UPR pres rejects Jaresko suggestion that Title III bankruptcy may be needed to address pension woes
Says measure would imperil accreditation, funding; assures finances have improved enough to raise retirement contributions; has faculty rep backing
SAN JUAN – University of Puerto Rico (UPR) administration and faculty rejected Wednesday suggestions by Puerto Rico Financial Oversight & Management Board (FOMB) Executive Director Natalie Jaresko that the island’s premier public university system may have to request Title III bankruptcy protection under the federal Puerto Rico Oversight, Management and Economic Stability Act (Promesa) to address its underfunded pension system.
During a teleconference with reporters on Tuesday, Jaresko said she did not consider Title III bankruptcy necessary to address UPR’s debts, but did not rule it out to reduce the university’s pension obligations. The UPR retirement system, which has a deficit of at least $1.8 billion, would become insolvent by 2031 if it is not revamped, she said.
Jaresko said FOMB is studying two solutions to fix the pension system’s woes, both of which would freeze the defined benefit plan and move beneficiaries into a defined contribution plan. One solution would leave accrued benefits untouched while the other would reduce them. She said the latter would be “the most responsible course of action,” given that it would avoid siphoning more money from the university’s operational funds.
The UPR, moreover, must tackle its “bloated administration” and consolidate management functions among its 11 campuses to remain “sustainable,” Jaresko said, noting that this would enable the university to increase services to students while keeping faculty “well paid.” The university will not be able to pay $600 million in debt coming due in the next five years given that the institution’s deficits are projected to be $400 million by 2025 if no action is taken, she said.
Jaresko said Puerto Rico Gov. Wanda Vázquez would have to seek Title III for the university to enter bankruptcy. She said that she did not expect UPR to lose its accreditation or “a great deal of funding” if it reorganized its finances under Title III.
“Title III is not traditional bankruptcy; it is viewed differently by many donors and funders as well as accreditation institutions than a pure and straightforward bankruptcy,” she told reporters.
‘Risky and unnecessary’
However, UPR President Jorge Haddock said Wednesday that requesting Title III bankruptcy protection to fix the university’s finances “is not an option,” calling such a move “risky” and “unnecessary.”
Haddock said the UPR has been making its debt service payments and that the debt does not represent a risk to the university. On the other hand, declaring bankruptcy would jeopardize federal and private funding for student scholarships, research and permanent work projects, he said, adding that the university would have to incur “additional excessive costs” in legal and financial consulting services with a Title III bankruptcy declaration.
“Bankruptcy is not an option for the University,” Haddock said in a statement, in which he called Jaresko’s suggestion “irresponsible” given the “anxiety” it could generate among students and faculty, which he said could affect accreditation and recruitment.
“Title III is not only unnecessary for the UPR, but it would put at risk the access to federal funds that benefit the majority of our students,” he said. “Moreover, it would affect the accreditation that cost us so much effort to obtain and maintain, thanks to the measures of control and rigor we have implemented in such a short time.”
The UPR president, who has appointed to the post two years ago, said it took him nine months to renew the university’s accreditation by the Middle States Commission on Higher Education. He said that one of the changes instituted under his administration is the issuance of the UPR’s financial statements before the due date.
Pension contribution doubled
Earlier this week, Haddock presented a consolidated budget of $1.28 billion for fiscal year 2021, which was approved by the University Board, which includes campus rectors and professorial and student representation from the 11 campuses of the UPR system. The submitted budget, which acknowledged could be modified by the oversight board, includes $144 million in employer contributions to the retirement system, he said, stressing that the retirement allotment is double the average annual contribution during the last 10 years.
The UPR-approved budget includes up to a 3 percent increase in faculty payroll per department and a $56.6 million allotment for permanent work projects in all of the system’s campuses, Haddock said, noting this would increase the UPR’s permanent works program funding to $300 million.
“We are taking great steps in the right direction,” he said, adding that the institution has “created a culture of responsibility and compliance, maintaining a balanced budget and creating a new budgeting model.”
Haddock alleged that the oversight board has not acknowledged these measures because “from the start” it has had “an agenda” involving “the forced firing of employees and the closing of campuses.” He said that while such measures have been common in the states, it is “contrary to the humanity that characterizes our island and institutional culture.”
During Tuesday’s teleconference with reporters, Jaresko said the UPR was too reliant on commonwealth funding, and that “students who can pay should pay, and those who can’t will have scholarships.” Scheduled tuition increases were postponed until fiscal year 2022 due to the Covid-19 crisis. Last Friday, oversight board certified a UPR fiscal plan that includes reducing its workforce by 10,300 by 2025.
“This is contrary to our public policy, and we have demonstrated that we can achieve results without having to implement such drastic measures,” Haddock said, adding that oversight board’s fiscal plan “does not reflect the reality of the UPR, nor the work we have done in the past two years.”
The UPR president said that FOMB’s plans “show a lack of knowledge of the functioning and governance” of the university, noting that long-term, sustainable transformations “require time and a cultural change.”
Layoffs ‘not feasible’
Haddock stressed that laying off more than 10,000 workers is “neither feasible nor sustainable” because “the administrative personnel of the UPR fulfills a valuable function in support of the faculty.” Moreover, given the hurricane earthquake and pandemic events that have affected the island, firing workers would be “extremely insensitive” and would have an impact on the economy, he said
Haddock said the UPR governing board had presented several proposals to the oversight board to modify the university’s retirement plan without affecting benefits to retirees. He made no mention of these proposals in his press release.
Jaresko had told journalists on Tuesday that while there have been “many conversations” with the UPR governing board on the matter of reforming the pension system and that there is a “clear acknowledgement that something needs to be done,” she noted that the governing board had presented “various scenarios” but had not submitted a “specific” proposal. She said the $200 million in yearly funding required by the pension system was “not sustainable,” and that continuing to underfund it would lead to insolvency by 2031.
“I don’t know that you can do pension reform without Title III,” she told reporters.
According to press reports, the university is currently in discussion with bondholders about restructuring the debt. UPR Governing Board President Walter Alomar reportedly favors freezing the defined benefit plan and curtailing benefits to the current 9,635 employees who are making contributions to the plan, but would maintain such benefits for current retirees and another 2,700 employees who are about to retire. The oversight board plan would cut benefits across the board.
Alomar reportedly said that the UPR governing board has suggested the creation of a retirement savings system for active employees. The current system, which has a retirement age of 58, pays out pensions averaging about $2,000 a month to 7,700 retirees.
In fact, the oversight board’s fiscal plan for the UPR revised its estimated income for fiscal year 2021, beginning July 1, upward by 6.6 percent, from $1.16 billion to $1.24 billion. While income from slot machine receipts, tuition, the Special State Fund, campus-generated inflow, and federal funding are expected to drop, central government funding to the university is expected to increase, according to the plan.
Faculty representatives reject FOMB ‘intimidation’
Meanwhile, Mayra Olavarría Cruz and Alan Rodríguez Pérez, faculty representatives on the UPR board, also came out against Title III bankruptcy, calling out Jaresko for issuing “false and irresponsible” expressions that “have the effect of confusing and creating anxiety.” They said that the UPR has maintained its finances despite FOMB’s aim of “destroying” the public institution.
“FOMB has never certified the fiscal plans approved by the UPR governing board and has always imposed on us its own fiscal plan,” Rodríguez, secretary of the board, said in a statement issued Wednesday. He said that Haddock had undertaken measures to “maintain [UPR’s] quality of teaching and international reputation.”
Olavarría contended that the UPR had “prudently” complied with 88 percent of the “impositions certified by FOMB in their fiscal plans, but that the oversight board insists on threatening the existence of the nearly 120 year institution.
Jaresko had said Tuesday the university has not been instituting the majority of prior fiscal plan’s measures as scheduled, noting that the UPR just implemented two of twelve revenue and expenditure measures. She said that revenue measures “are more of a target” and that the oversight board could not force these, although lack of compliance would lead to less revenue and force more budget cuts.
“Intimidation, as a tool to persuade the Governing Board to act on the beck and call of FOMB is also nothing new,” Olavarría said in a statement. “FOMB has resorted to threats and disinformation on multiple occasions, so as to achieve their objectives of shrinking our institution and creating a bad image of the way the UPR manages its finances.”
She added: “The record is clear; the UPR has complied with all of its economic obligations and, furthermore, has been loyal to its ethic of reinforcing equity and social justice among its employees. Its pension and medical plans are just some of these examples.”