The federal judge overseeing Puerto Rico's bankruptcy proceedings refused Thursday to dismiss a challenge brought by a federal oversight board to a law passed by commonwealth officials that would erase pension obligations of municipalities and transfer them to the government.
The commonwealth's new governor and financial authorities asked the court to dismiss the oversight board's lawsuit, but U.S. District Judge Laura Taylor Swain in San Juan ruled that the Financial Oversight and Management Board for Puerto Rico sufficiently alleged that the new law and related resolutions passed by Puerto Rico legislators "impair and defeat" the purpose of PROMESA, the federal law enacted to allow Puerto Rico to restructure its debts and get on sounder economic footing.
In May, Puerto Rico officials enacted a fiscal 2020 budget known as Law 29 that would add $311 million in government spending with additional pension and health-care costs, prompting the oversight board's challenge in July. “The Oversight Board believes in passing Law 29, the Puerto Rico Legislature put at risk pension payments to retirees,” the board said Friday in a statement.
Since then, former Gov. Ricardo Rossello, who signed the law, has been replaced by former justice secretary Wanda Vazquez.
Ms. Swain concluded in the order that the oversight board has made the case "to support the existence of an ongoing practice of refusal" by the governor to comply with the law.
Also in May, the oversight board asked the U.S. Department of Justice and the Puerto Rico Secretary of Justice to investigate local government employers for failing to transfer payments to employees' defined contribution accounts.