The Oversight Board unanimously approved a new version of the fiscal plan for the University of Puerto Rico (UPR), which includes demographic changes that reduce enrollment in the coming years and establishes a new pension structure for retirees of the public higher education system.
According to Board Executive Director Natalie Jaresko, UPR's fiscal plan, as designed, includes a reduction in pensioner benefits, freeze on what active employees accumulate through the current defined benefit plan, and the implementation of a new system of savings accounts similar to 401k plans in the private sector.
However, the document admits two other alternatives. The first also involves the transition from the current system to savings accounts but avoids cuts to benefits for current pensioners. This option would lead the UPR to reductions in expenses or increases in income equivalent to $43 million annually.
Although the other option is for the system to remain as it is now, it forces the UPR to increase its income or reduce expenses in about $60 million annually, so that they can make additional contributions to keep the system stable.
Jaresko said at a press conference at the Board headquarters in Hato Rey that currently, the UPR has about 40 percent of the money (owed to pensioners) and that is not appropriate and she added that the UPR has to make a decision and must act in several ways to ensure the payment of those pensions.
These changes to the UPR pension system caused the immediate opposition from the government. The executive director of the Fiscal Agency and Financial Advisory Authority (FAFAA), Christian Sobrino, indicated that in order to maintain the current pension system, it would be necessary to increase the employer's contribution to the point that it would leave the University inoperative.
Sobrino described the changes to the UPR retirement system as a "recommendation," a term that under PROMESA allows complete discretion of state authorities and does not represent an imposition of the entity overseeing Puerto Rico's finances.
In written statements, Sobrino said that the Board´s recommendation to double the employer´s contribution is premature, because it is based on 2017 data, and effectively drains the UPR operational account, which could leave the University inoperative and would impact the ability of the UPR to fulfill its mission of accessible and quality higher education.
The governor's representative before the Board said that the UPR plan is substantially aligned with that of the Board on undergraduate tuition cost issues. The differences lie in graduate tuition costs, exemptions, Christmas bonus, and contributions to the retirement system.
Yesterday, the president of the UPR Governing Board Walter Alomar avoided commenting on the document as he had not completely analyzed it yet.
The Brotherhood of Exempt, Non-Teaching Employees (HEEND, Spanish acronym) did not issue statements either, as they had not finished examining the new certified fiscal plan.
Previous changes prevail
Yesterday, during a press conference to announce the certification of the new fiscal plan for the UPR, Jaresko explained that the document maintains the reductions in the government contributions to the UPR until it reaches $389 million for fiscal year 2024. In 2018, that contribution was $879 million, a package that covered about two-thirds of the system's expenses.
Similarly, increases in tuition costs at the graduate and undergraduate levels prevail, and most exemptions have been eliminated, including those for veterans family members and UPR employees, athletes and students in special extracurricular activities.
The elimination of these exemptions is prospective, so it does not affect students who already have those benefits. The plan keeps exemptions for honor students, veterans, and teaching assistants.
According to Jaresko, the plan is structured in such a way that the most vulnerable population has access to higher education despite rising costs. She said, for example, that a student who enrolls for a 12 credits semester will have $1,000 excess annually if that student has a full Pell scholarship.
She also indicated that they will set additional scholarship funds and that in the worst case, students would have to work part-time in order to be able to cover all their expenses.
Some students “may have to take a part-time job, I worked through college," said Jaresko, describing as a "myth" that changes would reduce the access of Puerto Rico's vulnerable population to the system.
The Board´s executive director said the new document - which sets the system's fiscal path until 2024 - is different from the one recommended by the UPR Governing Board because some of the deficiencies detected were not corrected by the university.
In a letter dated May 1, the Board warned Ricardo Rosselló Nevares that the version of the fiscal plan proposed by the university lacked recent projections of the retirement system expenses, maintained tuition exemptions that the fiscal entity objected to, and lacked an analysis of the sustainability of the UPR public debt, with a $48 million annual repayment.
Yesterday, the president of the UPR Governing Board indicated that these and other concerns of the Board were answered in a letter. Alomar regretted that the letter was never answered.
He also ruled out that the administration of the UPR has failed to comply with any provision associated with the delivery of financial information required by the Board or accrediting firms.
Yesterday during the conference, Jaresko said that the UPR does not regularly deliver all the tax information they need and that it delayed the implementation of tuition increases for graduate students.
Such delay in fiscal reforms, Jaresko said, has the potential to complicate the financial situation of the university system and, in the long run, cause difficult determinations, as happened recently with the closing of Diálogo newspaper.
The government, however, alleges that the newspaper has not closed, but rather that it is an online paper produced in Arecibo campus and not in Río Piedras, where the system's main school of communication is located.
On the other hand, Jaresko said that complying with UPR's fiscal plan will enable the university to increase its staff by 3 percent each year. This will lead, by fiscal year 2024, to have one professor every 18 students in the university system while currently, the UPR has one professor every 22 students.
The imbalance between income and expenditure
The Board´s certified fiscal plan is focussed on the UPR's debt restructuring, an issue that FAFAA is currently addressing under PROMESA Title VI.
The plan projects that as of fiscal year 2021, the UPR would have primary surpluses ranging from $3.1 million to $20.7 million. This primary surplus, however, would vanish if the University starts paying back its debt as it was agreed.
For example, if the UPR had to pay its creditors, by 2023 it would have a $42 million deficit, even though it has implemented all the reforms included in the fiscal plan. The same would happen for the rest of the years included in the fiscal plan.
Jaresko did not talk much about this process since it is led by FAFAA. PROMESA Title VI, in essence, promotes voluntary negotiation between the government and creditors. The other option would be to file a case of territorial bankruptcy under Title III, a matter that does not appear to be within the current range of possibilities, despite the fact that at the end of the month the leniency agreement between creditors and the public higher education system expires.
All of these changes come at a time when the UPR is debating its budget for the next fiscal year.
Yesterday, members of the University Governing Board rejected President Jorge Haddock's budget proposal, El Nuevo Día found out. The official was not immediately available to comment on this issue.