At POA hearings, fiscal board to press for its interpretation of enabling law
By The Star Staff
At the sixth day of hearings today to determine the feasibility of the debt adjustment plan that would restructure some $33 billion in debt, the parties will argue a request by the Financial Oversight and Management Board for the court to accept its interpretation of Act 53 of 2021, the law enabling the debt adjustment plan.
The agenda of the court also shows that they will start arguments on whether the court should approve the eight amended plan of adjustment.
The oversight board says Act 53 provides conditional authorization for the issuance of up to $7.4 billion in new general obligation bonds and the contingent value instrument that will be used to pay creditors. The government will also pay some $7 billion in cash. The oversight board believes the plain meaning of Act 53-2021 is the new debt’s authorization is conditioned only on the debt adjustment plan’s elimination of the monthly benefit modification, and not on anything else, including modifying the plan to delete the elimination of cost of living adjustments (COLAs) and freezes of pension benefits accruing after the plan’s effective date. In other words, the oversight board only agrees not to go through with the proposed 8.5% cut to monthly pension benefits. The board’s interpretation is objected to by retired judges and retired teachers.
Arguing in support of the request are oversight board lawyer Martin J. Bienenstock and Timothy W. Mungovan, as well as Lawful Constitutional Debt Coalition lawyer Susheel Kirpalani. Arguing against the request are Jessica Méndez, who will speak on behalf of the Teachers Federation, EDUCAMOS, and UNETE; Teachers Association lawyer José Luis Barrios Ramos and other retirees groups.
During the fourth day of confirmation proceedings for the plan of adjustment on Monday, the parties discussed the preemption of numerous laws to implement the plan. Bienenstock, of Proskauer Rose LLP, said the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA) that created the board specifically allows the plan to have supremacy over certain existing laws to make the restructuring possible.
Supporters of the preemption argument said the oversight board has authority to go over certain laws under PROMESA to enact the plan of adjustment in a way that is consistent with the certified fiscal plan governing Puerto Rico’s budget. Atara Miller of Milbank LLP, representing bond insurer Ambac Financial Group, said the preemption would only extend to statutes that conflict with the plan’s issuance of new debt and appropriations to make debt service payments. Miller said the affected laws are largely technical provisions for how money is allocated and spent.
Groups representing public school teachers contend that preemption needs to be specifically targeted and not applied in a sweeping manner to implement the plan of adjustment. Some 40 laws could be impacted.
Barrios Ramos said teachers’ pensions need to be protected under PROMESA and allowing the board to preempt commonwealth laws that authorize defined benefit pension plans for teachers would leave those teachers up in the air.
Retail bondholder Peter C. Hein said the list of laws that will be preempted if the plan is confirmed has changed repeatedly, a situation that stirs uncertainty about how investors will be treated after the bankruptcy ends.
The SEIU and the UAW argued that preemption will stop the local Legislature from passing laws over the next 10 years that could go against the plan, a disposition contained in the document.
U.S. District Court Judge Laura Taylor Swain also heard arguments from lawyers concerning the proposed changes to public employee pensions under the plan of adjustment, as well as whether the plan complies with the Takings Clause of the U.S. Constitution with respect to the compensation owed to property owners subject to eminent domain actions from the government. Suiza Dairy and others are claiming they are not getting fair compensation under the plan.
Next week the court is slated to hear final arguments.