Bond insurers ask court to name them co-trustees of HTA

By The Star Staff

Several bond insurers, headed by Ambac Assurance Corp., want the U.S. District Court to name them co-trustees of the Highway and Transportation Authority (HTA), asserting that the Financial Oversight and Management Board for Puerto Rico has a conflict of interest because it does not want to go after the commonwealth to stop it from pillaging the HTA.

The bond insurers for some time have sought to have the stay on bankruptcy lifted to pursue claims against the HTA, whose tolls and taxes pay for the bonds. To finance infrastructure, the HTA was assigned its own revenue streams, including toll revenues and excise taxes, which HTA then pledged as security so that it could issue HTA bonds.

The bond insurers say the commonwealth has diverted HTA revenue to the commonwealth coffers and rendered it insolvent. The bond insurers want the court to declare them co-trustees so they can pursue avoidance actions against the commonwealth, something the oversight board has refused to do.

U.S. District Court Judge Laura Taylor Swain put the matter on the schedule, telling stakeholders to file papers opposing the bond insurers’ request by July 22. She said she will decide on the matter upon submission for the time being.

Meanwhile, the oversight board recently filed answers and counterclaims to five lawsuits the Puerto Rico government had filed against the board related to laws that were enacted in violation of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).

Of the laws it challenged, the board announced that it no longer opposes Law 90-2019, which sets a price floor for Medicare Advantage reimbursements so that service providers do not receive a rate lower than the amount established by the Centers for Medicare and Medicaid Services for applicable services.

“The Oversight Board initially believed that Law 90 would impact the Government’s health expenditures,” the oversight board said in a statement. “It is now the Oversight Board’s understanding that the Government is not seeking to increase expenditures and therefore no longer opposes the implementation of Law 90.”

For the remaining laws, the oversight board said the government violated PROMESA Section 204, which requires the governor to submit to the oversight board new legislation within seven business days of its enactment, and to include a formal estimate of the law’s impact on the commonwealth’s expenditures and revenues, and a certification of whether the law is or is not “significantly inconsistent” with the certified Fiscal Plan.

The island government failed to fully comply with those legal obligations when it enacted and implemented five laws in 2019 and 2020 that are significantly inconsistent with the certified Fiscal Plan, the oversight board said.

“The Oversight Board has tried to work with the Government to resolve these issues, and, in some cases, engaged for a period of months to understand how these laws affect the certified Fiscal Plan and budget,” said the oversight board’s executive director, Natalie Jaresko. “Instead of collaborating with the Oversight Board as PROMESA requires, the Government decided to go to court.”

The laws that the oversight board said violated PROMESA were Law 82-2019, which prevents pharmacy benefit managers from controlling costs of prescription drugs, causing an increase in the prices of prescription drugs that will ultimately be borne by the commonwealth.

In its counterclaims, the oversight board challenged the law on several grounds, including that the law is significantly inconsistent with the Fiscal Plan, and the government’s approximate estimate of the impact of Law 82 is contrary to the Health Insurance Administration’s public testimony and includes no corresponding savings or make-up action.

The oversight board also challenged Law 138-2019 on the grounds that it forces public health insurance companies such as managed care organizations (MCOs) to accept higher priced providers into their network, the cost of which will ultimately be borne by the commonwealth.

In its counterclaims, the oversight board said the law is significantly inconsistent with the Fiscal Plan and that it will inhibit MCOs’ ability to control costs.

The board also challenged Law 176-2019, arguing that it increases available vacation days and sick days for public employees, making the commonwealth’s workforce less efficient and/or forcing the commonwealth to hire more employees.

In its counterclaims, the oversight board said Law 176 forces the commonwealth to choose between increasing the number of employees on its payroll or providing the people of Puerto Rico with fewer essential services.

The oversight board noted that Law 181-2019 provides for a salary increase to firefighters amounting to almost $3 million per year, without certainty of available resources to fund this increase.

The board also invalidated Law 47-2020 which expands the group of health professionals eligible for tax benefits under the Puerto Rico Incentives Code. In its counterclaims, the oversight board said the new law lacked even the barest specificity needed for a formal estimate of Law 47’s impact on expenditures and revenues, as PROMESA requires.

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