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Government failed to comply with PROMESA with respect to each new Acts judge Swain ruled

By on December 24, 2020

The Financial Oversight and Management Board for Puerto Rico
welcomes the Order by Judge Laura Taylor Swain of the U.S. District Court for the District of Puerto Rico to grant the Oversight Board’s motions and cross-motions for summary judgement related to five laws that the Government of Puerto Rico enacted or implemented in violation of PROMESA.

PROMESA mandates that new laws must not impair or defeat the purposes of PROMESA as determined by the Oversight Board and must not be significantly inconsistent with the Certified Fiscal Plan and the Certified Budget.

Significantly, Judge Swain determined the burden is on the
Government to provide a formal estimate explaining each new law’s impact and respond to the Oversight Board’s notifications of any deficiencies.
The Government either failed to do so or enacted a law creating a budget deficiency for which the Oversight Board had not approved any reprogramming to fill the deficiency for Act 82-2019, Act 138-
2019, Act 176-2019, Act 181-2019, and Act 47-2020.

Judge Swain found the Oversight Board had justifiable concerns that the Government had not considered the impact of each new Act on the
Commonwealth’s expenses and revenues. Judge Swain also determined the Government failed to comply with PROMESA with respect to each new Act.
As a result, Judge Swain issued injunctions prohibiting the Government from implementing and enforcing each new Act.

“This is a significant validation of PROMESA’s mandate of fiscal responsibility,” said the Oversight Board’s Executive Director Natalie Jaresko. “Our laws must be based on sound fiscal estimates to
ensure Puerto Rico’s Government will never again overspend and risk returning to the financial practices of the past that led to this crisis.”

“The Oversight Board is hopeful that we can return to a constructive dialogue with the Government over the development and implementation of new legislation to ensure compliance with PROMESA.”
Act 82-2019 prevents Pharmacy Benefit Managers from fostering price competition for drugs, creating the Oversight Board’s concern prices of prescription drugs will increase and ultimately be borne by the Commonwealth.

The Court ruled the Government failed to provide a compliant formal
estimate.

Act 138-2019 forces public health insurance companies such as Managed Care Organizations (MCO) to accept into their networks higher-priced providers, which the Oversight Board believes will
increase healthcare premiums, ultimately at the Commonwealth’s expense. The Court agreed the government had failed to provide a compliant formal estimate and to respond to the Oversight Board’s inquiries.

Act 176-2019 increases available vacation days and sick days for public employees, which the Oversight Board indicated would make the Commonwealth’s workforce less efficient and more expensive, while also preventing the rightsizing of the workforce necessary to adjust to a smaller
population.

The Court agreed the Oversight Board’s determination that Act 176-2019 would impair or defeat PROMESA’s purposes was supported by the evidence.

Act 181-2019 provides for a salary increase to firefighters amounting to almost $3 million per year,
on top of increases the Oversight Board included in its fiscal plan, and the Court agreed with the
Oversight Board that the Government had not secured Oversight Board approval of the use of a new tax to offset the additional expense.

Act 47-2020 expands the group of health professionals eligible for tax benefits under the Puerto Rico Incentives Code, and the Court agreed the Oversight Board’s view was neither arbitrary nor capricious that Act 47-2020’s diminution of tax revenues without offsetting new revenues or savings would impair or defeat PROMESA’s purposes.

In each instance, the Oversight Board was hopeful the Government would be responsive to its concerns and work with the Oversight Board to accomplish the intended benefits of the new laws while protecting budgetary and other concerns. Regrettably, the Government chose instead to litigate its contention that its summary conclusions and estimates had to be accepted by the Oversight Board as the final word.

The Oversight Board remains committed to working with the Government to fulfill the mandate of PROMESA towards fiscal responsibility and market access which are crucial for the recovery of Puerto Rico and the prosperity of the people of Puerto Rico.

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