Both Fitch Ratings and Standard & Poor's say it will be a credit negative if Puerto Rico's government cannot find a way to address the deficit in the commonwealth's teachers' pension system.
The ratings agencies made the statements in the aftermath of the Puerto Rico Supreme Court declaring the commonwealth government's December 2013 reform of the system to be unconstitutional. The court released word of its decision on April 11.
The decision has no immediate impact on the commonwealth's General Fund; the teachers' retirement system, without reform or other changes, is not expected to run out of money until fiscal 2020, Fitch Ratings managing director Laura Porter said.
Porter noted there have also been some recent positive developments. The commonwealth's sale of a $3.5 billion general obligation bond provides breathing room. Revenues three quarters of the way through the fiscal year are in line with projections. Finally, the economy shows some signs of stabilization, she said.
The government of Puerto Rico Gov. Alejandro García Padilla has said that if the legislation were struck down, the reform could be changed to pass constitutional muster, based on the court's approval of the reform of the government's main employee retirement system, S&P analyst David Hitchcock said.
On April 16 a source close to the governor said the Secretary of Justice, attorneys in the governor's administration and representatives from the Government Development Bank of Puerto Rico are looking at the multiple written opinions from the court in the case. The governor may ask the court for a reconsideration of its overall decision or he might ask the legislature to approve a revised teachers' pension plan. But the governor has not yet decided what route to take yet, the source said.
