Comments on: Puerto Rico government stumbles on teacher pension reform Bridges, budgets, bonds Mon, 24 Nov 2014 00:29:08 +0000 hourly 1 By: Cate_Long Thu, 17 Apr 2014 19:47:20 +0000 Moody’s: Puerto Rican Court’s Rejection of Teachers Pension Reforms Is Negative for Commonwealth

On April 11, Puerto Rico’s Supreme Court rejected reforms intended to keep the Teachers Retirement System (TRS) from running out of money. Since 2007, TRS has seen its unfunded liability more than double, exceeding $10 billion, and the plan is projected to become insolvent as soon as 2020. The court ruling is a negative development for Puerto
Rico (Ba2 negative), because it reverses steps to address the commonwealth’s severe pension funding pressures.

By: Cate_Long Tue, 15 Apr 2014 19:08:55 +0000 Striking down the teacher pension reform is likely to have an impact on the Puerto Rico government’s plans for a balanced fiscal 2015 budget, which García Padilla is slated to present this month and has pledged will not include deficit spending. pr-bond-yields-up-on-pension-ruling-9593 4.html


Fitch Ratings-New York-15 April 2014: Fitch Ratings believes that the Puerto Rico Supreme Court
decision finding recent reforms of the teachers retirement system unconstitutional presents the
administration with yet another challenge as it works to stabilize the commonwealth’s fiscal position.
Progress on multiple fronts once again has been offset by a new setback. However, Fitch notes that
the ultimate fate of the pension reform efforts remains to be seen and the court decision does not have
an immediate impact on the commonwealth’s budget.
The Supreme Court decision does not trigger any rating action by Fitch. Fitch continues to see
the economy as the key to future rating direction. Fitch believes that achieving and maintaining
budget balance will remain challenging, and last week’s decision, if unaddressed, would add to
that challenge over time and further weaken the commonwealth’s liability picture. However, at
the same time, there have been some positive recent credit developments. The successful sale of
$3.5 billion in general obligation (GO) bonds last month provided some critical breathing room,
overall general fund revenues through March remain in line with projections three-quarters through
the fiscal year, and some recent economic information suggests nascent stabilization. Also, Fitch
notes that the commonwealth was successful last year in reforming the employees retirement system,
which is a bigger burden on the general fund budget, and the Supreme Court quickly validated the
constitutionality of those reforms.
In the coming weeks the governor is expected to release his budget proposal for the fiscal year
beginning July 1, which he has announced will be balanced. The court decision has no direct negative
impact on the near-term budget, but the commonwealth has stated in the past that without reform the
teachers retirement system would confront an annual cash flow deficit beginning in fiscal 2020.
The commonwealth has three main retirement systems, which cover most public sector workers.
The employees retirement system’s defined benefit plans were closed in 2000; since then, all new
employees have been on a defined contribution plan. The teachers system reform was designed
to convert that plan to a defined contribution system, among numerous other changes; the reform
legislation was passed in late December 2013 but stayed by the Supreme Court in January 2014.
Recent pension reform efforts have focused on achieving a predictable annual funding scheme.
Pension funding is expected to remain exceptionally low, even with pension reform.
Fitch’s ‘BB’ rating and Negative Outlook on the commonwealth’s general obligation debt reflects
demonstrated weakness in the Puerto Rico economy, very high liabilities including outstanding debt
and unfunded pensions, challenged though improving financial operations, and limited financial