Judge Laura Taylor Swain Rules Against Act 29
Law Sought to Exempt Puerto Rico Municipalities from Paying Employees’ Health Plan, Retirement
SAN JUAN – U.S. District Judge Laura Taylor Swain, who oversees Puerto Rico’s bankruptcy-like court proceedings to restructure the island’s debt, on Wednesday annulled the Law to Reduce the Administrative Burdens of Municipalities (Act 29 of 2019), which seeks to exempt towns from paying the health plan and retirement of its employees through the Pay-as-you-go system.
In a Radio Isla 1320 interview Wednesday, attorney Rolando Emmanuelli Jiménez said the Government of Puerto Rico was given three weeks to come up with alternatives on how the payments will be issued retrospectively, CyberNews reported.
“They gave the government three weeks to turn it around so that the municipalities do not go bankrupt,” he added.
In an August ruling, Judge Swain allowed the island’s Financial Oversight and Management Board to continue demanding that municipalities pay into the Health Insurance Administration (ASES by its Spanish acronym) and the pay-as-you-go pension system.
The board reportedly was seeking to force municipalities and the Municipal Revenue Collection Center (CRIM by its Spanish acronym) to prepare a budget that contains the payments to the Health Insurance Administration (ASES by its Spanish acronym) and the Retirement System.
Former Gov. Ricardo Rosselló had signed Act 29 for the central government to cover those payments, reducing municipalities’ financial burden, to the tune of nearly $320 million for the fiscal year.
The effective date of Swain’s order nullifying Act 29 was delayed until May 6, “subject to extension upon joint petition of the parties,” according to the ruling, which cites as a reason “the additional challenges facing the parties during the Covid-19 public health crisis.” The ruling states, moreover, that during a March 5 omnibus hearing, the commonwealth government had requested that if the court were inclined to nullify Act 29, the court delay the effective date of its order for two weeks “so that the municipalities, the Oversight Board, and the government can work together to try to come up with another solution to the problem.”
In her ruling, Swain concurred with the oversight board’s contention that Act 29 violates several sections of the Puerto Rico Oversight, Management and Economic Stability Act (Promesa), which created the oversight board to restructure the commonwealth’s debt. Swain is overseeing the debt restructuring process under Promesa.
The federal bankruptcy judge agreed that the board has the authority under Promesa to prevent enforcement of a law to ensure that the law will not adversely affect compliance with its certified fiscal plans. The commonwealth government’s failure to comply with board certification of Act 29 makes it “unenforceable and of no effect,” she stated.
Swain said that Act 29 and related joint resolutions appropriate funding not included in certified fiscal plans and budgets certified by the oversight board, impairing the board’s task of providing a method for the commonwealth to achieve fiscal responsibility and access to the capital markets.
“The Oversight Board’s determination that [Act 29] impairs or defeats the purposes of [Promesa] is clearly rational in light of the undisputed fact that [Act 29] converted the Commonwealth’s guaranty of pension payments into a primary obligation of the Commonwealth by eliminating the reimbursement obligations of the municipalities and thus increasing the Commonwealth’s expenses by the amount of the now-eliminated reimbursements,” the judge states in her ruling.
She added: “The discrepancy necessarily impairs the functioning of financial measures approved by the Oversight Board in the exercise of powers explicitly conferred upon it by [Promesa]. Similarly, the Oversight Board’s determinations that the Joint Resolutions are significantly inconsistent with the fiscal plans and budgets certified by the Oversight Board for the Commonwealth and that the Joint Resolutions therefore impair or defeat the purposes of [Promesa] are reasoned and supported by a rational basis and substantial record evidence.”
On the other hand, Swain ruled against the oversight board’s contention that the commonwealth government was violating Promesa’s requirement that the governor submit within seven business days the enactment of any law during the fiscal year, a formal cost estimate and a compliance certification to the board. The judge states that Gov. Wanda Vázquez’s “efforts to ensure compliance across the Commonwealth’s instrumentalities with the requirements [of Promesa] are sufficient” to refute the board’s allegation that the governor has a policy of not providing the required certifications.
On May 17, 2019, Rosselló signed into law the Act for Reductions of the Administrative Burdens of the Municipalities (Act 29), which eliminates the obligations of Puerto Rico’s 78 municipalities to contribute to the Vital government-funded health plan for the medically indigent, and to monthly public pension payments on a pay-as-you-go basis. The oversight board estimated that the potential fiscal impact of Act 29 would be about $311 million in fiscal 2020, which ends June 30, and $1.7 billion over the next five years.