the amount to deposit in this Fund, we use the estimated appraised value of the property.  In base of the 1.03 percent non-exempt property tax type, a $99.7 million is estimated to be deposited for the 2000 and $92.5 million for the 2001 fiscal years (see chart 9).

Furthermore, also deposited to this fund, by virtue of Law No. 125 of 1971, as amended, is 70% percent of the tax collections for hotel and room occupancy.  This is done with the idea of paying for the debt incurred with the Recreation Development Company.  The minimum deposit established by the Secretary of the Department of Treasury is of $3.0 million annually.  For the 2000 and 2001 fiscal years a $16.0 and $17.0 million respectively, is portrayed to be collected.

Educational Opportunities Fund

One part of the revenues of this Fund proceeds from 20% of the net profit from slot machine operations.  According to the Department of the Treasury, slot machine operations are expected to produce an approximate $43.0 and $45.0 million for fiscal years 2000 and 2001, respectively.

Furthermore, part of the taxes collected for horse racing is deposited into this Fund.  According to collections performance until January and from the collections of previous years, an estimated $6.5 and $7.0 million will be collected for the 2000 and 2001 fiscal years respectively.

Child Health Fund

By virtue of Law No. 7 of May 24, 1991, The Child Health Fund is adopted, besides amending several sections of Law No. 5 of October 8, 1987, "Law of Duties and Fees of the Commonwealth of Puerto Rico of 1987".  This amendment to the Duties and Fees Law establishes a fee for sodas.  Collection through these fees will contribute to the financing of prenatal and pediatric health programs, such as, pediatric hospital services, including the ones offered through the University Pediatric Hospital, diagnostic and treatment of diseases, immunization and diagnosis, treatment and prevention of AIDS in children and adults in order to prevent the infection in newborns, besides health education programs.

Through Law No. 110 of December 7,1993, Law No. 7 of May 24, 1991 was revoked, which imposes the same fee to most of the non-exempt and unencumbered.  However, this fund's fiscal health was guaranteed based on the increase to $14.5 million in the General Fund's collection.

For the 2001 fiscal year a $4.0 million deposit to the Fund is projected.

Income

These are represented by the resources generated by the sale of services and/or different activities.  For the 2000 and 2001 fiscal years, income ascended to $4,701.1 and $4,980.5 million, respectively.

Loans and/or Bond Issuance

The loans and/or bond issues are resources acquired by the sale of bond credit lines for the intensive financing of permanent improvements and loans for permanent improvements. This source varies among the different corporations, since it depends on its fiscal situation.  For the 2001 fiscal year these resources totaled $1,441.6 million compared to $1,804.4 million in the 2000 fiscal year.

Other Sources

This term collects the revenues from the Trust Funds and those revenues, which do not ordinarily represent an operation income.  In the 2001 fiscal year these funds are estimated at $1,760.6 million.

Resources from Grants of the United States Government

The resources from United States Government Grants constitute a significant part of the total resources of the Government of Puerto Rico.  The consolidated resources of Federal Grants for fiscal year 2001 are estimated at $4,319.1 million, which represents an increase of $204.5 million if compared to fiscal year 2000.

The Transportation sector increased by $214.4 million, which is greatly reflected in the Highway Authority’s Urban Train Project.

The Health Conservation Sector shows an increase of $87.0 million which is greatly observed in the Puerto Rico Health Insurance Administration for the increase in the limit of the Medical Assistance Program (Medicaid), which includes the funds that were transferred from the Municipality of San Juan to the Health Reform for its selection this year.  Furthermore, an increase in the Culture and Education Sector by $60.5 million, mostly in the Department of Education for Title I programs, in which they will expand services for students who demonstrate that they are academically behind, and in the program called E-Rate, which is an accumulative proposal to develop projects that involves technology in schools.

The Social Welfare Sector also shows an increase by $46.2 million, greatly reflected in the Administration for the Socio-Economic Development of the Family in the Puerto Rico Nutritional Assistance Program (NAP), which is due to the increase in the authorization of funds established in the Food Stamp Act of 1977.

The Public and Private Financing Sector reflect a reduction of $221.0 million, on the part of the Puerto Rico Infrastructure and Financing Authority since this is a new program that grants non-recurrent funds to aid in the construction of homes for persons affected by the passing of Hurricane Georges.

The Central Government estimated resources for fiscal years 2000 and 2001 ascend to $3,220.9 and $3,350.1 million, respectively.  These estimates depict an increase of $129.2 million, mainly observed in the Cultural and Educational Sector.  For the Public Corporations they estimate $893.7 million are estimated for fiscal year 2000 and $968.9 million for fiscal year 2001, showing a $75.2 million increase (see Chart 10).

The estimated Federal resources for fiscal year 2001 reflect the policies and trends of the United States Government.  Federal programs providing additional resources are: the Highways and Transportation Authority's Federal Transit Capital Improvement Program and Highway Planning and Construction, the Title I and E-Rate Programs of the Department of Education, the Health Insurance Administration's "Medical Assistance Program", and the Administration for the Socio-Economic Development of the Family’s Puerto Rico Nutritional Assistance Program (PAN).

Chart 10
ESTIMATED RESOURCES FROM FEDERAL GRANTS
CENTRAL GOVERNMENT AND PUBLIC CORPORATIONS
(In thousands of dollars)

	Central Government			Public Corporations
Agency	2000	2001	Change	2000	2001	Change
Consolidated Total	3,220,907	3,350,142	129,235	893,749	968,985	75,236
General Administration-Executive Branch	2,919	2,982	63	0	0	0
Education and Culture	691,544	744,568	53,024	161,982	169,449	7,467
Health Preservation	297,098	309,387	12,289	169,549	244,247	74,698
Social Security	714	782	68	0	0	0
Social Welfare	1,630,078	1,676,244	46,166	0	0	0
Labor and Human Resources	247,482	256,515	9,033	0	0	0
Housing Improvement	243,245	243,245	0	0	0	0
Justice Administration	5,472	5,008	(464)	0	0	0
Execution of Justice	555	0	(555)	0	0	0
Preservation Of Law And Order	24,836	33,305	8,469	0	0	0
Penal Population Custody and Rehabilitation	8,580	9,410	830	399	399	0
Prevention and Assistance against Disasters and their aftermath	1,807	1,807	0	0	0	0
Protection of the Consumer and Proprietor	405	405	0	0	0	0
Agriculture	880	870	(10)	0	0	0
Industrial	0	0	0	328	328	0
Transportation and Communications	0	0	0	340,189	554,562	214,373
Public and Private Financing	0	0	0	221,018	0	(221,018)
Natural Resources	6,427	6,203	(224)	284	0	(284)
Support to Municipalities	58,865	59,411	546	0	0	0

Among the Sectors that are receiving the most Federal benefits are Social Welfare (including the Nutritional Assistance Program), Education and Culture, Health Preservation, Transportation, and Labor and Human Resources.

In Chart 11, the estimate of Federal Grants to the Central Government and Public Corporations by federal subsidized agency is shown.  Expected increases for the Central Government originating from the following federal agencies: Department of Agriculture, Department of Education and the Department of Health and Human Services.

In Public Corporations prominent increases in resources coming from the Department of Transportation, Department of Health and Human Services, Environmental Protection Agency and the Department of Defense.

For fiscal year 2001, it is estimated that federal subsidiary agencies such as: Department of Agriculture (38%), Department of Education (15%), Department of Health and Human Services (15%), Department of Transportation (13%), and the Department of Housing and Urban Development (7%)  represent the most significant percentage of federal grants to the Government of Puerto Rico.

CHART 11
RESOURCES ESTIMATES FROM THE FEDERAL GRANTS TO THE CENTRAL GOVERNMENT AND PUBLIC CORPORATIONS BY FEDERAL SUBSIDIARY AGENCY
(In thousands of dollars)

	Central Government			Public Corporations
Agency	2000	2001	Change	2000	2001	Change
Total	3,220,907	3,350,142	129,335	893,749	968,985	75,236
Department of Education	528,741	553,905	25,164	95,850	85,952	(9,898)
Department of Health and Human Services	419,510	439,346	19,836	159,566	198,922	39,356
Department of Agriculture	1,567,546	1,612,866	45,320	22,435	22,435	0
Department of Housing and Urban Development	307,026	314,772	7,746	0	0	0
Department of Labor	242,610	251,706	9,096	399	399	0
Department of Justice	28,014	30,119	2,105	0	0	0
Department of Defense	189	189	0	1,713	17,408	15,695
Environmental Protection Agency	15,662	17,532	1,870	3,586	39,685	36,099
Department of the Interior	3,471	3,471	0	129	129	0
Federal Emergency Management Agency	21,910	1,910	(20,000)	221,027	9	(221,018)
Department of Transportation	3,275	2,318	(957)	338,517	552,308	213,791
Department of Commerce	3,756	3,756	0	2,600	4,670	2,070
National Science Foundation	0	0	0	7,118	8,146	1,028
National Guard Bureau	8,784	8,784	0	0	0	0
The Corporation for National and Community Service	51,825	90,200	38,375	0	0	0
National Aeronautics and Space Administration	0	0	0	4,289	4,289	0
Other Federal Agencies & Program	3,266	2,946	(320)	1,340	6,679	5,339
OBM-A87 Indirect Cost Recoveries	15,322	16,321	999	35,180	27,954	(7,226)

The detailed consolidated resources estimates are depicted in the Statistical Charts Section, itemized by the federal program from which the assignment originates.

The projection of resources from different entities shown in the Statistical Charts Section include all the resources receivable by financial aid federal programs; may it be through direct grant from the United States Government agencies, or through transfer of federal funds between state agencies under contracts and as participants of block grants.

LIQUID RESERVES

The budgetary stability is attained through a strong leadership and a committed management that keeps a proper balance between income and expenses, without cutting services, tax raises, or deferring expenses.  All this process is made evident through the decisions taken during the budget process, influenced by economic elements and public policy.

Aside from all accomplishments during this budget process, unexpected events and changes in the economy may affect the balance previously established.

To avoid this situation, the Government maintains liquid reserves for unexpected situations that may affect the established priorities during the analysis and approval of the budget.  However, to ensure economic stability, it is not only necessary the existence of these funds, but also their efficient conversion into capital, which will properly respond to the needs of our People.

Accordingly, The Government of Puerto Rico maintains liquid reserves in two (2) special funds; the Budget Fund and the Emergency Fund.  The following chart shows the balances of our liquid reserves.

Liquid Reserves
(In million of dollars)

Year	Budget Fund	Emergency Fund
July 1989	19	6
July 1990	14	5
July 1991	20	9
July 1992	28	11
July 1993	35	15
July 1994	46	19
July 1995	95	40
July 1996	80	55
July 1997	34	34
July 1998	30	66
July 1999	65	79
July 2000*	92	89

Budget Fund

The Budget Fund was created by Law No. 147 of 1980, as amended.  This law originally authorized the Secretary of the Department of the Treasury to transfer the amount of two (2) million dollars or a larger amount, that the Governor, or the Director of the Office of Management and Budget (OMB) delegated by the former, may estimate convenient, from unencumbrance credit margins of the Budget Joint Resolution in the assigned year.  This fund's maximum balance could not exceed three (3) percent of the Budget Joint Resolution.

In order to abide with the Government policy of following strict fiscal administration rules and be prepared for unexpected situations, the original law was amended by the Legislative Assembly by virtue of Law No. 89 of August 18, 1995, which went into effect in the 1996 fiscal year.  This amendment establishes the annual conversion into capital of this fund for an amount no less than a one third (0.33) of one percent of the Budget Joint Resolution.  The Governor of Puerto Rico or the OMB Director by delegation of the former may order the deposit of a larger amount in the Fund whenever it may be convenient.  The maximum balance of the mentioned fund will not exceed over six (6) percent of the Funds assigned in the Budget Joint Resolution during a certain year.  The Governor assigned part of the 1995 fiscal year income tax raise to capitalize the aforementioned fund.

The formula was improved by Act No. 93 of August 20, 1997 to increase the annual automatic funding formula to capitalize the Budget Fund, from .33 percent of the Budget Joint Resolution, to 1.0 percent of the General Fund's Net Income ("Rentas Netas") from previous fiscal year commencing FY 2000.  The Act also provided that beginning in fiscal year 2000 all non- Rentas Netas income previously General Fund net income will be recorded and deposited in full into the Budget Fund.

This fund may be used to cover approved assignments during any economic year when the resources may be insufficient to provide for the payment of the public debt and any unexpected public service situation.  The Governor of Puerto Rico and the Director of the Office of Management and Budget, by delegation of the former, may authorize payment advances from this reserve to the Public agencies and corporations for the program liabilities or disbursements with contributions from the United States Government, approved and pending to be received for the payment of permanent improvement contracts in process of construction.

Emergency Fund

The Emergency Fund was created by Law No. 91 of 1966, as amended.  In its origin, the fund nurtured from a transfer of $1.5 million proceeding from the unencombed credit margins of the assignments consigned by the General Budget JR of each economic year, with a maximum balance of $20 million.

Recently, for reasons already revealed in the Budget Fund, the Legislative Assembly amended the law to establish that as of the beginning of the 1996 fiscal year, the Emergency Fund will be converted into capital for an amount of no less

than one fifth (0.20) of one percent of the Budget Joint Resolution. Act No. 93 of August 20, 1997, also increase the annual automatic funding formula to capitalize the Emergency Fund, from .20 percent of Budget Joint Resolution, to 1.0 percent of General Fund's net income ("Rentas Netas") from previous fiscal year, beginning in fiscal year 1999.  The amount held in the Fund can not exceed the 5% of the Budget Joint Resolution on any year.  The Governor of Puerto Rico and the Director of OMB, by delegation of the former, may order a larger amount.  The balance of the fund must not exceed the 5% of the Budget Joint Resolution in that year.  The Governor used an income tax raise in the 1995 fiscal year to increase the contributions to the Emergency Fund.  This fund will be used to face unforeseen and unexpected public needs, caused by catastrophes, such as war, hurricanes, earthquakes, droughts, floods and plagues with the purpose of protecting lives and property.  The disbursements of this fund will be made by resolution from the Government, with a previous recommendation from the Secretary of the Department of Treasury, the President of the Planning Board, and the Secretary of the Department of Transportation and Public Works.

During the month of September of 1998, Puerto Rico was struck by Hurricane Georges.  Under executive order by the Governor, disbursements from the Emergency Fund were authorized to provide those necessary services and guarantee the safety of government and citizen's lives and property before, during, and after the emergency.  The total estimate disbursement amount was of $181.9 million.

* Estimate

Source: Treasury Department and the OMB