The lawsuit seeks to repeal Law 29-2019 and some 23 joint resolutions that allocated funds from budget items corresponding to previous years. (GFR Media)

Federal Judge Laura Taylor Swain reserved her decision on the validity of the law that exempts municipalities from contributing to the "PayGo" system and the health care reform.

Yesterday, a week after Wanda Vázquez Garced was sworn in and Pedro Pierluisi had to step down, Swain listened to the proposals presented by Peter Friedman and Martin Bienenstock, lawyers for the Fiscal Agency & Financial Advisory Authority (FAFAA), and the Oversight Board, respectively, regarding the lawsuit that the fiscal agency filed before the forced resignation of Ricardo Rosselló Nevares.

The lawsuit seeks to repeal Law 29-2019 and some 23 joint resolutions that allocated funds from budget items corresponding to previous years.

"If you prefer, you can use the term 'governor,'" Swain told Friedman, when the lawyer, subtly and without referring to Rosselló Nevares or Vázquez Garced, asked if it was his turn to change the name of the defendant in the first part of the lawsuit.

Friedman had a little more than 10 minutes to explain to Swain that the Board tried - again - to restrict the government powers when it did not have the authority to do so.

"We have defended Law 29 because it addresses a real problem," Friedman said, pointing out that if the statute is not implemented, they will have to identify a mechanism to avoid what would be another setback to municipal finances.

Friedman spent a good part of his argument pointing out that PROMESA Section 204 did not give the Board the power to invalidate a government law, especially if it does not present "a significant inconsistency" with the fiscal plan and the budget, as would be the case of Law 29.

He also stressed that under Law 106, FAFAA is not required to charge municipalities an exact amount to pay the pensions of their former employees and that if the judge grants the injunction as requested by the Board, such a remedy would have a "broad" scope that would limit the ability to reallocate funds in the budget in the future.

Judge Swain, however, did not seem convinced, indicating that she found it "illogical" that under PROMESA, the government would still be allowed to approve laws that defeat the purpose of the federal law.

Bienenstock sought to use its turn to clarify Swain's doubts.

Pierluisi's "myth"

The Board´s lawyer argued that under Law 106, FAFAA is obliged to collect pension contributions from municipalities and that when Law 29 was signed into law, the government changed the payment of pensions as debt. This acts as a kind of guarantee for the payment to retirees by converting the payment of pensions into a direct obligation of the central government and then, eliminating municipal contributions.

Above all, according to Bienenstock, the Board has the authority to request the repeal of state law if it goes against the fiscal plan and the budget because the powers conferred in PROMESA are equal to or higher than those of the Oversight Board in Washington D.C.

In what seemed to be a shift in the position the Board adopted before, Bienenstock argued that there is "a myth" surrounding the powers of the fiscal agency and argued that this erroneous understanding comes from a letter Pierluisi sent seeking to explain PROMESA.

"He just got it wrong," said Bienenstock about Pierluisi, who helped draft PROMESA in Congress and until a few weeks ago was part of the law firm O'Neill & Borges, which collaborates with Bienenstock and the law firm Proskauer Rose advising the Board.

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