San Juan – The Fiscal Control Board (JCF) welcomed on Thursday the decision of Judge Laura Taylor Swain of the United States District Court for the District of Puerto Rico to grant the motions and counter-motions of the Board to the summary ruling related to five laws that the Government of Puerto Rico promulgated or implemented in violation of PROMESA.
“This is a significant validation of PROMESA’s fiscal responsibility mandate,” said Natalie Jaresko, executive director of the JCF in written communication.
“Our laws must be based on solid fiscal estimates to guarantee that the Government of Puerto Rico never again overspends or underdelivers,” he added.
PROMESA requires that the new laws must not prejudice 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 that the Government of Puerto Rico has the burden of providing a formal estimate explaining the impact of each new law and responding to the notifications of the Board regarding any deficiencies.
The Government did not carry out this responsibility or implement a law creating a budget deficiency for which the JCF did not approve any redistribution to fill the deficiencies in Law 82-2019, Law 138-2019, Law 176-2019, Law 181-2019 and Law 47-2020.
Judge Swain found that the JCF had justified concerns that the Government had not considered the impact of each of these new laws on government spending and revenue.
Judge Swain further determined that the Government failed to comply with PROMESA regarding each new Act. As a result, Judge Swain ordered that the government be prohibited from implementing and enforcing the five laws.
“The Board hopes to return to a constructive dialogue with the Government on the development and implementation of new legislation to ensure compliance with PROMESA,” he added.
Law 82-2019 prevents Pharmacy Benefit Administrators from controlling the costs of prescription drugs, which causes an increase in the prices of prescription drugs that, ultimately, would fall on the Government of Puerto Rico. The court determined that the Government did not provide a formal, compliant estimate.
Law 138-2019 obliges companies that offer public health insurance, such as Care Management Organizations (MCO), to accept providers with higher fees in their network. In the opinion of the Oversight Board, this would increase the cost of health care premiums, which would ultimately fall on the Government of Puerto Rico. The court determined that the Government did not provide a formal estimate of agreement and did not respond to the Board’s questions in this regard.
Act 176-2019 increases vacation days and sick days available to public employees, making the Commonwealth’s workforce less efficient, as the Board indicated. In addition, it does not allow the adjustment of the workforce to a size that is in line with the reduction of the population on the island. The court agreed that the Board’s determination, establishing that Law 174-2019 would impair or defeat the purposes of PROMESA, is supported by evidence.
Law 181-2019 provides a salary increase to firefighters of almost 3 million dollars per year, above the increases that the Board included in its fiscal plan, and the court agreed with the Board that the Government had not assured Board approval for the use of a new tax to offset the additional expense.
Act 47-2020 expands the group of health professionals eligible to receive tax benefits under the Puerto Rico Incentive Code. The court determined that the Board’s position — that reducing taxable income under Act 47-2020 without offsetting with new income or savings would impair or defeat PROMESA’s purposes — was not arbitrary or capricious.
“In each instance, the Board expected the Government to be responsive to its concerns and to work closely with the Board to achieve the anticipated benefits of the new laws, while addressing budget and other concerns. Unfortunately, the Government decided to litigate its contention that its conclusions and summary estimates should be accepted by the Board as the last word.
The Board remains committed to working with the Government to fulfill PROMESA’s mandate towards fiscal responsibility, a crucial element for the recovery of Puerto Rico and the prosperity of the people of Puerto Rico, ”concluded Jaresko.