Summary of Judge Laura Taylor Swain’s Orders on the FOMB’s Motions to Dismiss the Governor’s and Legislature’s Complaints.

On August 7, 2018, Judge Swain issued two Opinions, one granting in part and denying in part the motions brought by the Financial Oversight and Management Board (FOMB) to dismiss the complaint brought by the Governor, and the other granting in its entirety the Board’s motion to dismiss the complaint filed by the Legislature. Copies of the opinions are available here.
 
As background, the Governor’s complaint sought declarative and injunctive relief that challenged five specific provisions in the June 29, 2018 Fiscal Plan: (i) the prohibition on the Government’s ability to authorize reprogramming or extensions of budgetary appropriations that had been approved in prior years without the Board’s approval; (ii) the statement that the Government should consolidate 114 agencies into 22 groups and a number of independent agencies; (iii) the requirement that there be automatic budget reductions and workforce reductions whenever in the prior fiscal year the third-quarter actual figures for “efficiency savings” for a particular agency falls short of budgeted projections; (iv) the requirement of a hiring freeze, limitation on paid holidays, restrictions on sick and vacation days and the elimination of the Christmas bonus; and (v) the inclusion of remedies for violations of the budget approved as part of the Fiscal Plan, including that a violation constitutes a criminal act. The Legislature’s complaint sought declarative relief that it could not be compelled to implement the measures in the fiscal plan and that the FOMB’s  budget should therefore be null and void.
 
In its August 7, 2018 opinion, the Court dismissed the challenges to two of the Fiscal Plan provisions – the suggestion that various agencies be reorganized and the hiring freeze and other employee limitations –  on the basis that there was no concrete dispute for the court to decide at this time.  Significantly with respect to employee benefit reductions, the Court held that the budget/Fiscal Plan does not require the governor to implement the recommended employee expense reductions; the fiscal plan/budget only limits the amount of money available to the government, but that it is up to the government to decide how to spend it.  Therefore, these two challenged provisions do not impose policy on the government and it is therefore up to the Governor to decide how to spend the limited funds, leaving nothing for the Court to decide. 
 
As to the other three challenged provisions of the fiscal plan, the Court explained that PROMESA permitted the Board to “make binding policy choices for the Commonwealth,” but that in doing so, PROMESA did not give the Board the “power to affirmatively legislate.” If a policy measure requires the Government to enact a new law or repeal an old law, the Board can only attempt to persuade the Government to take that action by imposing budget restrictions; it has no authority to mandate the legislation. Applying that understanding of PROMESA, the Court concluded that the FOMB could restrict the government from using money from prior budgets to fund current expenses or otherwise reprogramming budgeted funds, because the Board has exclusive control over the certified budget.  The Court reached the opposite result with respect to the automatic budget reductions and the imposition of penalties for failure to comply with the budgets, because these provisions constituted amendments to Puerto Rico’s existing legislature.
 
The complaint filed by legislators, Hon. Rivera-Schatz and Hon. Mendez-Nunez, challenged the FOMB’s  certification of its own budget and the Board’s efforts to encourage a repeal of Law 80. The Court dismissed this complaint it in its entirety on the basis that PROMESA granted the Board exclusive power to certify a fiscal plan and budget.
 
In both opinions, the Court urged the Board and the Governor/Legislature to work together and to collaborate on the measures in the current fiscal plan and budget.
 
It is important to note that the Court’s opinions dismissing challenges to the Board’s authority to certify fiscal plans and budgets that are premised on policy measures that the Government has rejected do not mean that the Board’s proposed pension cuts have been approved. Because retirees rights to their pensions are considered contract rights under Puerto Rico law, pension cuts can only be implemented through a confirmed plan of adjustment.