Fiscal board warns gov’t it will take action if pension laws that violate PROMESA are executed

By The Star Staff

The Financial Oversight and Management Board has warned the island government that it would take actions deemed necessary to stop any execution of three pension-related laws before the board can ascertain if they go against the commonwealth fiscal plan in violation of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).

“Should you plan to implement these Acts or accept applications prior to our determinations that the Acts do not impair or defeat the purposes of PROMESA, or otherwise violate PROMESA, the Oversight Board further reserves the right to take such actions as it deems necessary, consistent with PROMESA sections 108(a), 204, and 207, including seeking remedies to prevent the implementation and enforcement of the Acts and for any wrongful implementation of them,” the oversight board’s executive director Natalie Jaresko said in a letter last week to Omar Marrero, head of the Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials). The letter was in response to a missive sent by Marrero on Sept. 1.

The three laws, signed in August, are Act 80, Act 81 and Act 82. Act 80 would create an incentivized early retirement program, Act 81 would create a “dignified” retirement plan for police officers, firemen, emergency service personnel and prison guards, while Act 82 would allow teachers to have their excess vacation time and sick leave be considered time worked for the purposes of determining their retirement package.

After enacting the three laws, the government failed to certify that the laws complied with the fiscal plan and provide an estimate of their impact.

“Your letter does not dispute that your submissions were late, that your ‘formal estimates’ for Acts 80 and 81 were not based on the Acts as signed into law, or that you have not provided an estimate -- formal or otherwise -- of Act 82’s increased expenditures,” Jaresko said. “Although you contend we did not provide sufficient time to prepare the analysis requested in our August 28, 2020 letter, we find this statement deeply troubling, as it contradicts the framework established by PROMESA, prudent fiscal practices, and your own contentions in numerous Title III filings and letters. The Government was supposed to have performed this analysis weeks ago, and best practices would normally dictate this analysis be done before adopting legislation.”

The governor must submit the required certification under PROMESA Section 204 for a new law not later than seven business days after the law is enacted. The oversight board noted that the government cannot as a matter of prudent fiscal responsibility wait until after the law is passed to perform the necessary financial and budgetary analysis.

“In addition to frustrating the collaborative process required by PROMESA, that practice places severe time pressure on the Government and the Oversight Board to evaluate whether the law thwarts the purposes of PROMESA while the law remains on the books and is being implemented,” Jaresko said. “Such delay is especially irresponsible here because the Acts affect the careers and lives of thousands of public employees and have a multi-billion-dollar impact on the finances and budget of the Commonwealth. Simply put, the Legislature should not pass, and the Governor should not sign into law, any legislation without first understanding its financial consequences and concluding it is not inconsistent with the applicable fiscal plan.”

“Furthermore, the current circumstances -- which the Government has created -- are at odds with statements made to the Title III court. In the Law 29 action, the Governor and AAFAF proffered Executive Order 2019-057 as a response to the Oversight Board’s claim that the Government had a policy of noncompliance with section 204(a),” she added, referring to a suit in which the court nullified Act 29, which exempted municipalities from paying pensions and health insurance and transferred those responsibilities to the general fund.

“Implementation of the Acts could result in irreparable harm, so it is imperative these Acts not be implemented unless and until the Oversight Board has reviewed all relevant materials and determined whether the Acts impair or defeat the purposes of PROMESA,” Jaresko said.

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