University of Puerto Rico Struggles to Slash Budget by $300 Million

03/01/17 04:00 PM EST
By Melissa Korn 

Administrators at the University of Puerto Rico are scrambling to find $300 million in savings as their main lifeline, the Puerto Rican central government, approaches a financial reckoning.

School officials, students and finance experts say the cuts, which amount to about 20% of the university's operating budget, will hurt not just the school but the broader economy.

"Cutting $300 million would be akin to shooting yourself in the foot if what you're looking for is long-term economic growth," said Deepak Lamba-Nieves, research director of the Center for a New Economy, a Puerto Rican think tank. Mr. Lamba-Nieves noted the island's need for a new generation of scientists and entrepreneurs.

After a yearslong borrowing binge and avoidance of austerity measures, Puerto Rico is facing a $55.2 billion budget gap over the next decade, according to a new fiscal plan issued by the governor on Tuesday. The government is negotiating with creditors to restructure about $70 billion in public debt.

The university system, which enrolls about 63,000 students across 11 campuses, gets 65% of its $1.5 billion budget from the central government. Because of that massive public investment, some see the system as a prime target for restructuring.

Puerto Rico Gov. Ricardo Rosselló on Tuesday submitted a 10-year plan to a federal fiscal oversight board, proposing measures to cut the financing gap by $32.7 billion, including $300 million at the university system.

The University of Puerto Rico has until March 31 to submit its financial road map. A draft version dated Feb 20, which noted the expectation of $300 million in cuts at the university, included $111.4 million in cuts to the central administration, employee medical plans and commonwealth-mandated Christmas bonuses, as well as not hiring for vacant posts and gutting a reserve fund. The draft also recommended boosting revenue from international students and expanding evening and online courses to get to a total financial adjustment of $142.5 million.

The release of the Feb. 20 budget sparked widespread student protests in the capital city of San Juan and demonstrations and sit-ins that affected classes at a number of campuses around the island.

Ten of the 11 campus chancellors resigned on Feb. 17 amid high-level discussions about the university's financial woes, as did the system's interim president. The finance chief remains in place.

"Pretty much everyone in charge quit," said law student Alejandro Caminero. "It's like removing every manager from a corporation when the corporation is going down."

A few administrators returned to their offices following revised expectations that the university could take five years to hit its savings target, rather than two. Replacements have been named for the others who departed.

Students and faculty say they know that cuts are inevitable and that the university must find new revenue streams.

"We do understand there is a need for cuts," said Emilio Pantojas Garcia, a senior researcher at the university's Center for Social Research and professor of sociology at its Río Piedras campus. "But the way out of this is not cutting with a machete. It is impossible to cut $300 million without affecting the quality of higher education in Puerto Rico."

Mr. Caminero, who along with an undergraduate political science student is leading a coalition advocating for dialogue with campus and government officials, said a widespread student strike -- akin to the violent ones that took place in 1981 and 2010 -- would be counterproductive because it would cause the university further financial distress.

He said the university should consider raising money by renting out unused physical assets and instituting a means-based tuition plan that requires wealthier students to pay more. Local undergraduate students pay about $1,700 a year in tuition, while nonresidents pay about $4,800, according to a university system website.

Others have suggested consolidating departments or even campuses.

The University of Puerto Rico made its latest debt service payments in December and January by dipping into a commonwealth reserve fund. Credit ratings analysts say it is unclear whether there is still enough in the coffers to cover about $36 million more due in June and July, since the governor has barred the university from putting aside additional funds for debt payments so that it can meet immediate cash needs.

The university has $96 million in debt service due in fiscal 2018 and fiscal 2019, according to the governor's new fiscal plan.

S&P Global said in a note to investors Monday that the university's default is "a virtual certainty" -- it is just a matter of time.

The Middle States Commission on Higher Education, which accredits the University of Puerto Rico system, said it is monitoring the situation.

A representative from the U.S. Department of Education, which provides millions of dollars in loans and Pell grants to the system's students each year, said the campuses are on heightened cash monitoring.

Write to Melissa Korn at


(END) Dow Jones Newswires

March 01, 2017 16:00 ET (21:00 GMT)

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