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Puerto Rico Board Unveils University Fiscal Plan

Puerto Rico Oversight Board Unveils University Fiscal Plan

(Bloomberg) -- Facing declining enrollment, a bloated pension system and more than $341 million in debt, the University of Puerto Rico needs to cut spending, boost revenue and reduce its retirement obligations, a federally-appointed oversight board said Tuesday as it unveiled its 2020 fiscal plan for the institution.

The plan acknowledges the university’s financially-fragile state -- and the impact of the coronavirus, which has paralyzed activity on much of the island. As a result, the oversight board recommended maintaining Puerto Rico government support for the university system at current levels of about $560 million, delaying planned reductions for a year. In addition, previously scheduled tuition and fee increases were also postponed by a year.

With 11 campuses and almost 13,000 employees, UPR is seen as one of the drivers of Puerto Rico’s economy, and it’s one of the few commonwealth entities that continues to pay its bondholders as the island tries to claw its way out of bankruptcy.

Earlier this month, the university and its creditors agreed to put off $9.85 million in debt payments due in March, April and May until July 15, when they hope to reach a permanent solution to the debt crisis. The last time the school allocated money to the trustee was in February.

In addition, the university has pension liabilities of $3.2 billion, of which $1.8 billion are unfunded. Unless the university takes decisive action, the pension fund will be insolvent by 2031, the oversight board said.

Title 3 Protection

In a press conference Tuesday, Fiscal Oversight and Management Board Executive Director Natalie Jaresko said that if UPR decided to seek Title 3 protection to restructure its pensions or debts, it’s unlikely to lose its accreditation or critical funding from the federal government and other sources.

“We don’t believe that Title 3 needs to mean anything negative in terms of federal funding or accreditation if it is done without delay and done appropriately,” she said of the bankruptcy-type process that is available to U.S. territories.

The federal government does not commonly offer Pell Grants to schools that are bankrupt, and about 70% of UPR students depend on those funds. Even so, “I don’t believe a great deal of funding would be lost,” Jaresko said. “Title 3 is not traditional bankruptcy and is viewed differently by many donors, funders and accreditation institutions than a pure straightforward bankruptcy.”

Jaresko stressed, however, that the decision to restructure the UPR debt is entirely up to the university and the commonwealth’s government.

“UPR will undoubtedly play an essential role in Puerto Rico’s recovery, teaching students best prepared to create a Puerto Rico of opportunity and prosperity,” Jaresko said in a statement. “UPR has so far been slow to implement the changes necessary to secure a stable and bright future. Covid-19 has exacerbated these shortcomings.”

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