U.S. District Court Judge Laura Taylor Swain said Wednesday that she would quickly make a decision in the suits by Puerto Rico government officials against the Oversight Board over their authority.

“I realize the urgency of the situation,” Swain said at the end of a Title III bankruptcy hearing Wednesday in San Juan.

Oversight Board lawyer Martin Bienenstock said Puerto Rico's Title III judge should retain full authority over PREPA.
Puerto Rico Oversight Board Martin Bienenstock said the governor's effort to legalize not following the board's budget was an effort to make its budget "ineffectual."

Swain was referring to two adversary proceedings against the board – one filed by Gov. Ricardo Rosselló and another filed by the presidents of the Puerto Rico Senate and House of Representatives.

Peter Friedman, representing the governor and Puerto Rico’s Fiscal Agency and Financial Advisory Authority, said the governor was just trying to raise a narrow set of issues. The governor and FAFAA want the court to reject the notion that they have no meaningful role in governing, he said.

By contrast, the board’s lawyer, Martin Bienenstock, said the governor’s challenge is based on five discrete issues intertwined with the board’s ability to revive the economy, regain capital markets access, and do other things mandated by the Puerto Rico Oversight, Management, and Economic Stability Act.

Bienenstock focused on two issues in its clash with the governor. The board has to have power over “reprogramming” — the use of unused government funds — he told Swain. If the governor can use this money for his own purposes, then the board has lost control over the budget, fiscal plan, and debt restructuring.

Though Swain said she recognized the board has some authority, she questioned whether it applies to funding lines that had been authorized before PROMESA’s passage. It’s a “conundrum,” she said.

The governor wants to make it legal to “knowingly and willingly” spend more than the board budget authorizes, Bienenstock said. Since existing Puerto Rico law has made it illegal to spend more than the approved budget for years, the governor is working to make the board-approved budget “ineffectual.”

Friedman, a partner at O’Melveny & Myers LLP, referred to a legal decision that said if Congress makes a significant change to a sensitive area than unless it very clearly states there is a change on a particular topic, than the court should assume the status quo before the law reigns. Friedman said this meant in interpreting PROMESA’s grant of authority to the board, “ties” should go to the governor.

Bienenstock, a partner at Proskauer Rose LLP, said it was “inconceivable” that Congress created a system whereby the board would create the fiscal plan, then have to wait to see which parts the governor saw as valid.

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