The University of Puerto Rico is seeking more revenue from its student body to help close an estimated $166 million deficit for the upcoming school year and support capital projects.
UPR anticipates receiving a loan from the Government Development Bank for Puerto Rico, the school’s fiscal agent, prior to its next bond deal, said Gabriel Rivera, the university’s director of finance. The school may issue its next bond sale in 2011, with those proceeds repaying the GDB and also financing infrastructure improvements, he said.
Rivera declined to indicate the size of a potential GDB loan or the university’s next bond transaction, as officials are still drafting a capital improvement program for the 2010-2011 school year. UPR’s board of trustees may vote on the capital spending plan by late summer.
“I don’t foresee going to the market later this year,” Rivera said. “We have to identify first the amount of financing needed and then we’ll go to the GDB for interim financing. Then, the bank will direct us to the market and then the bonds will be issued and we’ll repay the interim financing and the balance will be used to pay for the projects, so that’s the normal process.”
Fernando Batlle, GDB’s executive vice president of financing and treasury, said that the bank has yet to conduct formal discussions with the university regarding a borrowing plan.
“If you’re going to borrow money, that plan has to be credible and it has to show that the entity has the ability to pay you back,” Batlle said. “And very likely that plan is going to have to have a combination of measures which include revenue measures and include expense measures.”
UPR is seeking, beginning this coming school year, a special fee of $1,100 to $1,300 per student on top of tuition fees to help increase revenues. Students currently pay $45 to $51 per credit hour, or $720 to $816 for a 16-credit-hour semester.
Those additional funds, along with $70 million of expected spending cuts, would help the school close its $166 million deficit for fiscal 2011, which begins July 1.
“Initially, the increasing monies will go to pay for the operational deficit and there will be excess monies that will help pay also the capital improvement program,” Rivera said.
Whether UPR is able to collect the additional student fees is another issue. For nearly two months, students have been striking in protest of anticipated tuition hikes and a proposal to limit tuition waivers for certain students who also receive a federal Pell Grant. The protests have shut down all 11 UPR campuses and the second semester of the school year is on hold.
UPR has $569 million of outstanding bonds and $71 million of outstanding notes, as of Dec. 31, according to GDB documents. Moody’s Investors Service and Standard & Poor’s rate the school Baa1 and BBB-minus, respectively.
The school also makes lease payments to the Puerto Rico Industrial, Tourist, Education, Medical and Environmental Control Facilities Financing Authority — known by its Spanish acronym AFICA — on $78 million of outstanding debt sold in 2000 for the University Plaza Project.
The university last paid bondholders on June 1, and fiscal 2011 principal and interest costs total roughly $54 million, Rivera said. The university is confident it will meet such obligations, considering it is set to receive $691 million from the commonwealth next year.
“Compared to the university revenues and income, the payment of the bonds is really minute, a small amount,” he said. “It’s only $54 million next year, including the university plaza bonds, so we don’t foresee any complications regarding that area.”
A large part of UPR’s operations comes from commonwealth funding, which is based on a formula that appropriates 9.6% of Puerto Rico’s average annual revenue from internal sources for each of the two prior fiscal years. As the commonwealth’s year-over-year revenues decrease, so do UPR’s annual allocations. That decrease in funding, along with $90 million less in American Reinvestment and Recovery Act funds in fiscal 2011 account for the $166 million deficit.
UPR currently has 65,669 students enrolled. It is Puerto Rico’s sole public university and its largest higher education institution.