Governor ‘not surprised’ judge struck down Dignified Retirement law
By The Star Staff
Despite arguing that the case was not ripe for adjudication, Gov. Pedro Pierluisi Urrutia said Wednesday that he is not surprised by the determination of U.S. District Court Judge Laura Taylor Swain to repeal the Dignified Retirement Act.
“The law was clearly inconsistent with the Fiscal Plan certified by the [Financial Oversight and Management] Board and with the PROMESA [the Puerto Rico Oversight, Management and Economic Stability Act] law itself,” Pierluisi told reporters. “That is what I indicated when I signed the bill into law, if you remember. That is why I tell you that the judge’s decision does not surprise me, although I have not read it yet.”
“I reiterate that the important thing for all of us is to stand firm on zero pension cuts and stand firm that a restructured bond issue will not be made if there is a requirement that there be pension cuts,” he added.
The governor said that since he has not read the federal judge’s determination, as soon as he does, he will evaluate the next steps, if any.
The Financial Oversight and Management Board on June 2, 2021, sued Pierluisi, the Puerto Rico Fiscal Agency and Financial Advisory Authority (AAFAF), Senate President José Luis Dalmau and House Speaker Rafael Hernández Montañez to annul Act 7-2021, which banned pension cuts. The oversight board is proposing pension cuts as part of the restructuring of the central government debt, and the proposed law went against that.
“Act 7 makes the false promise of a ‘dignified retirement’ to retired government employees through higher benefits that Puerto Rico cannot afford,” Oversight Board Chairman David Skeel said in a written communication.
The government tried to have the case thrown out by arguing that it was not ripe because the law had not been implemented yet.
“Law 7 results in the opposite of a ‘dignified retirement;’ it would jeopardize retirement benefits in the future, as the law cannot and will not adequately fund what it promises,” Skeel said. “Puerto Rico remains in a fiscal crisis and the implementation of Law 7 would derail the progress made in reaching a consensual debt restructuring, prolong bankruptcy, result in fiscal instability and delay recovery.”
Pierluisi signed Act 7 into law on June 9, but certified, through AAFAF, that the law is “significantly inconsistent” with the commonwealth’s 2021 certified fiscal plan. The governor’s certification further conceded that enforcement of the act could violate various other provisions of PROMESA, including the autonomy of the oversight board, implementing a reprogramming of government funds without oversight board approval, and modifying billions of dollars of debt without oversight board approval.
The board’s suit argued that Act 7 had to be nullified because it prohibits the government from cooperating with any plan of adjustment at odds with the provisions of Act 7, including the fourth amended plan of adjustment filed on June 29. The governor’s refusal to confirm that he will not implement the act, and the Legislature’s refusal to repeal any portion of the cct left the oversight board with no choice but to pursue litigation, Skeel said.
Act 7 established a new pension trust that will likely be insolvent no later than 2053, and potentially much sooner,” the oversight board said. Act 7 also reversed previous governments’ pension policies designed to promote fiscal sustainability and access to capital markets, returning to the fiscal mismanagement that resulted in unsustainable levels of debt and Puerto Rico’s bankruptcy, the board said. The act was slated to reinstate the failed defined- benefit plans of the past, effectively eliminate the current PayGo system and defined contribution accounts implemented by Act 106-2017, the board said.
Further, the act would increase commonwealth pension liabilities by an estimated $17 billion through fiscal year 2049 but proposes to pay for it by diverting funds designated for debt service without demonstrating that these funds will be sufficient to satisfy those obligations. Therefore, it is inconsistent with PROMESA’s mandate for Puerto Rico to achieve fiscal responsibility, the oversight board said.
Act 7 also attempted to dictate the terms of a debt restructuring plan that would override the oversight board’s proposed consensual agreement to lower Puerto Rico’s debt from $35 billion to $7 billion and save Puerto Rico almost $60 billion in debt service payments by prohibiting the government from using resources to help achieve and enable any plan of adjustment differing from the act’s requirements, the board said.