Court upholds Puerto Rico Board's right to reject laws

The First Circuit U.S. Court of Appeals upheld the Puerto Rico Oversight Board’s broad powers to overturn laws in Puerto Rico in a ruling Wednesday.

At issue were four laws the local government passed in 2019 and 2020. More generally, the issue was could the board use the powers of the Puerto Rico Oversight, Management, and Economic Stability Act to strike down a variety of laws that were not clearly spending measures. 

In a statement, the board said it “welcomes" the ruling, which confirms its "authority under PROMESA to review and block the implementation of laws enacted by the Puerto Rico legislature to the extent that they are inconsistent with the fiscal plans, or they impair or defeat the purposes of PROMESA.”

Circuit Court Judges O. Rogeriee Thompson and Kermit Lipez, and Maine District Judge Nancy Torresen, who was also on the panel, affirmed the decision of the U.S. District Court for Puerto Rico.

They upheld the ruling based on an earlier First Circuit Court decision that found “board determinations that commonwealth laws impair or defeat the purposes of PROMESA are reviewed under the ‘arbitrary and capricious’ standard typically used to review federal agency decisions.”

Puerto Rico Gov. Pierluisi and the Puerto Rico Fiscal Agency and Financial Advisory Authority argued the board acted arbitrarily and capriciously in rejecting the local government’s four laws. The Circuit Court rejected that argument in affirming the lower court’s bar on implementing the four laws.

At issue were two laws on health care, Acts 82 and 138; a public employee law, Act 176; and a healthcare professional law, Act 47. The board challenged the first two because it said they didn’t comply with the board’s control over laws and their financial impact found in Section 204(a) of PROMESA. It challenged the second two because they said they impaired or defeated the purposes of PROMESA.

Act 82 required health insurance companies to reimburse drug stores for at least their costs in providing drugs, among other changes to drug regulations.

“Act 138 … amends the Insurance Code of Puerto Rico to (1) prohibit health care insurers from denying provider enrollment applications submitted by qualified health care professionals in Puerto Rico, and (2) prohibit Managed Care Organizations from unilaterally terminating or rescinding contracts with health care providers,” the Circuit Court said.

Act 176 undid a reduction of public employees’ accrual rate of vacation and sick days. The board said if the law continued, government employee productivity would decline 5%. 

Act 47 expanded the scope of healthcare professionals eligible for incentive tax benefits. The board said this would cost at least $25.7 million per year.

The decision means "if the board decides to challenge the labor reform, in all probability it will triumph again,” Puerto Rico attorney John Mudd tweeted.

Neither the governor nor FAFAA responded immediately to a request for a comment.