Puerto Rico To Sell Phone Company To Create Endowment for Its Schools

By Michael Newman — February 28, 1990 3 min read
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Puerto Rico will set aside half of the $2 billion it expects to earn from the sale of its telephone company to raise money for education, Governor Rafael Hernandez Colon announced last week.

Mr. Hernandez Colon proposed that funds from the sale of the government-owned Puerto Rico Telephone Company be used to create separate, $1-billion endowments for education and for improvements in the island’s infrastructure.

The Governor also called for a constitutional amendment to guarantee that the interest from the education endowment--expected to generate as much as $85 million a year--be earmarked for education.

Mr. Hernandez Colon’s plan is unusual, his advisers and other financial experts said, because it aims to create a dedicated revenue stream for specific social services.

“As far as modern precedents go, there’s really none that we found,’' said Robert Mead, a spokesman for the Governor. He said experts at Goldman, Sachs--the firm handling the sale of the prtc--also had described the sale and creation of the endowment as extraordinary.

The closest analogy, Mr. Mead said, is to Texas, where the state leases or sells land to individuals and corporations but retains the mineral rights to the property. The state then earns royalties on all minerals mined or drilled from the land, and puts the money in a permanent school-aid fund.

The Texas school fund currently stands at $8.96 billion, according to a spokesman for the Texas Land Commissioner. It provides about $1 billion each biennium for schools in the state.

The Governor’s proposed constitutional amendment will have to be approved by the commonwealth legislature, where Mr. Hernandez Colon’s Popular Democratic Party holds a majority in both houses.

The amendment is necessary, he said, to ensure “the long-term security of the funds by protecting them from future politicians who would raid them for political purposes.”

Mr. Hernandez Colon said he expects the education account to be opened and the constitutional amendment in place by 1992. The fund will be managed by an independent board of trustees, he added.

The educational fund will provide money for several proposals, Mr. Hernandez Colon said. The Governor plans to introduce legislation to “link the education system to the working environment,” according to a press release describing the proposal.

Mr. Hernandez Colon also hopes to implement a teacher-evaluation program, create a “center for innovation,” and transfer control of some funds from the state to the local level.

“Right now, the Governor’s [educational] plans are only in the development stages,” Mr. Mead said.

For the first year of the endowment, he added, the money would be used to pay for basic necessities that many schools in Puerto Rico now lack, such as desks, blackboards, and books.

After the first year, the money would be used for “innovative programs,” Mr. Mead said. The Governor envisions starting preschool education for 3- and 4-year-olds, he said, and also wants to develop new vocational-education programs.

Once such programs became established, said Mr. Mead, the Governor plans to request that the legislature fund them out of the regular budget--thus allowing endowment funds to be used for new projects.

“He doesn’t want [the endowment] to become a substitute for regular budget items,” Mr. Mead explained.

Some union groups on the island reportedly are concerned that the sale could jeopardize jobs and increase telephone rates.

Mr. Hernandez Colon, however, has said that no employees would lose their jobs as a result of the sale. He has also proposed a regulatory system “that ensures quality telephone service at affordable rates,” according to the press release.

Mr. Mead also noted that teachers’ groups in the commonwealth are reportedly “wary” of the proposal.

They support the educational reforms Mr. Hernandez Colon has outlined, he said, and they also support the concept of the endowment.

But teachers are also concerned that members of the telephone workers’ union be treated fairly. Mr. Mead confirmed press accounts that union leaders were told only two days before the Governor’s speech that no sale was imminent.

Analysts at Goldman, Sachs said the company had several potential buyers. The PRTC is an attractive purchase, they said, because its system is technologically advanced and the island presents opportunities for growth.

When the commonwealth government acquired the Puerto Rico Telephone Company in 1974, in Mr. Hernandez Colon’s first year in office, the cost was approximately $165 million, according to the press release.

Puerto Rico’s current population is about 3.5 million. About 800,000 children attend the island’s approximately 1,600 public schools, the release noted.

A version of this article appeared in the February 28, 1990 edition of Education Week as Puerto Rico To Sell Phone Company To Create Endowment for Its Schools


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