Puerto Rico minority senators: Judge should beware of legislative entrenchment in Cofina deal
SAN JUAN – The Popular Democratic Party’s (PDP) delegation in Puerto Rico’s Senate filed Wednesday a friend of the court brief against debt adjustment confirmation of the Puerto Rico Sales Tax Financing Corp. on the grounds that it sanctions legislative entrenchment.
If the requested order is granted, the PDP says, no successor Puerto Rico Legislative Assembly could amend or repeal the new-bond legislation.
“The inability to amend or repeal the New Bond Legislation not only constitutes a textbook example of impermissible legislature entrenchment per se, but given the subject matters legislated thereby, also implies entrenchment with respect to the exercise of some of the most fundamental powers specifically granted to the Legislative Assembly by the Puerto Rico Constitution. This Honorable Court must therefore be mindful of the language used in any order confirming the Proposed Plan of Adjustment such that it does not sanction the unconstitutional restrictions pursued by the New Bond Legislation,” the PDP said.
Federal Judge Laura Taylor Swain gave the Financial Oversight and Management Board until Jan. 24 to answer the PDP lawmakers’ brief.
The restructuring of Cofina’s $17 billion debt has two parts. In the first part, commonwealth and Cofina bondholders settled their dispute over ownership of the sales and use tax by agreeing to divide the 5.5% portion of the 11.5% sales and use tax. Of the 5.5% portion, Cofina will keep 53.6% and the commonwealth receives the rest. According to court documents, the split will result in the commonwealth receiving about $400 million a year from the sales and use tax over the next 40 years.
Secondly, under the debt plan, Cofina bondholders will exchange their current bonds for new bonds whose value is being cut. Cofina senior bondholders will recover 93% of the value of their original bonds and junior bondholders 53%. Because the sales and use tax will be used to guarantee the bonds, future legislatures will be prevented from changing it.
Also Judge Swain asked that the board provide the legal basis supporting the validity of the Cofina deal. During a recent hearing on the debt-adjustment plan, she had expressed concern that the Cofina deal may result in an unprecedented rewriting of the Constitution because, besides binding future legislative assemblies to the deal, it would also rewrite the Constitution’s definition of “available resources” because, through the deal, Cofina will own its portion of the sales and use tax.