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Public employees union sues Puerto Rico fiscal board, FAFAA and Treasury

By on August 22, 2017

SAN JUAN – The American Federation of State, County and Municipal Employees (AFSCME) has sued on behalf of Servidores Públicos Unidos and its retiree chapter to prevent the implementation of furlough programs and retirees pension cuts.

The adversary proceeding was filed in U.S. District Court against the Financial Oversight and Management Board, the Puerto Rico Fiscal Agency and Financial Advisory Board (FAFAA) and the Puerto Rico Treasury Department.

AFSCME, which represents some 12,000 commonwealth employees ranging from social workers to corrections officers, to nurses and retirees, is seeking an injunction arguing that furloughs and pension cuts are the product of an “unauthorized and illegal policy” adopted by an unelected fiscal board, to be imposed over the objection of the commonwealth’s democratically elected governor.

In this photo taken May 2012, an American Federation of State County and Municipal Employees union member wears their protest message on his shirt while rallying against the proposed pension legislation at the Illinois State Capitol in Springfield, Ill.  (AP Photo/Seth Perlman)

“Putting aside matters of Puerto Rican sovereignty and democratic principles, these actions of the Board are illegal as they violate the terms of Promesa and exceed the statutorily conferred authority granted by Promesa to the Board,” the suit reads.

On Aug. 4, the fiscal board announced cuts to the retirement benefits of public employees, some of whom only receive $600 a month, and approved a public employee furlough that represents a 10 percent pay cut, according to the suit.

The federation, which claims it is the largest public services employees union, said the commonwealth’s fiscal plan violates Promesa “procedurally and substantively,” when on the one hand, the fiscal board certified the plan proposed by the governor, but then adopted “amendments,” among other things, to it.

The board’s amendments to the fiscal plan, the unions says, take employee property illegally, namely individual retirement savings account balances, which were funded by the employees’ own wage deductions. Thus the lawsuit seeks a ruling that retirement savings account balances cannot constitutionally be reduced.

“Further, the Oversight Board failed to adequately fund pensions and contingently imposed furloughs and compensation cuts on public workers who perform essential services. AFSCME seeks a ruling that the Board’s ‘amendments,’ and subsequent acts implementing such ‘amendments,’ exceed the limited authority granted it by Congress under Promesa,” the suit further reads.

The fiscal board’s cuts, the union alleges, are designed to drive Puerto Rico retirees’ incomes down to the poverty line, which the board pegs at $12,000 a year. Many retirees, however, also support dependents, the suit adds.

The fiscal board’s cuts include employee retirement savings account balances that have been in existence since 2000 and were funded by employee contributions.

“It appears, however, that the Commonwealth or ERS [Government Employee Retirement System] may have diverted employees’ funds, as the Board indicated in the August 4 decrees that ‘instead of depositing employee contributions to [these] accounts’ the employees’ money was ‘diverted’ rather than ‘saved in defined contribution accounts to fund their future retirement benefits (as they should have been all along),” the suit reads.

The suit further says that “exacerbating this unconstitutional taking,” on June 30 the board adopted a resolution as part of the commonwealth’s fiscal year 2018 budget, which proposes selling all assets held by commonwealth pension systems and transferring them to the commonwealth itself.

The union also seeks a ruling that this asset transfer be halted and the assets preserved  to fund employees’ and retirees’ individual accounts.

By requiring the commonwealth to reduce retirees’ and employees’ retirement income by 10 percent and requiring a furlough, the union argues, the final fiscal plan, “through its second amendment and as amplified by the Board in its Aug. 4 decree, contravenes Congress’ clearly-stated mandate that any Fiscal Plan must provide adequate funding for public pension systems” and “ensure the funding of essential public services.”

The union also noted that the fiscal board ordered the furloughs, which are “clearly a budget reduction within the meaning of Promesa,” before the first quarter of fiscal 2018 had ended and without certifying a budget, “in violation of the law.”

The federation believes the only place Promesa allows the fiscal board to weigh in on “placing controls on expenditures for personnel, reducing benefit costs” and “the establishment of alternatives for meeting obligations to pay for the pensions of territorial government employees” is under Section 205, which sets forth a process for the board to make nonbinding “recommendations” to the government on these and other subjects that their suit claims were not followed.

“Yet the Board’s August 4 Decrees purport to mandate Commonwealth personnel decisions, and the Governor asserts that the furlough program may only be considered as nonbinding ‘recommendations’ under Promesa Section 205,” the suit says, noting a letter sent by Gov. Ricardo Rossello rejecting the furlough plan, calling it a recommendation.

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