Relevant Items:ComplaintDocket
On Thursday, Gov. Ricardo Rosselló and the Puerto Rico Fiscal Agency and Financial Advisory Authority, or AAFAF, commenced an adversary proceeding against the PROMESA oversight board seeking to “foil the Oversight Board’s unlawful attempts to usurp the Commonwealth of Puerto Rico’s political and governmental powers and right to home rule.” The lawsuit was alluded to by Rosselló
earlier today.
Over the past several months, say the plaintiffs, the oversight board has used the fiscal plan and budget certification processes contemplated by PROMESA “in an attempt to impose its policy preferences on Puerto Rico’s people, micromanage every aspect of budget expenditures, and exercise legislative power the Board does not have, all over the objections of Puerto Rico’s elected Government.” Last week, the oversight board certified
its own version of the fiscal 2019 budget and certified
a modified commonwealth fiscal plan after the Legislature failed to repeal Law 80.
Citing Judge Laura Taylor Swain’s
opinion denying the urgent motion of the PROMESA oversight board to confirm the appointment of a chief transformation officer for the PREPA debtor, the complaint says the court “must - again - prevent the Oversight Board from overstepping its carefully delineated, statutory bounds.” Specifically, the oversight board’s efforts relating to the budget and fiscal plan “exceed its lawful powers and should be enjoined by this Court,” says the complaint.
The adversary complaint seeks the following relief:
- A declaration that the oversight board “lacks the authority to impose policy initiatives on the Government through a fiscal plan and/or budget, including the Board Fiscal Plan and Board Budget”;
- A declaration that “the substantive policy mandates contained in the Board Fiscal Plan and rejected by the Governor pursuant to PROMESA section 205 are null and void”;
- A declaration that “the substantive policy mandates contained in the Board Budget exceeds the Board’s powers and are null and void”; and
- An injunction against the defendants that would prohibit them from “implementing and enforcing the Oversight Board’s rejected policy recommendations (whether or not styled as recommendations) contained in the Board Fiscal Plan and Board Budget.”
In its own statement prior to the filing of the complaint, the oversight board vowed to
“vigorously defend against any suit attempting to thwart the carrying out of the Budget and Fiscal Plan.”
Division of Powers Under PROMESA
The complaint first provides an overview of PROMESA and the powers that the statute contemplates for the oversight board. “While Congress gave the Board certain powers, Congress respected the people of Puerto Rico’s right to self-government and home rule,” argue the plaintiffs, who stress the “limited” power of the board and contend that the statute “preserved the democratically-elected Government’s autonomy.”
The lawsuit argues that despite granting the board significant powers, “PROMESA strikes a careful balance designed to preserve the Government’s political and governmental powers” and the law “does not limit or impair the power of [Puerto Rico] to control, by legislation or otherwise, [Puerto Rico] or any territorial instrumentality thereof in the exercise of political or governmental powers of [Puerto Rico] or [its] territorial instrumentality, including expenditures for such exercise.”
The plaintiffs acknowledge that PROMESA grants the oversight board the power to certify fiscal plans and budgets - “either proposed by the Government, developed cooperatively, or developed by the Board on its own” - and to monitor compliance with them.
However, according to the complaint, PROMESA also “preserves to the Government the political and governmental power to make policy decisions” (emphasis added). While the oversight board has the power to make “policy ‘recommendations’” to the commonwealth government regarding a “wide range of issues,” the complaint asserts that “no one can dispute that the Governor is free to reject those recommendations.”
Specifically, the complaint argues that the oversight board cannot compel the governor to comply with its policy recommendations, “whether those recommendations are free-standing or advanced in a fiscal plan.” The complaint continues, “[T]he Board certainly cannot force those recommendations on the Commonwealth via a budget.”
According to the plaintiffs, the oversight board cannot do what it is attempting to do: “impose mandatory workforce reductions, change the roles and responsibilities of certain government officials, criminalize certain acts under Puerto Rico law and otherwise seek to micromanage Puerto Rico’s government” (emphasis added).
After further reviewing the authority of the oversight board, the complaint reiterates that “one consistent principle” of PROMESA is that the oversight board “cannot impose its policy preferences on the Government both for the Commonwealth or individual instrumentalities.”
The complaint reinforces this point by observing that Congress “specifically considered - but resoundingly rejected - granting the Oversight Board the broad power to impose its policy preferences over Government objections,” pointing to the draft versions of PROMESA in both the U.S. House and Senate that included provisions similar to those included in the legislation creating the District of Columbia Financial Control Board. While the D.C. board had the unilateral power to “nullify legislative acts and compel the mayor and city council to adopt its policy recommendations,” the complaint points out that such provisions were ultimately discarded from the version of PROMESA that was enacted. “Instead, Congress established a supervisory Oversight Board to assist and guide the elected Government, rather than a control board that would functionally supplant it,” says the complaint.
The plaintiffs say that the court has “already recognized the limitations on the Oversight Board’s power vis-à-vis the duly elected Government of Puerto Rico,” citing Judge Swain’s CTO opinion. In her ruling, Judge Swain concluded that there was “no express provision within PROMESA and its incorporated Bankruptcy Code provisions, nor any inferential grant of power, that authorizes the FOMB to impose changes in structure or reporting lines within PREPA by appointing a CTO, or to exercise the authority of a chief executive officer, much less to delegate that authority to an agent of the FOMB.”
The complaint acknowledges that the oversight board has “the responsibility to review and certify a fiscal plan for the Commonwealth,” adding that it is not challenging certification. “But the Board cannot expand its legal powers by using its fiscal plan to impose policy initiatives on the Government that the Board cannot otherwise implement on its own,” say the plaintiffs. “Nor can the Oversight Board use its budget approval powers to bootstrap its fiscal plan recommendations to specific expenditure line items as it has done,” reads the complaint. The plaintiffs warn that if the oversight board’s “improper actions are not checked, the people of Puerto Rico will be disenfranchised because their locally elected Government will be stripped of its policymaking powers.” The complaint argues that such a result would “deprive United States citizens living in Puerto Rico of their democratic rights.”
While the lawsuit acknowledges that the board is also empowered to determine the amount of overall expenditures permitted to achieve savings, its states that the government retains authority to determine the means by which those savings will be achieved.
In addition, the lawsuit questions the certification process employed by the board for the new fiscal plan and budget, saying that only “if the governor’s fiscal plan submissions fail to satisfy PROMESA’s enumerated fiscal plan requirements may the Oversight Board propose and certify its own fiscal plan.”
The criteria used by the board to determine if a proposed fiscal plan should be approved and certified are limited to certain financial requirements, informational requirements and other broad directives, according to the lawsuit. “Although PROMESA section 201(b)(1)(a)(ii) requires a fiscal plan to identify any specific bills the Board believes are necessary to achieve compliance with the fiscal plan, PROMESA does not grant the Oversight Board authority to compel the Legislature to enact legislation,” the lawsuit states.
Further, say the plaintiffs, the oversight board’s “improper usurpation of the Government’s role will also bring with it a host of ill-conceived measures that may irreversibly increase outmigration, thereby reducing the tax base and worsening Puerto Rico’s economic and humanitarian problems.”
Causes of Action
In count I, the plaintiffs argue that the oversight board cannot require implementation of rejected policy recommendations through enforcement of its fiscal plan. According to the complaint, PROMESA imposes limits on the oversight board’s policymaking power in order to prevent the oversight board “from usurping the political and governmental power of the Government of Puerto Rico.” The plaintiffs argue that the oversight board is attempting to circumvent this limit by certifying its fiscal plan, which “contains policy initiatives that the Board seeks to impose on the Government.” Because the oversight board exceeded its powers, the policy initiatives “constitute no more than non-binding recommendations,” the complaint says.
Accordingly, the plaintiffs claim that they are entitled to several judicial declarations, including a declaration that the rejected policy recommendations in the oversight board’s fiscal plan are “non-binding recommendations,” which the government need not implement and with which the oversight board may not force compliance. The complaint notes that the government is not seeking “a declaration that the Board Fiscal Plan was improperly certified, or that the Board Fiscal Plan suffers from any legal infirmities except to the extent set forth with respect to specific policy recommendations that cannot be imposed by the Board.”
Similarly, in count II, the plaintiffs maintain that “as a matter of law,” the oversight board’s rejected policy recommendations cannot be effected through the board-certified budget and that the oversight board’s powers under PROMESA section 202 may not be used “to enact substantive legislation.” As in count I, the plaintiffs request various related judicial declarations, including that “any matters that constitute recommendations (whether or not styled as recommendations) under the Fiscal Plan that the Government has rejected or may reject in the future (whether set forth herein or otherwise) are non-binding on the Government, do not need to be implemented by the Government, and cannot be imposed on the Government via the Board Budget.”
In seeking a preliminary injunction to prohibit the defendants from implementing and enforcing the board’s rejected policy recommendations, the lawsuit in count III argues that the injunction should be converted to a permanent injunction upon the court’s determination of the matter. “Without the requested injunctions, Plaintiffs would be irreparably harmed because the implementation of the Board Fiscal Plan and Board Budget would prevent them from freely exercising their political and governmental powers to allocate the Commonwealth’s limited resources at this critical juncture in Puerto Rico’s restructuring process,” the suit states.