The Puerto Rico Oversight Board filed a lawsuit against the governor and government agencies to stop implementation and enforcement of pension laws it says will add $8.3 billion of retirement benefits for government employees.
The board filed the suit in the U.S. District Court for the District of Puerto Rico late Monday against Gov. Pedro Pierluisi and the Fiscal Agency and Financial Advisory Authority; Luis M. Collazo Rodriguez, in his official capacities as administrator of the Retirement System for Employees of the Government of Puerto Rico and executive director of the Government of Puerto Rico Retirement Board; and Juan C. Blanco, in his official capacity as director of the Office of Management and Budget.
The Puerto Rico government enacted Act 80, Act 81, and Act 82 in August 2020 “without sufficient analysis of how much the new retirement benefits would cost and how to pay for the additional costs,” the board said. The administrations of Pierluisi and former Gov. Wanda Vázquez Garced both explicitly agreed not to implement the three laws until the government and the Oversight Board agreed on an affordable implementation plan. Because Pierluisi signed Joint Resolution 33 last week, the board said implementing and enforcing it along with Acts 80, 81 and 82 “would add significant, new, and unaffordable retirement benefits for government employees.”
The board has long maintained that if the pension laws are allowed to stand, the Plan of Adjustment would not be implemented, scuttling the entire bankruptcy deal.
Matthias Rieker, spokesman for the board, said if the laws are not preempted through the Plan of Adjustment or nullified by the court to prevent the government from implementing them, “the Plan of Adjustment is simply not feasible. There is not an extra $8 billion laying around.”
Omar J. Marrero, executive director of FAFAA, said in a statement that the Pierluisi administration “will continue to fight in favor of pensioners and public servants to provide them with a fair withdrawal.” Marrero said FAFAA attorneys are “evaluating the appeal to determine the next steps to take.”
The Oversight Board said it proposed an approach in June 2021 that could work with respect to a partial implementation of Act 80, but the government never made any proposal for implementing Acts 81 and 82.
“Ultimately, no agreement was ever reached on the implementation of any of these laws,” the board said in a release. “Now, legal action is necessary because the government enacted Joint Resolution 33-2021, which purports to require the partial implementation of Act 80 within 30 days.”
The board also sent a letter to FAFAA noting concerns that the government intends to implement Joint Resolution 33 and Act 80, “despite the government’s express agreement not to implement Act 80 unless the Oversight Board agrees.”
The board asked the government to confirm it would suspend any implementation of the acts and Joint Resolution 33 “until their validity is adjudicated in the Title III Court.”
“If you decline, the Oversight Board may seek a temporary restraining order and a preliminary injunction to preserve the status quo,” the letter from Board Chairman David Skeel said.
The board also on Monday responded to Puerto Rico bankruptcy Judge Laura Taylor Swain who last week asked it for more information on its preemption of pension laws in the proposed bankruptcy documents.
The response aimed to clarify the intended scope of preemption, “together with record-supported findings as to projected costs and inconsistency with the certified budget, fiscal plan, and/or assumptions underlying the proposed plan, which would appear to serve the goals of the Oversight Board (i.e., ensuring that Commonwealth legislation does not impede the implementation and effectuation of the plan) while providing adequate information to the court and parties and ensuring that the proposed plan is consistent with PROMESA.”
The board said the statutes were listed as preempted because they either mandate appropriations without Oversight Board certification, transfer funds to repay discharged debt, create or modify debt, including pension debt, without Oversight Board approval, re-create discharged debt, or violate other aspects of PROMESA.
With respect to the court’s question regarding any potential “prohibition” on the enactment of new laws, the board said it clarified they do not request an order broadly prohibiting enactment of new laws that re-create old preempted laws.
“But, the Oversight Board does want to retain the protections in the proposed plan and confirmation order against acts (whether executive orders, policies, rules, or laws) designed to undermine the plan of adjustment, such as by modifying its treatment of claims without Oversight Board consent and court approval,” the filing said.
“As a matter of law, any law enacted by the Legislative Assembly will be preempted to the extent it conflicts with PROMESA or any other federal law,” the board wrote.
The Oversight Board’s proposed Findings of Fact and Conclusions of Law for the debt deal was challenged by Puerto Rico’s Fiscal Agency and Financial Advisory Authority on Dec. 10. The board the claimed the FAFAA had no standing to argue its positions to the court.