A Puerto Rican municipal group is suing the Oversight Board on where money for the island’s pension system should be directed, a move that could impact the viability of the
La Liga de Ciudades de Puerto Rico (The League of Puerto Rican Cities) filed the adversary proceeding in the Title III bankruptcy case on Sunday, though some sources said the suit doesn't have a good chance of success because it is predicated on a now-invalid local law.
Defendants are the Oversight Board, Puerto Rico’s Fiscal Agency and Financial Advisory Authority (FAFAA), Centro de Recaudación de Ingresos Municipales (CRIM), and Administración de Seguros de Salud de Puerto Rico (ASES), and Luis Collazo Rodríguez, as administrator of the commonwealth’s pension system.
CRIM collects property taxes for the island’s municipalities. ASES is a government body that administers a health insurance system providing residents with access to hospitals and medical care.
On March 8, the board unveiled a plan of adjustment for the commonwealth’s debts and pensions. Since the Liga de Ciudades estimates at least $340 million of payments for pensions and ASES are at stake, its suit could impact the viability of the proposed plan.
At the heart of the Liga’s suit is a law passed by the local government, Law 29, in May 2019, which was later declared invalid but the cities claim it did not cover them.
Law 29 eliminated the municipal governments’ responsibility to reimburse the commonwealth central government for pension and healthcare costs of municipal retirees. The commonwealth government passed it to relieve financial pressure on the local governments.
In April 2020 Puerto Rico bankruptcy Judge Laura Taylor Swain, at the request of the board, declared the law to be invalid.
The board’s position is that Swain’s ruling was that Law 29 was illegal from the start. Since May 2020 it has gotten CRIM to forward money to ASES and the retirement system to reimburse the latter two entities for money they never received from the municipalities.
The municipal governments, through the Liga de Ciudades, are challenging this diversion of funds. In its filing with the court Sunday, it argued Swain’s April 2020 order “only has prospective effect.” It further argued, “neither CRIM nor the municipalities were parties to the Adversary [Proceeding challenging Law 29], which means that the April 15th [order] has no binding effect over them.”
On Sunday, Liga asked the court to order CRIM to disburse funds to the cities withheld by order of the board for what the board sees as debts to ASES and the pension system. Liga also asked ASES and the pension system to return to CRIM money they received retroactively for the May 2019 to May 2020 period. Liga asked the court to prohibit the defendants from collecting money that Law 29 had exempted the cities from paying May 2019 to May 2020.
The cities “have a point that the Law 29 decision does not apply to them but Judge Swain is not likely to change her ruling or reverse the board’s determinations,” Puerto Rico attorney John Mudd said Monday.
Another Puerto Rican analyst who wished to remain anonymous said Liga’s suit was unlikely to succeed. Liga probably filed the suit to improve the group’s stature in Puerto Rico, this person said.
After the April 2020 decision, Board Executive Director Natalie Jaresko said, “This is an important decision that will support fiscal responsibility in Puerto Rico. Pension payments to Puerto Rico government retirees must be safe and cannot be secured by shifting costs in unsustainable ways.”
