July 24, 2018
Good Morning! In this morning’s eBlog, we consider what promises (no pun!) to be a brighter fiscal future for Puerto Rico,but a governmentally challenged fiscal and governing future.
Road to Recovery? According to Puerto Rico’s Department of Labor and Human Resources, the annual unemployment rate is lower than at any time than in more than 77 years, as Puerto Rico’s total employment level reached 995,767, and its unemployment rate dropped below 10% to the lowest monthly rate since at least 1975, dropping just over 15% in the last year. The BLS, however, reported that non-farm employment declined 3.5% from a year earlier, though it was up 1.9% from the post-Hurricane Maria low in October 2017: according to this survey of non-farm employers, private sector employment declined 3.4% in June from a year earlier. Puerto Rico’s Department of Labor and Human Resources said that Puerto Rico’s labor participation rate had increased to 41.1% from 39.3% a year ago last June.
The Fiscal Challenge of Demography. Dr. Angel Muñoz, a clinical psychologist and researcher at the Pontifical Catholic University of Puerto Rico in Ponce is warning that the question of who will care for Puerto Rico’s aging population is a growing crisis; he appears especially apprehensive that the U.S. territory’s elderly population is particularly at risk amid the new Atlantic hurricane season, which runs through Nov. 30th—especially after an earlier study we cited by Harvard researchers estimated that 4,600 Puerto Ricans died in the months after Hurricane Maria hit last September: many were seniors who faced delays in getting medical care. That apprehension has grown as projections show that one-third of Puerto Rico’s population will be 60 or older by 2020, even as the number of young people are increasingly emigrating to the mainland in search of employment, often leaving behind aging parents. Dr. Muñoz noted: “We have more [older adults] being left alone to almost fend for themselves, or being cared for by other seniors, instead of a younger family member.” Adding to the fiscal and physical challenges is that in Puerto Rico, Medicaid does not pay for long-term nursing home care.
Challenging PROMESA. In yet another governance and legal challenge, Puerto Rico’s Financial Advisory Authority and Fiscal Agency will seek, today, to convince U.S. Judge Judith Dein that the fiscal budget signed by Gov. Ricardo Rosselló Nevares should be the controlling fiscal guide, marking the Governor’s first formal complaint against the PROMESA Board. The suit makes for an exceptionally full docket: it gets in line with more than 75 lawsuits filed against Puerto Rico or the Board. Last week, Judge Dein denied a request from the Association of University Professors and Teachers of the University of Puerto Rico in Mayagüez to intervene in the litigation between the government and the Oversight Board, after the Board sought the dismissal of the case, claiming it was acting in accordance with the powers conferred by Congress. The legal challenge has an element of Rod Serling, the former host of The Twilight Zone, because of the constitutional and principles of self-government questions raised—especially compared to chapter 9 municipal bankruptcy, where filing for chapter 9 is only permitted in states where such authority has been enacted by the respective Legislature and Governor. In contrast, the PROMESA law appears to rely on different institutional and Constitutional frameworks, and veers sharply from the principles of self-government upon which our nation was founded by the states. Nevertheless, Puerto Rico constitutionalist Carlos I. Gorrín Peralta and the ex-Judge of Puerto Rico’s bankruptcy court, Judge Gerardo Carlo Altieri believe it unlikely that the statute will be declared unconstitutional. The former. A professor at the School of Law of the Inter-American University of Puerto Rico (UIPR), is of the view that it is unlikely that Judge Swain would declare unconstitutional the statute which, among other things, created the special position that she occupies by appointment to preside over the Title III cases of Puerto Rico. Mr. Peralta notes: “Puerto Rico does not even have sovereignty to accuse a person of drugs that the feds have already accused and, then, the second message was the declaration of unconstitutionality of the restructuring law,” he noted referencing Puerto Rico v. Sánchez Valle and Puerto Rico v. Franklin California Tax-Free Trust. He adds: “The Congress has exercised the colonial mollero,” which, in Spanish, can generally be translated to mean to show one’s biceps. Adding that the current dispute between the Oversight Board and the Commonwealth is, as he called it, the result of “conceptual ambiguity,” which can be illustrated by Law 600, wherein he described the statutory language as “the nature of a pact” adopted in the statute which gave rise to the Constitution of Puerto Rico, although in practice, there was no agreement between the United States and the United States.
In PROMESA, ergo, Senor Gorrín Peralta said the vehicle which is understood to be the vehicle with which to restructure Puerto Rico’s debt, in reality, he believes, is a statute designed to: protect the economic interests of the United States, and contain the effect that Puerto Rico’s debt would have on the state and local municipal bond market.
From the perspective of Judge Carlo Altieri, the allegations of Gov. Rosselló Nevares and the island’s legislative leaders regarding a possible usurpation of powers are of great import. The same, he added, applies to the case of Aurelius Capital Management, which alleges that the PROMESA Board is null because its members were not appointed with the consent of the Senate as dictated by the U.S. Constitution.
Nevertheless, according to a former president of the Bankruptcy Court in Puerto Rico, the backdrop to settle the dispute between Gov. Rosselló Nevares, the Legislature, and the PROMESA Board is not a purely civil case or a claim for constitutional rights, but rather the procedures of U.S. bankruptcy law which are oriented to pragmatism and the rapid resolution of disputes, mainly monetary, or, as he put it: “In the Bankruptcy Court, what are sought are fast, practical, technical,and efficient processes. Of course, PROMESA is a special law; it is not chapter 9 or chapter 11: it is a very special law and definitively, constitutional attacks are not the norm in cases of traditional bankruptcies either of municipalities or Chapter 11 cases. These constitutional arguments are very important, but they have the effect of delaying cases and resolving cases, creating confusion and excessive costs.” He further noted that Judge Swain’s recent ruling in the Aurelius casts serious doubts with regard to the chances for Gov. Rosselló Nevares and the Legislature to prevail. He adds that it is highly probable that this litigation will continue via appeals, so the process of adjusting Puerto Rico’s debts will be delayed: “The candles are deflated. I would not be surprised if the court decided against the Legislature and the government.” Nevertheless, he made it clear that in the future, especially when the confirmation process of the plan of adjustment nears, the scope of the Oversight Board’s fiscal plan could change.
He noted that Judge Swain could rule against the government by determining that Gov. Rosselló Nevares’ requests are aimed at seeking an opinion and that, in reality, there is no controversy surrounding the authority of the Oversight Board to certify the fiscal plan and the budget; rather, he said, “The reasons are eminently political,” adding that as the Oversight Board’s actions begin to increasingly, adversely affect citizens’ pockets, there will be ever-increasing rejection of what is perceived as colonial imperialism. He added that if the court ruled in favor of the Rosselló Nevares administration and curtailed the powers of the PROMESA Board, the body created by Congress would continue to have “gigantic” powers to impose its mandates upon the people and government of Puerto Rico.