COMMONWEALTH OF PUERTO RICO
NOTES TO BASIC FINANCIAL STATEMENTS JUNE 30,
11. INTERFUND AND INTRAENTITY TRANSACTIONS
Interfund receivables and payables at June 30, 2010 are summarized as follows (expressed in thousands):
Receivable Fund Payable Fund Amount
Other governmental General $ 167,345
General Lotteries 45,993
COFINA debt service Pledge sales and use tax 103,647
Lotteries General 53,175
Other proprietary General 21,006
General Unemployment insurance 12,862
General Other governmental 3,760
407,788 $
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Transfers from (to) other funds for the year ended June 30, 2010 are summarized as follows (expressed in thousands):
Transferee Fund Transferor Fund Amount
General COFINA special revenue $ 2,702,238
COFINA special revenue COFINA debt service 1,750,542
Pledge sales and use tax General 7,737
COFINA debt service Pledged sales and use tax 553,860
Other governmental General 332,014
Debt service General 447,312
General Debt service 227,395
General Lotteries 220,406
General Unemployment insurance 49,197
Other proprietary General 8,675
General Other proprietary 4,924
General Other governmental 550
Other governmental Other governmental 241 6,305,091 $
The principal purposes of the interfund transfers are to (expressed in thousands):
a. Transfer of ($2,702,238) from the COFINA special revenue fund to the General Fund for the Fiscal Stabilization Funds, the Local Stimulus Economic Plan, and for the payment of extra constitutional debt.
b. Transfer of ($1,750,542) from the COFINA debt service fund to the COFINA special revenue fund. All ($1,750,542) were transferred to the General Fund for the purposes stated above.
c. Transfer of ($7,737) from the General Fund to Pledged Sale and Use Tax fund.
d. Transfers of ($447,312) from the General Fund to the Debt Service Fund to make funds available for debt service payments.
e. Transfer of ($220,406) from the Lotteries to the General Fund to distribute the increase in net assets of the Lotteries for the use of the General Fund, as required by the Lotteries enabling legislation. f. Recognize as transfers the rental payments made by the Commonwealth’s agencies on properties
leased by PBA, a blended component unit of the Commonwealth ($250,713); ($75,442) related to the revenues received from the Tobacco Settlement for the agreement managed by The Children’s Trust, a blended component unit of the Commonwealth; and ($5,859) to the Puerto Rico Maritime Shipping Authority for the payment of appropriation debts.
g. Distribution of the sales tax for the use of COFINA debt service fund as required by enabling legislation for the payment of its bonds ($553,860).
h. Transfer unemployment insurance fund’s distribution of surplus cash belonging to the general fund for the payment of administrative expenses ($49,197).
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i. Provide local matching funds from the general fund related to the federal capital grants of the Puerto Rico Water Pollution Revolving Fund and Puerto Rico Safe Drinking Water Treatment Revolving Loan Fund, two nonmajor enterprise funds of the Commonwealth ($8,675).
j. Transfer from the Commonwealth capital project fund (a nonmajor governmental fund) to the general fund for the public improvements in municipalities and corporations ($550).
k. Transfer from the Drivers and Disability Insurance funds related to the distribution of surplus cash to the General Fund ($4,924).
l. Transfer from the Debt Service Fund to the General Fund for the payment of principal and interests of notes payable ($227,395).
m. Transfer from The Children’s Trust – Debt Service fund to Children’s Trust – Special Revenue fund ($241).
Interfund receivables and payables represent the pending settlements of the aforementioned transfers or transactions from current and prior years.
Due from (to) primary government are as follows (expressed in thousands):
R eceiv able Ent ity/ F und A mo unt P a ya ble E ntity/ F und A mo unt
Business-type activities $ 375,793 Puerto Rico Aqueduct and Sewer
Governmental activities 231,535 Authority $ 375,793
Puerto Rico Medical Services 607,328
$ Administration 81,378
Puerto Rico Ports Authority 41,532
Puerto Rico Electric Power Cardiovascular Center Corporation
Authority $ 84,247 of Puerto Rico and the Caribbean 38,447
University of Puerto Rico 75,011 Puerto Rico Industrial Development Company 19,244
Government Development Bank for Puerto Rico 63,981 Puerto Rico Tourism Company 17,460
Puerto Rico Industrial Development Company 43,403 Puerto Rico Trade and Export Company 9,922
Puerto Rico Aqueduct and Sewer Authority 33,714 Puerto Rico Metropolitan Bus Authority 7,949
Puerto Rico Medical Services Puerto Rico Health Insurance
Administration 21,237 Administration 7,239
Agricultural Services Development Governing Board of the 911 Service 4,189
Administration 18,758 Puerto Rico Highways and Transportation Authority 2,246
Puerto Rico Infrastructure Financing Authority 15,139 National Parks Company of Puerto Rico 1,929 Company for the Integral Development of
Peninsula Cantera 10,855
Land Authority of Puerto Rico 7,848 $ 607,328
State Insurance Fund Corporation 6,433
Puerto Rico Convention Center District Authority 2,742 Governmental activities $ 388,569
Puerto Rico Ports Authority 2,600
Puerto Rico Metropolitan Bus Authority 1,323
Right to Employment Administration 1,278
388,569 $
The amount owed by PRASA of $376 million represents construction loans granted by the Puerto Rico Water Pollution Control Revolving Fund and the Puerto Rico Safe Drinking Water Treatment Revolving Loan Fund, nonmajor enterprise funds, to finance the construction of capital assets for PRASA.
Governmental activities due from component units includes an allowance for doubtful accounts amounting to $108.9 million.
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The amount receivable by PREPA from the primary government includes approximately $19.0 million representing an agreement with the Commonwealth by which the Commonwealth will pay outstanding fuel adjustment subsidy and certain other accumulated debt. The amount owed by the Commonwealth is presented within notes payable in the statement of net assets (deficit) of the governmental activities. As of July 1, 1999 debts of approximately $102 million payable to UPR, a discretely presented component unit, in relation to outstanding noninterest bearing debt accumulated in prior years by the Health Facilities and Services Administration (HFSA) were transferred to the Commonwealth. On September 7, 2004, additional debts of approximately $71.2 million were also restructured and combined with the previous financing arrangement. As of June 30, 2010, $25.2 million remains outstanding of this arrangement. During the fiscal year 2009, the Office of Management and Budget and the UPR signed an intra-agency agreement amounting to $36 million to pay for appropriation for fiscal year 2007 and 2008. In April 2011 the OMB settled this intra-agency agreement for $18.6 million.
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Due from (to) component units are as follows (expressed in thousands):
R eceivable Ent it y/ F und A mo unt P ayable Ent it y/ F und A mo unt
Puerto Rico Electric Power Puerto Rico Medical Services Administration $ 19,883
Authority $ 145,560 Puerto Rico Ports Authority 53,936
Puerto Rico Ports Authority 50,190 Puerto Rico Maritime Transportation Authority 51,302
Puerto Rico Aqueduct and Sewer Puerto Rico Highways and Transportation Authority 22,166
Authority 14,595 Puerto Rico Electric Power Authority 28,265
University of Puerto Rico 2,978 Puerto Rico Aqueduct and Sewer Authority 28,754
Puerto Rico Industrial, T ourist, Educational, Agricultural Services and Development Administration 14,288
Medical and Environmental Control Puerto Rico Tourism Company 10,170
Facilities Financing Authoritiy 26,271 Cardiovascular Center Corpopration of Puerto Rico
Land Authority of Puerto Rico 20,219 and the Caribbean 11,649
State Insurance Fund Corporation 5,221 Farm Insurance Corporation of Puerto Rico 5,931
Puerto Rico Land Administration 1,306 Land Authority of Puerto Rico 3,840
Puerto Rico Convention Center District Authority 10,170 State Insurance Fund Corporation 1,454 Puerto Rico Industrial Development Company 1,306
Puerto Rico Metropolitan Bus Authority 5,622
Puerto Rico Solid Waste Authority 5,737
National Parks Company of Puerto Rico 5,560 Puerto Rico Convention Center District Authority 2,603
Puerto Rico Trade and Export Company 1,066
University of Puerto Rico 2,978
Subtotal 276,510 Sub total 276,510
Government Development Puerto Rico Highways and Transportation Authority 969,848
Bank for Puerto Rico 3,281,384 Puerto Rico Aqueduct and Sewer Authority 786,228
Special Communities Perpetual Trust 376,095
State Insurance Fund Corporation 220,000
Puerto Rico Ports Authority 143,738
Puerto Rico Convention Center District Authority 151,076 Agricultural Services and Development Administration 103,518 Puerto Rico Industrial Development Company 90,070
Puerto Rico Solid Waste Authority 68,085
Puerto Rico Industrial, Tourist, Educational, Medical and
Environmental Control Facilities Financing Authority 61,107
Land Authority of Puerto Rico 45,221
National Parks Company of Puerto Rico 13,949
Company for the Integral Development of the
Península de Cantera 10,779
Puerto Rico Infrastructure Financing Authority 3,135 Puerto Rico Public Private Partnerships Authority 2,147 Puerto Rico Conservatory of Music Corporation 1,028 Economic Development Bank for Puerto Rico 10,756
Port of Amercias Authority 204,713
University of Puerto Rico 19,891
Subtotal 3,281,384
3,557,894
$ $ 3,557,894
The rest of the loans receivable reported by GDB consists of the following (expressed in thousands):
Primary government — governmental activities $ 1,561,095
Other governmental entities and municipalities 1,646,150
Private sector 530,062
Total loans receivable reported by GDB $ 3,737,307
The loans to the primary government are presented by the Commonwealth within notes payable in the statement of net assets (deficit).
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Expenses of the primary government include approximately $2.7 billion in capital and operational contributions made by the primary government to the component units as follows (expressed in thousands):
Puerto Rico Health Insurance Administration $ 1,169,143
University of Puerto Rico 769,173
Nonmajor component units 627,456
Puerto Rico Aqueduct and Sewer Authority 58,746 Government Development Bank for Puerto Rico 49,000 Puerto Rico Highways and Transportation Authority 42,909 Total contributions made by primary government to component units $ 2,716,427 12. RESTRICTED ASSETS
Restricted assets of the primary government included in the basic financial statements at June 30, 2010 consist of cash, receivables, investments, and other assets to be used for the following purposes (expressed in thousands):
Governmental activities:
Debt service and sinking fund $ 2,012,948
Public Housing Administration - funds received from the U.S Housing
and Urban Development 1,833
Affordable housing program 1,249
Construction of governmental facilities 206,252 Collateral for underlying securities 85,940 Payment of operational expenses and certain financing granted to the
Commonwealth, among other purposes 900,191
Assets in liquidiation 34,024
Other 34,308
Total restricted assets of governmental activities $ 3,276,745 Business-type activities:
Disability insurance benefits $ 31,770
Lending activities 475,657
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Liabilities of the primary government payable from restricted assets consist of the following (expressed in thousands):
Governmental activities:
Debt service $ 282,832
Other 34,308
Accounts payable to contractors 18,144 Liabilities payable from restricted assets — governmental activities $ 335,284 Business-type activities:
Disability insurance benefit payable $ 560 Accounts payable and accrued liabilites 961 Liabilities payable from restricted assets — business-type activities $ 1,521 Restricted net assets of the primary government consist of the following (expressed in thousands):
Governmental activities restricted net assets (expressed in thousands):
Restricted for capital projects $ 188,108
Collateral for underlying securites 85,940
Assets in liquidations 34,024
Payment of operational expenses and certain financing granted to the
Commonwealth, among other purposes 900,191
Restricted for debt service 1,730,116
Affordable housing and related loan insurance programs 3,082 Total restricted net assets-governmental activities $ 2,941,461
Business-type activities restricted net assets:
Lending activities $ 474,696
Payment of insurance benefits 31,210
Total restricted net assets-business-type activities $ 505,906 Restricted assets of the component units included in the basic financial statements at June 30, 2010 are to be used for the following purposes (expressed in thousands):
Debt services and sinking fund requirements $ 2,449,178
Affordable housing and related loan insurance programs 1,908,808
Collateral for underlying securities 1,317,234
Construction and betterments funds 938,188
Other uses 442,901
Trust - nonexpendable 310,149
Educational funds 130,850
Industrial incentives 21,260
Financial assistance 10,858
Maintenance reserve fund 5,578
Escrow 143
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Act No. 92 of June 24, 1998, (“Act No. 92”) provides, among other things, for the creation of the Permanent Fund of PRIFA. The Permanent Fund consists of a Corpus Account funded with a portion of the proceeds from the sale of assets of PRTA and additional accounts created or to be created by the PRIFA. Act No. 92 provides that the principal of the Corpus Account may not be reduced for any reason and that income received from investments in the Corpus Account and amounts received may be deposited in any of the additional accounts.
On March 2, 1999, PRIFA received $1.2 billion in connection with the sale of certain assets of PRTA, which were deposited in the Corpus Account. Amounts deposited in the additional accounts are to be used first to pay the principal, premium, and interest of any bonds outstanding or to be issued by PRIFA and then for the expansion, development, and modernization of infrastructure related to the aqueduct and sewer systems of Puerto Rico.
The amounts deposited in the Permanent Fund shall be invested up to $1 billion in (1) direct obligations of the U.S. government; (2) obligations, the payment of principal and interest of which are unconditionally guaranteed by the U.S. government; (3) certificates of deposit of any bank, national bank association, or trust company organized and existing under the laws of the Commonwealth, the United States of America, or any of its states, on which the excess over the federal deposit insurance is secured by investments of the types described in (1) and (2) above; or (4) tax-exempt obligations of any state, instrumentality, agency, of political subdivision of Puerto Rico or the United States, the payment of principal and interest of which is secured by investments of the types described in (1) and (2) above.
Amounts in excess of $1 billion shall be invested in any of the instruments mentioned above or in any other instruments, including publicly traded common and preferred stock, not prohibited by investment guidelines adopted by GDB.
By virtue of Act No. 3 of January 14, 2009 (Act No. 3) approved by the Legislature of Puerto Rico, Act. No. 44 of June 21, 1988, was amended to permit the PRIFA to sell all or a portion of the outstanding Corpus Account investments held in the 2000 Trust Agreement and use the net proceeds of said redemption to provide for the early extinguishment of the Series 2000 A and B Bonds, maintain a permanent investment of $300 million within the Corpus Account, payments to the IRS, payment of transaction expenses, and contribute any remaining amounts to the Commonwealth and GDB, among other purposes.
On January 29, 2009, PRIFA entered into an escrow restructuring for the Series 2000 A and B Bonds in accordance with the provisions of Act No. 3 and sold the investments held in the Corpus Account. During the year ended June 30, 2010, PRIFA used the remaining proceeds of the redemption to make additional contributions to the Commonwealth and GDB amounting to approximately $3.3 million. At June 30, 2010, approximately $1,042 million have been invested in short-term U.S. Treasury securities, which are restricted for the early extinguishment of the Series 2000 A and B Bonds and included as part of cash and cash equivalents in the accompanying statement of net assets (deficit). Also, $310 million have been invested in a time deposit agreement with GDB as a permanent investment within the Corpus Account as established by Act. No. 3.
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Capital assets activity for the year ended June 30, 2010 is as follows (expressed in thousands): Primary Government
Beginning Ending
Balance Increases Decreases Balance Governmental activities:
Capital assets, not being depreciated:
Land $ 881,877 $ 21,746 $ 30,043 $ 873,580 Construction in progress 1,322,447 198,825 425,917 1,095,355 Total capital assets, not
being depreciated 2,204,324 220,571 455,960 1,968,935 Buildings and building
improvements 7,451,992 249,233 121,723 7,579,502 Equipment, furniture, fixtures,
vehicles, and software 507,701 40,306 17,964 530,043 Infrastructure 444,248 172,446 10,848 605,846 Total capital assets, being
depreciated and amortized 8,403,941 461,985 150,535 8,715,391 Less accumulated depreciation and
amortization for: Buildings and building
improvements 2,671,550 203,995 28,067 2,847,478 Equipment, furniture, fixtures,
vehicles, and software 292,012 43,691 11,008 324,695 Infrastructure 110,601 11,961 4,210 118,352 Total accumulated
depreciation and amortization 3,074,163 259,647 43,285 3,290,525
Total capital assets, being
depreciated and amortized, net 5,329,778 202,338 107,250 5,424,866 Governmental activities
capital assets, net $ 7,534,102 $ 422,909 $ 563,210 $ 7,393,801 Business-type activities:
Total capital assets, being
depreciated — equipment $ 4,818 $ 926 $ - $ 5,744 Less accumulated depreciation of
equipment 4,136 22 - 4,158 Total business-type activities
capital assets, being
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Depreciation and amortization expense was charged to functions/programs of the primary government for the year ended June 30, 2010 as follows (expressed in thousands):
Governmental activities:
General government $ 85,833
Public safety 23,339
Health 7,194
Public housing and welfare 89,637
Education 37,626
Economic development 16,018
Total depreciation and amortization expense — governmental activities $ 259,647 The Commonwealth follows the provision of GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, an amendment to GASB Statement No. 34. This statement establishes guidance for accounting and reporting for the impairment of capital assets and for insurance recoveries. Every year the Commonwealth performs an impairment analysis of its capital assets, in order to comply with the requirements of GASB Statement No. 42. The financial reporting impact resulting from this analysis had no effect on the statement of activities for the year ended June 30, 2010.
General infrastructure assets include $417 million representing the estimated cost of assets transferred to the Department of Natural and Environmental Resources (DNER) of the Commonwealth in 1997 upon completion of the Cerrillos Dam and Reservoir and the Portugues-River and Bucana-River Projects by the U.S. Army Corps of Engineers. These infrastructure assets are reported within governmental activities and include dams, intake facilities, and similar items built for flood control, water supply, and recreational purposes. The Commonwealth also recorded a payable due to the U.S. Army Corps of Engineers, amounting to $205 million, for its estimated allocated share of the construction costs associated with these projects, including accrued interest of $5 million. The final debt agreement between DNER and the U.S. Army Corps of Engineers has not been finalized, and therefore, terms and conditions could differ from those estimated. The depreciation is computed using the straight-line method over an estimated useful life of 50 years from the transfer date of the property. The related debt is expected to be payable on an annual basis over a 50 year period. However, the debt has been presented as a long-term payable after one year in the accompanying statement of net assets (deficit) since the commencement date of repayment has not yet been determined.
On August 17, 2001, the Legislature of the Commonwealth approved Act No. 120, which requires the conditional transfer of the ownership of certain real properties under the name of the Department of Recreation and Sports (DRS) of the Commonwealth to the municipalities of the Commonwealth. The land and the facilities were transferred at no cost to the municipalities. During the fiscal year ended June 30, 2010, land, building, and building improvements amounting to $14 million were transferred to several municipalities.
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Beginning
Balance Ending (as Restated) Increases Decreases Balance
Capital assets, not being depreciated:
Land $ 3,036,496 $ 50,647 $ 19,533 $ 3,067,610 Art works 9,477 25 - 9,502 Construction in progress 6,159,895 2,349,557 3,789,237 4,720,215 Total capital assets,
not being depreciated 9,205,868 2,400,229 3,808,770 7,797,327 Capital assets, being depreciated:
Buildings and building
improvements 4,810,304 114,742 39,444 4,885,602 Equipment, furniture, fixtures,
vehicles, and software 8,739,093 997,444 39,337 9,697,200 Infrastructure 24,928,423 1,755,987 89,793 26,594,617 Intangibles, other than software 2,293 - - 2,293 Total capital assets, being
depreciated and amortized 38,480,113 2,868,173 168,574 41,179,712 Less accumulated depreciation and
amortization for: Buildings and building
improvements 1,953,687 186,736 53,564 2,086,859 Equipment, furniture, fixtures,
vehicles and software 1,903,187 177,173 81,635 1,998,725 Infrastructure 13,897,608 808,681 12,884 14,693,405 Intangibles, other than software 811 - - 811 Total accumulated
depreciation and amortization 17,755,293 1,172,590 148,083 18,779,800
Total capital assets, being
depreciated and amortized, net 20,724,820 1,695,583 20,491 22,399,912 Capital assets, net $ 29,930,688 $ 4,095,812 $ 3,829,261 $ 30,197,239
On April 6, 2006, PRIFA and PRASA entered into an assistance agreement whereby the infrastructure projects undertaken by PRIFA for PRASA’s benefit (the “PRASA Projects”) will be transferred to PRASA not later than 90 days after the execution of the agreement. PRIFA and PRASA must comply with certain conditions precedent to transfer, which requires among other: (1) written assignment to PRASA of such contracts in connection with such projects, which contract PRASA determines are necessary; (2) completion of the technical and financial report; (3) completion of a legal report, including an assessment of actual or potential claims for such project; and (4) completion of the land acquisition process and transfer of land to PRASA in connection with such projects. PRIFA continued to fund the completion of the projects still in development up to the maximum available for such purposes.
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On June 28, 2010, PRIFA and PRASA entered in an amended assistance agreement (the “Agreement”) to acknowledge PRIFA’s compliance with the conditions precedent to transfer on all PRASA Projects, excluding land owned by PRIFA, and PRASA’s assumption of all operation, maintenance, and safety responsibilities of all PRASA Projects. In connection with the amendment, approximately $915 million of PRIFA’s capital assets were transferred to PRASA. The transfer to PRASA of land owned by PRIFA in connection with such projects of approximately $9,282,000 at June 30, 2010, has not been executed since various conditions precedent to the transfer are in the process of being completed.