The Puerto Rico Oversight Board filed an opposition Sunday to teachers’ motion for a stay on the enactment of the Plan of Adjustment on March 15.
The board switched its position on whether the teachers’ associations ultimate success in their appeal would kill the current Plan of Adjustment in its opposition filed in the U.S. Court of Appeals for the First Circuit. In January the board said if the associations’ appeal succeeds, the expense would be too great for Puerto Rico to accommodate with the
“The board submits that if the plan goes effective with delay, but this court orders the associations’ defined-benefit [pension] plans reinstated, the board will manage to balance budgets by making substantial cuts in other government services,” the board wrote through its attorneys. “The cuts would impair economic growth, but after considering the associations’ odds of success, the board believes that is a better risk to take than the risk the plan will unravel.”
A group of bondholders and bond insurers also submitted on Sunday a statement opposing the teachers’ request for stay. The opposition statement was submitted by Ad Hoc Group of Constitutional Debtholders, Lawful Constitutional Debt Coalition, Financial Guaranty Insurance Company, National Public Finance Guarantee Corp., Assured Guaranty, Assured Guaranty Municipal Corp., Ambac Assurance, QTCB Noteholder Group, and Ad Hoc Group of General Obligation Bondholders.
The teachers' groups and Puerto Rico credit unions
U.S. District Court Judge Laura Taylor Swain last week
The Appeals Court is scheduled to hear oral arguments on the teachers' request for a stay on Wednesday afternoon.
The teachers’ associations argued “federal laws are inoperative unless the Commonwealth enacts new legislation,” the board’s attorneys said. This is contrary to the so-called Supremacy Clause of the U.S. Constitution, found in Article VI, Paragraph 2, with the board noting “it is undisputed that the [federal] bankruptcy discharge and distribution scheme preempts all such laws.”
The board also said the teachers have not shown irreparable harm unless they get a stay. By making the argument that the current Plan of Adjustment could coexist with the payments the teachers are requesting, the board is undercutting one reason the judges might have for staying enactment of the Plan of Adjustment.
The board also argued that if the court orders a stay in the case, the costs to other parties could mount to $1.5 billion.
For this reason, the board asked the court, if it agreed to a stay, to make it dependent on the teachers’ associations posting a $1.5 billion bond, which the teachers have said they could not afford.
Proskauer Rose Partner Martin Bienenstock leads the team of attorneys representing the board in the case.
