It is expected that the Fiscal Oversight Board (JSF) petition the federal district judge today, Monday Laura Taylor Swain that confirms the plan that would modify some $ 33,000 million in central government obligations while indicating that the government has no reason to oppose – at the last minute – the changes that were made to the Adjustment Plan (PDA) after the elimination of the cut to current pensions.

The fiscal body with powers above the elected government will make this appeal to the judge in charge of the Title III Cases of Puerto Rico during what would be the last day of the confirmation hearings of the PDA of the central government that will be held today, Monday. .

In a letter filed almost at midnight last Thursday, the Board explained to Swain that after signing Law 53 of 2021 and recognizing the power that this body has to establish a kind of piggy bank that ensures the payment of pensions throughout the At the same time, Governor Pedro Pierluisi cannot oppose the new formula that was established when the cut of up to 8.5% to current public sector pensions was eliminated.

“The whole point of the Pension Reserve Trust is to help ensure that pension obligations will be satisfied and that the (PDA) will continue to be feasible even in the event of future deficits.”, indicated the JSF through its lawyer, Martin Bienenstock.

On November 3, after the bid that it waged with the legislative leadership and Pierluisi for the Cameral Project 1003 (now Law 53 of 2021), the Board amended the PDA to eliminate, as required by the elected officials, the cut to the current pensions. In those negotiations, although this is not part of the PDA, it was also agreed that additional funds will be provided to the University of Puerto Rico (UPR) and the municipalities, which would be subject to the arrival of federal funds for the payment of the Vital plan.

But by eliminating the pension cut, the Board also modified the formula to capitalize the pension reserve.

Initially, the PDA contemplated that, for eight years, the government would contribute $ 175 million to the pension reserve until capitalizing it with about $ 1,000 million. If there were collections above what was projected, the government would make additional contributions to the reserve.

On November 10, citing Board documents, El Nuevo Día revealed that eliminating the pension cut will cost taxpayers, in aggregate, about $ 1.9 billion and that this required more safeguards.

Thus, instead of contributing to the reserve for eight years, the Board established that the contributions will be made for 10 years and if the budget surplus exceeds $ 1.75 billion, apart from the initial contribution, the government will have to contribute half of the surplus. -after paying the bondholders-, whether or not the collection projections are met. By establishing this new formula, the Board also reiterated that, if tax collections turn out to be so positive, the government will only be able to dispose of about $ 200 million of that bonanza.

The government did not know

Two days after the review of El Nuevo Día, Governor Pierluisi and the Financial Advisory Authority and Fiscal Agency (Aafaf), through their lawyers John Rapisardi and Peter Friedman, of O’Melveny Myers, complained about the move “ unilateral ”of the Board.

Rapisardi and Friedman explained to Swain that “without a pertinent notice to the government”, the amendment required in the PDA represented “a significant impact and potential risk”, since the requirement of additional contributions to the pension fund would remain even in the midst of a war, tax changes or a material economic contraction.

“The (Board) has failed to justify the need for this change”, says the motion of the government before Swain. “Unfortunately, this appears to be an attempt by the (Board) to cast a long shadow over the government long after the (Board) is gone.”

“The contention of the Aafaf that the financing of excess projections constitutes an improper extension of the powers of the (Board) in the future is out of place,” said the Board for its part when establishing that the PDA should be monetarily viable speaking to the be approved and during the life of this and that maintaining adequate reserves for the payment of pensions will give people confidence, which in turn becomes a pro-economic growth measure.

Swain’s expectation

This discrepancy between the Board and the government will surely be discussed in today’s session. This is because last Friday, when she issued the order on the matters to be discussed in the closing session of the confirmation process, Judge Swain asked the fiscal body to detail the legal bases and in fact that would allow the PDA to be endorsed as it has been. amended and modified.

Similarly, Swain asked the parties to prepare to discuss whether the eminent domain and reverse conviction claims against the government, in the case of real property, are grouped in PDA class 54 – considered an uninsured class – and what documents justify placing these claimants in said class.

Faced with the allegations of various creditors with claims of compulsory expropriation, reverse conviction and also of bondholders, who allege that the payment conditions in the PDA constitute a confiscation, which would be contrary to the United States Constitution in this matter, the Department of Federal justice asked Swain time to determine if they will adopt a formal position.

According to Swain’s order, the parties will have to explain to the judge whether the PDA would continue to be viable in the event that the court decides that the Board cannot reject – as it intends – the compulsory eminent domain and reverse conviction claims. or claims alleging forfeiture by the government for the sale, purchase, or holding of bonds.

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