The Puerto Rico Oversight Board on Friday filed suit against a law that would scuttle the negotiated plan of adjustment for the central government debt.
The board filed an adversary proceeding in the Title III bankruptcy in the U.S. District Court for Puerto Rico against the governor and legislative leaders in defense of the negotiated plan of adjustment.
The board filed suit against the law that Gov. Pedro Pierluisi signed on June 7, Act 7-2021, which bars the government from supporting the proposed Plan of Adjustment, any cuts to pensions or “essential services,” or any fee increases or tax increases to support paying debt.
The law would mandate $4.5 billion from government accounts be transferred to a newly created pension trust, which is not part of the board’s current fiscal plan.
According to the board’s suit, the act “purports to dictate the terms of a new plan of adjustment, contrary to the Oversight Board’s currently proposed plan of adjustment. The act would: (i) create new categories of ‘Uncontested Bonds’ and ‘Contested Bonds’; (ii) provide no recovery to the latter; (iii) cap recoveries for the former at an aggregate maximum of 58%; and (iv) leave retirement claims unimpaired.”
Board Executive Director Natalie Jaresko said, “For four years, the Oversight Board, the Puerto Rico government, retirees, and creditors have been negotiating to reach a consensual agreement that would allow Puerto Rico to emerge from bankruptcy. This law would derail that progress and result potentially in years of deadlock and litigation. Act 7 is not in anyone’s interest, neither retired government workers nor hard working Puerto Ricans.”
In its suit the board said following Act 7’s pension provisions would set them up to run out of money in 2053 if not sooner.
The board’s suit is against Pierluisi, Puerto Rico Fiscal Agency and Financial Advisory Authority, Puerto Rico Senate President José Dalmau, and Puerto Rico House Speaker Rafael Hernández Montañez.
“I believe that litigation is not necessary at this time and we will let the court know,” Pierluisi said in a statement. “At the same time, I will continue to focus on finding solutions to this controversy that protect our pensioners and that are fiscally viable. I will follow the course of work to present the necessary legislative measures and resolve this controversy for the benefit of Puerto Rico and its people.”
The board has asked Judge Laura Taylor Swain to enjoin Pierluisi for following Act 7 and to declare the law void. The board has an extensive history of talking about the law and the bill that preceded it with the local government and telling the local government that it was not acceptable.
In its suit the board lays out seven counts for its request to nullify Act 7.
The current board plan of adjustment addresses the central government’s $35.4 billion in debt. The board filed a fourth amended version of this proposed plan Tuesday in the U.S. District Court for Puerto Rico.