A move by Puerto Rico to let municipalities off the hook for contributing to the pay-as-you-go pension system violates PROMESA, the court overseeing the commonwealth's restructuring ruled Wednesday.
The Puerto Rico Oversight, Management and Economic Stability Act gave the Financial Oversight and Management Board authority to implement a fiscal plan for the commonwealth's recovery, including debt restructuring and pension reforms. The 2019 fiscal plan includes continued pension contributions to what is now a paygo system, but in May, Puerto Rico officials enacted a law eliminating the obligation of municipalities.
The oversight board, suing to have that law declared invalid, estimated the fiscal impart at $311 million in 2020 and $1.7 billion over the next five years, and argued that it would not be compliant with the certified fiscal plan.
"The Oversight Board has articulated an entirely rational basis for its determinations that Law 29 and the Joint Resolutions impair or defeat the purposes of PROMESA," U.S. District Judge Laura Taylor Swain in San Juan said in the order, which becomes effective in May.
"Congress explicitly found that the ongoing fiscal emergency in Puerto Rico was created in part by a 'combination of severe economic decline, and, at times, accumulating operating deficits, lack of financial transparency, management inefficiencies and excessive borrowing,'" she said.