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Fiscal board files response to judge’s request for more data to support POA


U.S. District Court Judge Laura Taylor Swain

By The Star Staff


The Financial Oversight and Management Board for Puerto Rico on Tuesday filed its response to the request of the U.S. District Court for the District of Puerto Rico for more information about certain aspects of the proposed Plan of Adjustment that would restructure some $33 billion in debt.


Judge Laura Taylor Swain has not confirmed the debt adjustment plan yet and in a Dec. 15 ruling expressed concern about aspects of the proposed plan. She said the oversight board proposed to displace numerous laws to execute the plan. She said the preemption provisions in the plan were overly vague and broad and appear to be inconsistent with the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).


Swain said a preemption provision should be directed to specified legislation and should include language specifically addressing the scope of preemption and not just the entire contents of the law.


The oversight board said the Plan of Adjustment preempts several Puerto Rico laws that are inconsistent with the provisions of PROMESA, including Act 80-2020, Act 81-2020 and Act 82-2020, as well as Joint Resolution 33-2021, which requires the partial implementation of Act 80-2020. Act 80 would add certain new benefits for government employees. The board also sued to repeal those laws.


Under the Plan of Adjustment, government employees and retirees are receiving payment in full on account of all lawfully accrued pension obligations. The government, however, attempted to increase benefits to some employees, which would give a select group of employees more than full payment – and more benefits than other employees.


The oversight board has also filed a modified Plan of Adjustment to address certain additional comments of the court, including providing for the full payment to allowed claims for eminent domain and inverse condemnation claims if the court adheres to the views in its order and the confirmation order issued by the court becomes final.


Swain had objected to the proposed plan’s treatment of “unsecured” portions of allowed eminent domain claims, and “the absence of any appropriate treatment for allowed inverse condemnation claims.”


The judge said this was materially defective because the plan doesn’t provide for full payment of the “unsecured” portion of those claims and the takings clause of the U.S. Constitution prohibits the debtor from impairing and discharging any obligation to provide “just compensation” for the physical taking of private property for public use.


Allowed eminent domain claims are separately classified in the plan, the judge noted. Judge Swain said the holders of those claims assert they hold prepetition constitutional claims based on seizures of property under the commonwealth’s eminent domain power.


Swain concluded that for “unsecured” eminent domain and inverse condemnation claims that are ultimately allowed, the proposed plan as currently written is defective because the treatment of the claims would violate the takings clause of the Constitution.

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