Puerto Rico judge gives board victory that strengthens commonwealth finances

Register now

Puerto Rico bankruptcy Judge Laura Taylor Swain in a ruling handed down Wednesday gave the Puerto Rico Oversight Board a victory and strengthened the central government’s finances.

Swain struck down a commonwealth law that made the island’s central government make payments that had been the responsibility of the municipal governments.

U.S. District Court Judge Laura Taylor Swain
U.S. District Court Judge Laura Taylor Swain's ruling affirmed the Puerto Rico Oversight Board's authority over the local central and municipal governments.

The board filed the suit or “adversary proceeding” in early July over unauthorized spending and a recently adopted law, Law 29, allowing the municipalities to not make retiree health care and pension contributions. When he signed Law 29 in May, Gov. Ricardo Rosselló said the central government would make these payments for the municipalities. He said the law was a way to relieve financial pressure on the municipal governments.

Swain heard arguments on Law 29 in August.

In addition, Swain rejected resolutions that reprogrammed unused prior-year commonwealth appropriations to be used in current fiscal years.

At stake with Law 29 was hundreds of millions of dollars of municipal obligations to reimburse the central government for health and pension costs. “Law 29 would have encumbered the commonwealth’s finances; it was inconsistent with the certified fiscal plan for Puerto Rico and was enacted in violation of [Puerto Rico Oversight, Management, and Economic Stability Act],” the board said in a written statement responding to Swain’s decision.

“The Oversight Board is in communication with the government and Municipal Revenue Collection Center (CRIM) to discuss how municipalities can achieve fiscal sustainability, while ensuring they continue to deliver important services to the people of Puerto Rico,” the board said. “This must include policies that balance their obligations to retirees, improved property tax collections, necessary savings from shared-services and other efficiency measures that ensure municipalities can service their residents in a fiscally responsible and sustainable manner.”

As of February 2017 there was $1.7 billion municipal government related Puerto Rico debt and $51.9 billion of central-government-related Puerto Rico debt outstanding, according to the March 2017 board-approved fiscal plan.

For reprint and licensing requests for this article, click here.