Fiscal board sues PR gov’t over pension laws
By The Star Staff
The Financial Oversight and Management Board for Puerto Rico late Monday sued Gov. Pedro Pierluisi Urrutia and government agencies in the U.S. District Court for the District of Puerto Rico to stop the government from implementing and enforcing Joint Resolution 33-2021, Act 80-2020, Act 81-2020 and Act 82-2020 because, the oversight board claims, they would add significant and unaffordable retirement benefits for government employees.
“The acts will reinstate the fiscal mismanagement that existed before PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act] and caused Puerto Rico to incur over $120 billion in unaffordable debt, including $55 billion of unfunded pension obligations,” the suit reads. “Repeating history, the Acts would create billions of dollars in new unfunded defined-benefit pension obligations for the Commonwealth with no viable plan or method to cover the increased costs.”
The government enacted Act 80, Act 81 and Act 82 in August 2020 without sufficient analysis of how much the new retirement benefits would cost and how to pay for the additional costs. The administrations of Pierluisi and his predecessor, former Gov. Wanda Vázquez Garced, both explicitly agreed not to implement the three laws until the government and the oversight board agreed on an affordable implementation plan, the board said.
For over a year, the oversight board said it engaged with the government to explore ways to make the laws affordable.
“The Oversight Board proposed an approach in June 2021 that could work with respect to a partial implementation of Act 80. The Government never made any proposal for implementing Acts 81 and 82,” the board said. “Ultimately, no agreement was ever reached on the implementation of any of these laws.”
Now, legal action is necessary because the government enacted Joint Resolution 33-2021, which purports to require the partial implementation of Act 80 within 30 days, the oversight board said.
“The Oversight Board is disappointed that the government failed to keep its word not to implement these pension laws that make promises the government cannot afford,” said the board’s chairman, David Skeel. “The Oversight Board would have preferred to work with the government to find a viable alternative that would provide teachers, police officers, and other government employees with a real plan that Puerto Rico can afford rather than falling back into the old ways of making promises that cannot be fulfilled.”
“The Oversight Board will continue to try to engage with the government to create an affordable solution,” Skeel said.
Based on information provided by the government and on the oversight board’s own analysis, the board determined that Act 80, Act 81 and Act 82 combined could increase the government’s expenses by as much as $8.3 billion over the next 30 years, in violation of the Certified Fiscal Plan and the proposed Plan of Adjustment, which would reduce creditors’ claim by 80% but pay government pensions in full.
Even if only partially implemented as contemplated by Joint Resolution 33, the government’s own data show that Act 80 will increase costs well beyond the Certified Fiscal Plans’ allocations for pension expenses. Even partly implementing Act 80 could cause the commonwealth to incur additional costs of close to $61 million in the first year alone. Unless the government was to permanently eliminate the positions of employees who retire early under Act 80, the cost would be far higher, the oversight board said.
“We have been working for five years to reduce Puerto Rico’s debt to sustainable levels. The Plan of Adjustment is now in the process of confirmation. Yet, the three pension laws create new pension debt obligations tied to an already bankrupt pension system,” Skeel said. “The government and the Oversight Board both hope the court will confirm the plan. The last thing Puerto Rico needs is more fiscal mismanagement, just as it is on the verge of getting out of bankruptcy and returning to prosperity.”
Fiscal Agency and Financial Advisory Authority Executive Director Omar Marrero Díaz said later on Tuesday that AAFAF lawyers are evaluating the lawsuit filed by the oversight board (JCF by its Spanish initials).
“After extensive conversations, the Government of Puerto Rico succeeded in getting the JCF to desist from its intention to cut retiree pensions as part of the bankruptcy process under the federal PROMESA law. That commitment also extends to our public employees who are about to retire and who deserve a fair pension,” Marrero Díaz said in a written statement. “For this reason, our administration has tried to negotiate in good faith with the Board to reach a consensus in relation to Laws 80, 81 and 82, with the purpose of improving, in a fiscally responsible manner, the quality of life of our non-essential public employees who are about to retire.”
“Despite our efforts and the many viable alternatives and solutions that we have presented to the JCF, last night that body filed a lawsuit before Judge Swain to annul Laws 80, 81 and 82, as well as Joint Resolution 33, which would put the partial implementation of the Incentive Retirement Program, created under Law 80-2020, underway. Our attorneys are evaluating the appeal to determine the next steps to follow,” added Marrero Díaz, who is also Puerto Rico’s secretary of state.