Puerto Rico board sues Rosselló over spending, fiscal discipline


The Puerto Rico Oversight Board sued Gov. Ricardo Rosselló over unauthorized spending and lack of financial discipline, part of a conflict that one analyst said augurs a poor fiscal future for the commonwealth.

The board’s action came last week when it filed an adversary proceeding in the Title III bankruptcy court, the U.S. District Court for Puerto Rico.

The Puerto Rico Oversight Board has challenged at least three spending and spending-related practices of Gov. Ricardo Rosselló, pictured.

“The board’s failure to bring the governor over to seeing things their way is a real risk to Puerto Rico bondholders, who have to assume that a future governor and legislature will tear out whatever financial discipline the board is successful at installing,” said Matt Fabian, partner at Municipal Market Analytics.

The board’s action focused on what it sees as three illegal practices or laws of the Rosselló administration. First, it objected to Law 29, “Law to Reduce the Administrative Burden of Municipalities,” which ends the municipalities’ responsibility to reimburse the central Puerto Rico government for the pension costs of their retirees. The governor signed this into law on May 17 and is in the process of implementing it.

Second, it challenged two dozen resolutions appropriating funds for expenditures not in the board-approved budget.

Third, it called for the judge to declare the governor’s practice of failing to provide laws for board financial review, complete with cost estimates, within seven days to the board, to be illegal.

The board said the governor’s behavior on all three fronts is illegal according to various parts of the Puerto Rico Oversight, Management, and Economic Stability Act.

Board Chairman José Carríon said, “Law29 will undermine the government’s ability to pay pensions to all retirees whenever Puerto Rico’s government faces fiscal distress. That is why all employers, including municipalities, have a responsibility to pay their share of PayGo [supporting the payment of current retirees].

“Exempting municipalities and putting that burden on the commonwealth sets a terrible precedent that other employers may try to use in the future,” Carríon continued.

“The U.S. District Court has repeatedly called on the government and the Oversight Board to work together,” Carríon said. “Instead, the governor has refused to submit certifications and cost estimates for over 100 new laws and joint resolutions, has refused to submit budget to actual reports for numerous entities, and has repeatedly signed Joint Resolutions that spend tens of millions of dollars in unbudgeted funds without Oversight Board approval.

“As a result, the Oversight Board had no choice but to seek relief from the court to invalidate Law 29 and compel the governor to comply with PROMESA,” the chairman continued.

The board estimated that Law 29 alone would cost the central government about $311 million in the current fiscal year and $1.7 billion through fiscal year 2024. For comparison, the central government’s approved current year General Fund budget is $9.05 billion.

Responding to the board’s suit, Christian Sobrino Vega, Puerto Rico’s chief financial officer, said of Law 29, “This law was duly enacted and then certified as compliant by the pertinent fiscal entities under section 204 of PROMESA.”

In the board’s suit the board said: “The governor failed to provide the required formal costs estimate for Law 29 required by [PROMESA] section 204(a)(2), and he caused [the Puerto Rico Fiscal Agency and Financial Advisor Authority] and/or the Puerto Rico Office of Management and Budget and/or the Treasury Department to issue a demonstrably inaccurate and defective certification stating Law 29 is ‘not significantly inconsistent’ with the fiscal plan.”

Since the board’s filing of the suit, Judge Laura Taylor Swain approved an expedited schedule for hearing the matter. In it the board may move for summary judgment as early as July 17 and, assuming that hadn’t been granted, oral arguments will be heard in a New York City courtroom on Aug. 2.

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