The Financial Oversight and Management Board for Puerto Rico has filed a lawsuit against the Gov. Ricardo Rosselló, and the Puerto Rico Fiscal Agency and Financial Advisory Authority in the U.S. District Court for Puerto Rico to prevent the government from enforcing Law 29 and to compel it to comply with the Puerto Rico Oversight, Management, and Economic Stability Act.
The Oversight Board claims that Law 29 will alter, and substantially eliminate, the obligation of Puerto Rico’s municipalities to reimburse the Commonwealth for hundreds of millions of dollars in pension costs for their own retirees and will transfer those costs permanently to the Commonwealth.
The regulatory body said it advised the government against the passage of the bill that was ultimately enacted as Law 29. In a letter dated May 17, 2019, the Oversight Board warned lawmakers about the potential fiscal impact of the legislation would be some $311 million for fiscal year 2020, and $1.7 billion through fiscal year 2024.
The Oversight Board said in a statement, that Rosselló failed to comply with Section 204 and Section 207 in enacting Law 29, and together with his repeated non-compliance with PROMESA, has impaired and defeated the purposes of PROMESA in violation of Section 108(a)(2).
“Law 29 will undermine the government’s ability to pay pensions to all retirees whenever Puerto Rico’s government faces fiscal distress,” said Oversight Board Chairman José B. Carrión.
“That is why all employers, including municipalities, have a responsibility to pay their share of PayGo. Exempting municipalities and putting that burden on the Commonwealth sets a terrible precedent that other employers may try to use in the future,” he said.
“Current and future retirees must be able to rely on their pensions being able to be paid, which requires all employers to pay their share of PayGo,” he added.
Saying that the U.S. District Court has repeatedly called on the government and the Oversight Board to work together, Carrión added that “Instead, the governor has refused to submit certifications and cost estimates for over 100 new laws and joint resolutions, has refused to submit budget to actual reports for numerous entities, and has repeatedly signed Joint Resolutions that spend tens of millions of dollars in unbudgeted funds without Oversight Board approval.”
As a result, the Oversight Board “had no choice but to seek relief from the court to invalidate Law 29 and compel the governor to comply with PROMESA,” Carrión said.
Christian Sobrino, the governor’s representative on the Fiscal Oversight Board, said Law 29 was “duly enacted and then certified as compliant by the pertinent fiscal entities under Section 204 of PROMESA.”
“Our legal team will be examining said legal action brought by the Fiscal Oversight Board and we will be answering the same in the pertinent court,” Sobrino said.
“The actions of the government of Puerto Rico during this administration have always sought to maintain fiscal responsibility while providing the resources needed to offer essential services to the citizens, which includes and requires overseeing the proper operation and finances of the municipalities,” he said.
The Government’s non-compliance with PROMESA is not limited to Law 29. The Governor has also signed two dozen Joint Resolutions appropriating funds for expenditures not included in either the Oversight Board-certified budgets for Fiscal Year 2019 or Fiscal Year 2020, the Oversight Board said.