Puerto Rico’s Supreme Court ruled that changes to the teachers’ pension system are unconstitutional, according to Caribbean Business.
Governor Alejandro Garcia Padilla last year enacted legislation that boosted the retirement age and increased the amount that teachers contribute to their pensions. Without those changes, Puerto Rico’s yearly payment to the system would be short $500 million annually, according to the Government Development Bank, which handles the commonwealth’s financial transactions.
The ruling, which couldn’t immediately be confirmed in court records, threatens the governor’s pledge to release a spending plan for the fiscal year beginning July 1 that doesn’t include borrowing. The practice has been used in every budget since at least 2000. The three largest rating companies lowered Puerto Rico to speculative grade in February and gave it a negative outlook.
Puerto Rico sold $3.5 billion of tax-exempt general-obligation debt March 11 at 93 cents on the dollar to balance budgets and give it enough cash through July 2015. The bonds traded today at 86 cents, the lowest ever and down from as high as 99 cents on March 12, data compiled by Bloomberg show.
Lawmakers also passed the changes to help strengthen the pension fund. The Teachers Retirement System, which includes 80,000 current and retired educators, had 17 percent of needed assets to pay current and future retirees and an unfunded liability of $10.3 billion as of June 30, 2012, according to the GDB.
Today’s decision is a reversal from last year, when the island’s highest court upheld similar changes to Puerto Rico’s Employees Retirement System.