Oversight Board’s University of PR plan has enough to pay no more than 10% of debt

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The Puerto Rico Oversight Board’s latest University of Puerto Rico fiscal plan projects enough surplus to pay no more than 10% of its contractual debt service through fiscal 2025.

The board expects to have a net surplus of about $24.5 million to fiscal 2025 from the current fiscal year, assuming all of its fiscal plan measures are enacted on schedule. By comparison, the university owes about $290 million in principal and interest on two bonds through fiscal 2025.

According to the plan, the university has $422 million in bond principal outstanding. Additionally it has $227 million of other post-employment benefit liability and $132 million for accrual for compensated absences. Additionally, as of fiscal year 2018 it had underfunded the university pension system by $1.8 billion.

The university is currently in discussion with bondholders about restructuring the debt.

Puerto Rico Oversight Board Executive Director Natalie Jaresko
Puerto Rico Oversight Board Executive Director Natalie Jaresko said the board had more control over the University of Puerto Rico's spending than it did over its revenues.

The board released its latest certified University of Puerto Rico fiscal plan Tuesday.

Even if everything goes according to plan, the board may not be inclined to use its entire surplus for paying the debt. Hypothetically, the board could also pay more than it will bring in as surplus, because the university had $164 million in operational cash and $82 million in a debt service reserve as of May. But the board sees the level of operational cash as minimal.

On June 3 the revenue bond trustee, U.S. Bank National Trust, said that the bondholders were working towards a “permanent resolution” of their disputes with the university by July 15. In addition to $366 million in revenue bonds, the university also has $56 million in AFICA bonds outstanding.

In a conference call on Tuesday, Board Executive Director Natalie Jaresko said she didn’t expect to seek Title III bankruptcy to address the university’s debts. However, she said it might be needed to reduce the school’s pension obligations. Jaresko said Puerto Rico Gov. Wanda Vázquez would have to seek Title III for the university to enter bankruptcy.

“Given the scale of the challenges facing UPR, significant expenditure reductions and some tuition increases are required; however, these measures have been carefully designed to safeguard the institution and its most vulnerable students from adverse effects on instruction, research, and affordability,” the fiscal plan stated.

The plan includes seven revenue-enhancing measures and four expenditure-reducing measures. If all were introduced as the plan schedules, there would be a net improvement of increasing amounts of money in the next few fiscal years, culminating in a net improvement of about $300 million in fiscal 2025.

The latest version of the fiscal plan indicates that the university has not been instituting the majority of prior fiscal plan’s measures as scheduled. Exhibit 43 indicates that the school has implemented two of twelve revenue and expenditure measures found in prior fiscal plans, failed to implement nine of them and partially implemented one of them.

When Jaresko was asked Tuesday about the board’s implementation power, she said the board allotted spending by category but that how the spending cuts are implemented is up to the board.

“Revenue measures are more of a target,” Jaresko said. She said she couldn’t force these. However, if the school doesn’t implement them it will have less revenue and the board will ultimately have to cut more expenses.

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