[Details] Fiscal board certifies plans for Puerto Rico Transportation Dept., gov’t bank and university
SAN JUAN – Puerto Rico’s Financial Oversight and Management Board approved with a majority vote the fiscal plans for the island’s Highways and Transportation Authority (HTA), the Government Development Bank (GDB), the University of Puerto Rico (UPR) as developed by the Board.
The fiscal plan for the Cooperatives Supervision & Insurance Corp. (Cossec by its Spanish acronym), was postponed for a later date due to a need for further analysis of its liquidity.
The plans, except the one developed for the UPR, replace ones approved last year. HTA is currently under the Promesa law’s Title III bankruptcy process. The GDB, which has been virtually shut down, has reached a consensual debt-restructuring agreement with creditors that is expected to be filed under Title VI of Promesa. The rest of the entities are covered by the fiscal board.
Board member Ana Matosantos abstained from voting on HTA’s fiscal plan because she wanted to “better understand the impact of construction costs” on the overall plan but said she agreed with it. She also abstained from voting on the UPR’s fiscal plan but did not express her reason for doing so. On Thursday, she was the only board member to vote against the certification of the commonwealth’s fiscal plan.
The GDB’s fiscal plan, which remains practically the same as the one proposed by the governor, was approved unanimously.
Gov. Ricardo Rosselló called for discussions with the board to amend the fiscal plans. The government opposes the panel’s proposals to cut retiree pensions and to repeal most labor protection laws. “With pleasure, we will continue to have a dialogue,” said board Chairman José Carrión, who on Thursday had said he would have to talk with lawyers if the government does not implement the fiscal plan.
Regarding debt-restructuring agreements for the GDB and an upcoming one for Prasa, Carrión said the imminent showdown between the government and the board should not affect them.
Asked if he would be able to live on a $1,000-a-month pension, which is the case of many retirees, Carrión said: “Not with my lifestyle.”
Replying to what would he tell a person who is planning to leave the island because of the austerity measures imposed by the fiscal plan, Carrión said, “I’d tell them to stay, to have faith because we’re on the right path.”
At a news conference after the board’s public meeting, Christian Sobrino, the government’s representative to the board, said that if the panel takes the government to court with a motion urging the government to comply with the fiscal plan, officials would answer it “and we will win it.”
Sobrino said the board is for oversight and not a “dictator,” adding that the fiscal plans “are not the law.”
UPR Chairman Walter Alomar said the institution will not implement parts of the fiscal board’s plan that involve labor reform, such as the repeal of the Christmas Bonus and pension cuts. He reiterated that none of the UPR’s 11 campuses were going to close but merely grouped into five hubs.
Alomar stressed that the board exceeded its power by including in its plan a specific campus-consolidation model.
“We emphasize that this decision is an institutional determination that depends on many factors and academic requirements. The experts in academic matters are in the UPR, not the Board,” he said in a statement, adding that the process must be evaluated, planned and announced in advance to the accrediting agencies, including the Middle States Commission on Higher Education.
During the meeting, HTA Director Carlos Contreras opposed the fiscal plan developed by the board, which calls for toll hikes to adapt to inflation and a 15% payroll cut because it would be harder to execute. Contreras said his agency’s version of the fiscal plan does not raise tolls but would still produce positive numbers.
The HTA is working to reduce traffic congestion, which the board believes is an important factor to help grow the gross domestic product by reducing travel time. Among the initiatives to lower road congestion are the implementation of a dynamic tollgate lane for PR-22. Another is planned for PR-52. There are also plans to build a traffic management center in Caguas as well as improvements to the traffic signal system.
However, Contreras said the fiscal plan proposes increases “at the worst time,” adding, “We cannot continue to put pressure on citizens.”
Board Executive Director Natalie Jarekso said HTA has not increased tolls in line with inflation, while PR-22, which is concessioned, has implemented regular rate increases to keep up with inflation. PR-66, she said is priced in line with peer states. On a toll-per-mile basis, PR-52 and PR-20 are below the U.S. average, while PR-53 is below the upper quartile. On an income-adjusted toll-per-mile basis, PR-52 is below the U.S. median, PR-53 is below the upper quartile and PR-20 is in the top quartile
Jarekso stressed the importance of cutting staff spending by 15% and not 3% as HTA proposed to be able to reduce the budget gap.
Bank plan certified
The board also approved the GDB’s fiscal plan, which contains a debt-restructuring agreement that should be ratified before June. The bondholders of the insolvent fiscal agent have ratified an amendment to the institution’s restructuring support agreement (RSA), making progress toward a consensual debt restructuring through Title VI of Promesa.
The amendment, as a result, became effective Monday, according to a statement.
As announced on March 27, the amendment will simplify the GDB restructuring transaction while providing additional relief to municipalities as they recover from the damage caused by hurricanes Irma and María.
The amendment to the RSA provides that each town will be authorized to apply the full amount of deposits held at the GDB against the balance of any loan they owe to the bank. It would also allow for towns to receive payment, before the transaction is finalized, of 55% of their “undisbursed certified Excess CAE [Spanish acronym for Special Additional Contribution, an additional property tax that is the main source for the payment of bonds] held at GDB in exchange for releases.”
The amendment also results in a simplified structure whereby GDB’s creditors exchange their claims for only one tranche of new bonds at an upfront exchange ratio of 55%.
When during the meeting Carrión asked about accomplishing a restructuring agreement, Sobrino, who headed the GDB, answered that the bank prepared a straightforward plan using its consultants and provided trustworthy data to creditors to obtain the deal. The GDB wound down its operations and provided its workers a voluntary transition program instead of early retirement to avoid extending its liabilities.
Tuition up, funding down
The fiscal plan that contained the most discrepancies was that of the University of Puerto Rico’s, whose budget will be cut by $809 million under the board’s certified plan after already suffering a $200 million cut.
UPR’s Alomar opposed the fiscal board-developed plan because it proposes an increase of $157 per undergrad credit by 2023. The university had proposed it be raised to $140. The certified plan proposes that credits be increased to $115 next year from the current $57.
However, the fiscal board’s plan would eliminate tuition exemptions for athletes and students with special abilities. Tuition increases will also impact graduate students and those pursuing medical and law degrees.
“The board exceeded its authority. Our plan was to reduce the number of students receiving exemptions by 50%,” Alomar said.
The board also wants to cut UPR’s scholarship fund from the current $39 million to $9 million starting in fiscal year 2019. “The Board should increase it to $20 million or $25 million,” Alomar said.
The UPR official opposed cuts to pension benefits but did not provide alternatives to make is sustainable. Matosantos noted that the system gets less than 75 cents for every dollar.
Both plans propose the consolidation of the 11 campuses into four hubs in which the administrative areas would be consolidated but not academic programs.
“We remain firm in that it is the administration of the UPR that must make the decisions of matters directly related to the implementation of institutional policies. This is not negotiable,” Alomar added in his statement.
Alomar supported a plan to add $60 million to the endowment fund for five years even though the money will come from the courts, the legislature and the Puerto Rico Fiscal Agency and Financial Advisory Authority.
A member of the University Professors Association (APPU) told the board that comparing the UPR to stateside universities for purposes of tuition was wrong because Puerto Rico students are poorer. The board has said the proposed tuition hikes would still maintain the university affordable when compared with other U.S. schools.
The APPU also said the proposed changes to UPR’s pension system to a defined-benefits program will hinder its ability to attract quality professors.
Fiscal board member Andrew Gibbs said the panel will continue to reassess UPR’s plan but noted that most stateside universities have defined-benefits programs and no problem attracting professors.
The plan proposed for UPR calls for a nearly 10% reduction in total operating disbursements by fiscal 2023. “The consolidations of programs and services are designed to improve both student experience and educational outcomes. For example, a compliance scan of UPR’sacademic programs found many programs with graduation rates below 25%. A critical goal of the New Fiscal Plan is the re-focusing of resources on the strengths of the system–making sure students are receiving both an affordable and high quality education,” Jaresko said.
The fiscal board director also said every effort was made to minimize the increase of tuition and fees. The plan, she explained, does so by maximizing opportunities to increase revenue from non-tuition sources such as federal grants, awards, patents, and fees for providing training to other institutions.
“To the extent tuition increases are required, the New Fiscal Plan calls for implementing a need-based scholarship policy alongside increases in the cost per credit and related fees,” she added.
While the fiscal board postponed a vote to certify its fiscal plan, mostly due to concern about changing the structure of Cossec’s governing board as some of its members also work in cooperatives, which hinders the government entity’s oversight role.
Legislation to change Cossec’s governance is still pending at the legislature as lawmakers want to amend it.
Jaresko noted that Cossec is both regulator and protects depositors. “Cossec must be able to act independently. This is conflict,” she stressed while noting that the current law precludes Cossec from taking enforcement action against ailing co-ops and that legislation to make that change should be approved as soon as possible.
Regarding the agency’s ability to deal the fiscal crisis for it large portfolio exposure to Puerto Rico bonds, Cossec Vice President Pedro Roldán said analyses conducted by the National Credit Union Administration and by local actuaries conclude it can handle the situation. The plan proposes the creation of a project management office to ensure Cossec becomes a strong independent regulator.