Judge Laura Taylor Swain reserved on Law 29 - which exempts municipalities from contributing to the retirement system known as PayGo and the health plan - and 23 other joint resolutions that reallocate funds remaining from previous years to dozens of municipalities.
After lawyers representing the Oversight Board and the government defended their positions on the powers of the body created by Congress in PROMESA and the functioning of the government, the parties seemed to agree that, if the statute is repealed, a period of two weeks should be granted before the decision becomes effective, so the Board and the Wanda Vázquez Garced administration can analyze alternatives in the face of what may result in the financial collapse of dozens of municipalities.
Swain reserved her decision yesterday, during the second day of the March general hearings on Title III cases. After hearing the arguments of Hadassa R. Waxman and William J. Sushon, they reached the conclusion that the relationship between the Vázquez Garced administration and the Board has improved "significantly," especially after the governor approved Executive Order 57-2019 that seeks to ensure the government's compliance with the federal statute.
Waxman, a Board attorney, and partner of Proskauer Rose, said the lawsuit intends to invalidate Law 29 on all aspects, after the judge seemed to accept certain legal arguments in the controversy but questioned the reasons for the Board to seek additional remedies against the government. This, given that the new compliance policy adopted by the Vázquez Garced administration was beginning to be effective.
To this, Waxman replied that while the Board was "satisfied" with the government's new compliance policy, the situation was not "perfect" and that Law 29 should be invalidated to correct what would have been a pattern of "violations" of PROMESA by the territorial government.
"There is no dispute that the PROMESA law is undemocratic," said Sushon, a partner of O'Melveny Myers and a lawyer representing the Fiscal Agency and Financial Advisory Authority (FAFAA) and Vázquez Garced, as he asked Judge Swain to leave behind the "broad" interpretation of PROMESA suggested by the Board.
Sushon said the Board wants the court to endorse autocracy and added that the entity thinks that the undemocratic nature of PROMESA is “not a vice but a virtue." Sushon sought to draw an analogy between Law 29 and its effect on municipalities by eliminating the "National Coqui Day" - if it existed - because public funds would be separated for its celebration.
Sushon stated that with the request to invalidate Law 29, the Board only sought to exercise powers it was not granted and that amid the complicated situation faced by municipalities, the Board sought to give another meaning to the term "debt", one of the concepts defined by Congress when drafting PROMESA and which -from the government's perspective- refers to debt in bonds and not to intragovernmental obligations.
Swain was quick to seek more information regarding Sushon's arguments by asking whether the Board awarded itself such powers or whether they were granted by Congress.
According to an amicus curiae brief by the Municipal Revenue Collection Center (CRIM) that was rejected by Swain, invalidating Law 29 would lead at least 28 municipalities to bankruptcy, several of which were shaken by recent earthquakes that hit the southwestern region of the island.
The number of municipalities at risk would increase to 35 when including municipal budgets that depend on more than 70 percent on the Municipal Matching Fund, which would have reserved "PayGo" and health reform contributions to distribute among municipalities.
According to CRIM, in this fiscal year, thanks to Law 29, municipalities will retain some $204 million in their coffers.
Law 29 was approved last year by former Governor Ricardo Rosselló Nevares, based on the premise that the government would receive additional federal funds for the health reform and because he understood that contributions to the "PayGo" system required by Law 106-2017 for pensions from the General Fund had depleted municipal coffers since, at the time, they made employer contributions to the retirement of their now-retired employees.
The lawyer representing FAFAA and Vázquez Garced tried to state that much of the controversy before Swain's consideration has become academic since currently, the government has made progress in presenting fiscal impact certifications to the Board.
As stipulated in court, in many of the recently approved laws, the government complies with sending impact and compliance analysis to the Board within seven days as established in PROMESA.
Last year, when the Board sued the government seeking to invalidate the law that exempted municipalities from paying contributions to the "PayGo" system and the health reform, the fiscal entity claimed that the government repeatedly failed to comply with PROMESA and that with Law 29, the government approved a statute that was inconsistent with the fiscal plan, because it allows municipalities not to pay "the debt" they have with the central government for pensions and health services.
In filing the request, the Board asked Swain to nullify Law 29 and the 23 joint resolutions signed into law last year, that reallocated funds to municipalities, and to issue an injunction to prevent the implementation of the statute.
The Board also requested the court to declare stating that the statute and the resolutions in dispute are contrary to PROMESA and that the government failed to comply with the law because they were not submitting the certifications required within seven days.
They now have a two-week deadline to analyze alternatives.