Fiscal board may challenge bill that would protect pensions, UPR from cuts
By The Star Staff
The Financial Oversight and Management Board could take action against a bill that would require the Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials) to uphold public policies against cuts to pensions and the University of Puerto Rico (UPR).
In a letter, the oversight board said it became aware that the island Senate approved Senate Bill 181, which would require AAFAF to exercise its power in pursuit of the public policies outlined in the bill.
The legislation would require AAFAF to use all its powers to: (1) ensure there are no cuts to government employee pensions; (2) ensure there are no further funding cuts to UPR; (3) require a “serious, independent, public, and peer reviewable” debt sustainability analysis; and (4) ensure that the Puerto Rico government does not make any payments on account of alleged illegally issued debt.
The oversight board wants the government and the Legislature to approve a debt adjustment plan that contains an 8.5% cut to pensions higher than $1,500 per month. The board met with legislative leaders and the governor to convince them to agree to the debt deal. In court, the board has said it will implement its preemption powers if it does not obtain local approval for the debt deal.
The preamble of the bill declares that the government has decided to assume the responsibility of “directing” the restructuring. Article 3 of the bill provides that it is the Legislature’s will that the courts enforce the bill to the greatest extent possible even if, among other things, the bill is prejudicial, nullified, invalidated, or any parts are declared unconstitutional.
In addition, federal magistrate Judith Dein, one of two judges overseeing the island’s bankruptcy process, allowed a public employees union to participate in the oversight board’s bid to overturn a commonwealth law prohibiting cuts to public pension benefits.
But the Service Employees International Union (SEIU) will not be allowed to participate in potential settlement negotiations between the board and the commonwealth government, according to the ruling.
As a creditor to the commonwealth, the SEIU has an “unconditional right” to participate in the adversary proceeding, in which the oversight board argues that Law 7, the Dignified Retirement Act, undermines its ability to guide the U.S. territory out of Chapter III bankruptcy, Dein said in the order.
Because the government is defending the same benefits protections that the workers union seeks to protect, Dein said the two groups’ interests in the case overlap to a degree that there is no need to require the government and board to include the SEIU in settlement talks.
Law 7’s prohibitions against public employee pension benefit cuts directly conflict with benefits reductions included in a deal to restructure $35 billion in bonded debt.