Monday Update – October 29, 2018

Welcome to your weekly Title III update for October 29, 2018. Not much has happened in the case, but outside in the greater PROMESA world, it is in turmoil.

On October 23, 2018, the Board discussed and approved the new Fiscal Plans for the Commonwealth and the UPR. Although not much was new in the Commonwealth’s Fiscal Plan, the Puerto Rican government is once again decrying the “austerity” the Board is imposing and Governor Rosselló even vowed to appeal the plan in Boston (meaning the First Circuit). This is hard to do if you have not questioned the Fiscal Plan before Judge Swain. Of course, the Commonwealth got Judge Swain’s certification to appeal her decision as to the previous Fiscal Plan, and in fact, the notice of appeal was filed and docketed but the First Circuit has not ruled yet on whether it will allow it. However, given the other appeals, I doubt it will be denied.

As mentioned before, the new Fiscal Plans have new numbers as to migration and income but retained the need to reduce by millions of dollars “personnel savings,” including the Departments of Health, Education, Corrections and Police (more on this last one later). It also retains the cuts in pensions and does not provide for the payments of the Christmas bonus. Of course, the governor refuses to obey these decisions—traditionally the bonus is paid around the 15th of November, just in time for Black Friday. We will soon find out whether it will happen. Since I know that many parents in the government use this money to pay for their kids’ presents, it would be very sad if it does not happen.

The UPR Fiscal Plan is also very similar to the previous one, with increases in tuition and consolidation of campuses. Christmas bonuses are eliminated and pensions reduced. During the meeting, various university related groups and individuals voiced their concerns and displeasure with the Fiscal Plan—all done in an orderly and peaceful manner. Kudos to them.

One last thought as to the UPR pensions’ in Bayrón Toro v. UPR, 119 D.P.R. 605 (1987), the Puerto Rico Supreme Court held that persons who were receiving pension payments had a constitutional right under the Commonwealth’s constitution to receive said pension. Now in the Detroit and Stockton cases, the Court determined that state constitutional guarantees to pensioners do not trump federal bankruptcy law. The UPR, however, is not in Title III and hence I am not sure that the Board may alter Puerto Rico’s constitutional law with the stroke of a pen. Again, let’s see what happens.

Cathy Kunkel, an energy analyst at the Institute for Energy Economics and Financial Analysis published a column in The Hill titled, “Puerto Rico energy bill: A step toward renewables or another scandal waiting to happen?” The piece praises some parts of it but also argues strongly against it:

The design and negotiation of contracts will instead take place through a non-transparent process controlled by PREPA, the Puerto Rico Public-Private Partnerships Authority, and the Puerto Rico Fiscal Agency and Financial Advisory Authority, all effectively under the control of the governor. Given PREPA’s and Puerto Rico’s long history of politically-driven contracting scandals, this structure promises more of the same.

In short, the proposed new energy law appears to be setting in motion a process whereby the short-term push for natural gas and politically-driven contracts will come into conflict with the longer-term goals for renewable energy and energy efficiency. As a result, essential goals to reduce the fuel budget will not be achieved and the natural gas path will lead to costly litigation on energy planning and contracting that will likely take years to resolve.

A different approach is needed. Rosselló’s privatization model should be scrapped and replaced with a commitment to professional energy planning that prioritizes renewable energy, particularly distributed resources.

I agree that the privatization process is anything but transparent but I believe it is because politicians do not want to sell PREPA and are just going through the motions. Again, we will soon find out.

Many of you may not know but the Puerto Rico Police Department, as many other U.S. police departments, are under a consent decree with the U.S. Department of Justice since 2012. The reforms have been slow to be enacted, mostly due to a lack of funding. Federal Judge Gustavo Gelpí is in charge of the case and his patience finally ran out on October 25 and issued the following order:

The Court is aware that representatives of the Commonwealth and its Fiscal Board, USDOJ and Monitor will meet tomorrow to discuss the Reform budget. However, the scope of said meeting should go beyond said specific line item budget. A fully financed PRPB Reform Office, in and of itself, alone cannot achieve the goal the Commonwealth and United States governments agreed to, when in 2013 the Court approved the Police Reform Agreement.

In order for the Commonwealth police force to come into full constitutional compliance, as per the terms of the Agreement, the Commonwealth (Fiscal Board included) must adequately fund the PRPB, and not just the PRPB Reform Office.

Without law and order, no government within the United States — including that of a territory currently being subject to the plenary power of Congress — can function, even less reconstruct itself as contemplated under PROMESA.

This Court has an unflagging duty under Article III of the U.S. Constitution to guarantee the citizens of this jurisdiction a fully functional police department, as intended by the parties in the Agreement. As such, the Court will zealously overlook all fiscal matters that impact the Agreement itself, both directly and indirectly. The Commonwealth’s ability to adequately establish law and order in the form of constitutional policing cannot be impaired by a fiscal board, as long as this Reform Agreement is in place.

If the Commonwealth and its Fiscal Board stand in impasse as to this matter, the Court will not hesitate to entertain a request for any appropriate remedy from any of the above named entities, monitor excluded. (Bold added)

Judge Gelpí is openly saying that the Commonwealth and the Board have to come up with the money for the police reform or he will entertain motions by the parties, i.e., the Commonwealth or the DOJ. Judge Gelpí, who knows his business, knows that Section 7 and 204(d) prohibit PROMESA from interfering with federal programs dealing with safety or interfering with court issued consent decree. And knowing Judge Gelpí, he will not hesitate to act.

After the aforementioned meeting, the Board stated it was in full agreement with the police reforms but added that when it hammered the Fiscal Plan, it was given a higher number of police officers in the force and therefore, the Commonwealth had the money to fund the reform. The government is yet to put forward its position.

On October 25, the Board made public a letter calling for proposals for the following:

The Oversight Board has created a Special Claims Committee (the “Committee”) to further consider potential claims that might arise from the conduct described in the Report and is seeking submissions from interested parties to be retained to assist the Committee (“Claims Counsel”). The scope of the work should include (i) review and assessment of the Report and the factual materials that form the basis of the Report, (ii) legal research as necessary to advise the Committee regarding potential causes of action and (iii) initiation of any litigation arising from the conduct described and/or referrals to prosecutorial or regulatory bodies.

The Commonwealth Title III case was filed on May of 2017, hence, the statute of limitations to bring any actions against those causes of action mentioned above expires in May of 2019. To seek counsel to evaluate the myriad of documents Kobre & Kim needs to review and then file causes of action before May 2019 behooves the mind. The UCC has been chomping at the bit to do this job, it is willing and able and time is running out. This letter to me is incomprehensible.

In the Court scenario, the Retirees Committee filed a motion in the COFINA litigation stating:

The Retiree Committee requests that the Court change the Settlement Objection Deadline from November 16, 2018 at 5:00 p.m. (Atlantic Standard Time) to the same date and time as the deadline to be set by the Court with respect to the filing of any objections to the COFINA Plan of Adjustment, or alternatively, assuming the Court maintains the January 16, 2019 hearing date to consider confirmation of the COFINA Plan of Adjustment, December 31, 2018 at 4:00 p.m. (Atlantic Standard Time), in accordance with the Case Management Procedures, to provide parties in interest a sufficient and appropriate opportunity to respond to the Settlement Motion.

We must remember that the UCC filed a motion saying the COFINA settlement could not be funded with the June Commonwealth fiscal plan and mentioned that the Retirees’ Committee agreed. Seems they need time to analyze whether the settlement is feasible. We will see.

This summary is merely what I believe are the more salient motions and decisions in the cases. I receive an average of 20 filings each day so it would be impossible to summarize everything. If you have legal interest in these cases, I urge you to hire an attorney to represent you.