Puerto Rico governor goes into detail on his resistance to the Oversight Board

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Puerto Rico Gov. Ricardo Rosselló specified Sunday where he would refuse to comply with Oversight Board demands as other Puerto Rico government officials joined him in saying they would resist further austerity.

As part of the Puerto Rico Oversight, Management, and Economic Stability Act, the board is required to create fiscal plans governing taxes, revenues, expenditures, and other policies for at least a five-year period. The act says the judge in the Title III bankruptcy case must accept the fiscal plans, including their allotment for debt.

On March 28 the board sent a letter to the governor demanding that changes are made to the governor’s central government, Puerto Rico Electric Power Authority, and Puerto Rico Aqueduct and Sewer Authority fiscal plans. Later that day the governor made a speech generally rejecting the board’s demands.

On Sunday the governor sent a letter to the board specifying the board orders he not only disagreed with but believed to be examples of the board overextending its authority. He said the board was trying to order reforms that under Puerto Rico law require legislative action; measures abrogating existing laws, regularities, executive orders, and contracts; and measures that involve the government’s day-to-day operations and are outside the board’s purview in PROMESA.

The governor said he supported the board-endorsed earned income tax credit program for low-income workers and those who get the Nutritional Assistance Program be required to work.

However, he said he was opposed to the elimination of the Christmas bonus, reduction of mandatory vacation and sick-leave periods, and any government pension reductions. He said he would reject any demands for public employee layoffs.

The board is specifying a change to the gasoline tax and that all income flows through the general fund rather than through special revenue funds. The governor said this would require legislative approval and that he opposes it.

The board has the power to certify fiscal plans as it wishes. It currently plans to do this with the three fiscal plans by April 20.

While the board has rejected the governor’s plan to introduce a county-level government for the island, Rosselló said the rejection constituted interference in Puerto Rico’s day-to-day operation. PROMESA didn’t give the board the power to do that, he said.

“Should the board decide to certify a fiscal plan that exhibits an overreach of its power, know that the elected government will exercise its discretion when implementing those measures it considers proper and in the public well-being,” Rosselló said in his letter to the board.

“While we remain open to dialogue with the board, any further discussions can be productive only if the board accords proper respect for the government’s political and governmental powers,” Rosselló wrote to the board.

Puerto Rico House President Carlos Méndez Núñez said if the board sought to enforce the cuts in government pensions, “we will look for all the necessary ways to avoid these unfair cuts.”

On March 25 Puerto Rico Resident Commissioner Jenniffer González Colón tweeted, “I am against the reduction to the pensions of those who for a lifetime dedicated their lives to public service and planned their lives on receiving what they worked for. Properties and assets must be sold before reducing pensions.” González Colón is Puerto Rico's nonvoting representative in the U.S. House of Representatives.

On Thursday Puerto Rico House Majority Whip Lourdes Ramos said she would be willing to commit civil disobedience to prevent pension cuts, according to the El Vocero news website.

A municipal analyst said Rosselló’s “refusal to submit to Board oversight as it relates to fiscal plans will likely lead to adjudication in [Title III bankruptcy] Judge [Laura Taylor] Swain’s courtroom and probably follow through at the appeals level. Of course the outcome could change the calculus of bond valuation.

“I found it surprising that bond prices would jump as dramatically as they did after release of both the Feb 12th and March 23rd plans given the many fiscal plan versions and changes we’ve seen in the last 18 months or so,” said the analyst, who spoke anonymously, citing company policy.

Puerto Rico attorney John Mudd wrote in his blog on the Oversight Board that he expects the confrontation between the board and Rosselló would be handled by Swain and ultimately an appeals court. He said it was “likely Judge Swain will side with the board on the commonwealth’s refusal to comply with the fiscal plan.”

Mudd said he thought the governor realized that Swain is likely to side with the board. However, Mudd guessed that the governor is expecting that the dispute will drag on beyond the November national Congressional election. By that time, Mudd said Democrats could control both houses of Congress and Rosselló thinks this could give him more power than he currently has. Mudd said he was skeptical of this approach.

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PROMESA Commonwealth of Puerto Rico University of Puerto Rico Puerto Rico Industrial Development Co Puerto Rico Employees Retirement System Puerto Rico Aqueduct & Sewer Authority Puerto Rico Public Buildings Authority Puerto Rico Public Finance Corporation Puerto Rico Electric Power Authority Puerto Rico Infrastructure Financial Authority Puerto Rico Highway & Transportation Authority Puerto Rico Sales Tax Financing Corp (COFINA) Puerto Rico