The judging panel of First Circuit of Appeals in Boston inquired today about the consequences of paralyzing the effectiveness of the Plan of Adjustment of the central government, scheduled to take effect on March 15, and that three teachers’ unions have demanded that it be put on hold until the evaluation of the merits of the appeal submitted to the judicial forum is completed.
The judge O. Rogeriee Thompsonfor example, questioned the attorney for the appellants, Jessica Méndez ColbergWhy do the teachers insist on paralyzing the implementation of the Adjustment Plan if, as alleged by the Fiscal Control Board (JCF) in writing recently, there would be the possibility of complying with the government contributions for its pension plan without the restructuring becoming financially unfeasible.
“If the court ordered the reinstatement of the defined pension system, as (the JCF) stated in its motion, it would not be practical without the stay. If the Board is allowed to continue with the implementation of the Plan, it would not be practical because they would consummate the Plan, particularly with respect to the pension system,” stated Méndez Colberg during the oral hearing, which was held via videoconference.
Subsequently, the lawyer stressed that, by the time the appeal is resolved, the defined benefit plan would have been “dissolved” if it had not stopped before March 15, since the teachers would not be accumulating benefits in the interim.
Thompson, who was the most active judge on the panel during the 73-minute session, suggested that it would be possible to replace those losses monetarily if the teachers were successful, to which Méndez countered that it would be very difficult to “undo” the actions that at that time point had been taken to put the Adjustment Plan into practice, so it would be highly likely that the resource would become academic.
Méndez Colberg did mention that a “partial stoppage”, in which the Adjustment Plan began to be implemented with the exception of the provisions related to the freezing of teacher retirement, would be an “equitable remedy” for all parties.
Today’s hearing focused on the request of the teachers’ groups to stop the consummation of the restructuring, since later the challenge on the merits of the Adjustment Plan will be heard before the same forum. The Federation of Teachers, we educate and Enter are the three organizations that jointly appealed the Adjustment Plan, confirmed in January by the judge Laura Taylor Swain.
Judge Thompson underlined that, in the JCF’s motion, it is alluded to that the worst case scenario would be that the Plan would be “undone” in the event that the stoppage caused the creditors to abandon the agreement and begin to sue the government.
The JCF’s lawyer, Martin Bienenstock, when asked if keeping the employer’s contributions to the teachers’ pension plan alive would lead to teacher dismissals, acknowledged that he did not have a definitive answer.
“I am not in a position to say how the Oversight Board would distribute the cuts. I will say we have a declining population. The population of Puerto Rico was 4 million not so long ago, and it has already been reduced to 3.2 or 3.3 (million). Adjusting the size of government is necessary in any case. The Board has been doing it to some extent for the past four and a half years, “said the lawyer.
The freeze that the Adjustment Plan included in educators’ defined benefit plans primarily affects teachers recruited before 2014. Those who entered the Education deparment after that date they contribute only to the defined contribution plan established in the Law 106-2017.
Although the JCF has argued that the Adjustment Plan could be sustained even if the government had to contribute to the teachers’ retirement plan, Bienenstock nonetheless underlined at the hearing the high cost of maintaining the current system, which implies pensions of 75% salary and the possibility of retiring at 55 years of age and 30 years of service.
“We are going to have to find the savings somewhere,” he said, before listing a series of calculations on which the JCF is based.
According to Bienenstock, continuing to contribute to the pension plan would cost $65 million for three months, $185 million for six months, $281 million for nine months, $408 million for one year and $4.7 billion for 30 years.
“Time is money,” he added in relation to the need to conclude the case and give way to the implementation of the Adjustment Plan.
They discuss the merits of the Adjustment Plan
Although the appeal of the Adjustment Plan will be seen in the coming weeks, Méndez Colberg tried to convince the appellate judges that the teachers have a good chance of prevailing in the process, since it is one of the elements that are considered when decide whether to grant a stay that prevents thousands of creditors from receiving the payments contemplated in a restructuring process.
In essence, the teachers argue that, although the JCF has the power to, through the Title III process, “unload” obligations from the territorial government, they do not have the power to “legislate” through the Adjustment Plan reforms that would affect the statutes. of Puerto Rico in the future, which is what would be happening with the teacher retirement laws. In that sense, they underlined again that the scope of the occupation of laws that were included in the Adjustment Plan is too broad, since the guidelines established in the Promise Law for those purposes.
Bienenstock, however, replied that the notion that the JCF cannot “legislate” is not entirely correct, considering that the agency has ratified its ability to impose annual budgets, an exercise that, under the Constitution of Puerto RicoIt is done through the legislative process.
The JCF attorney also pointed out that the statement that the Adjustment Plan would continue to be viable even if the teachers’ retirement was not frozen is not an acknowledgment that the appellants have a chance of winning the case, but rather an argument to illustrate how unnecessary it is to cripple him at this time.
Bienenstock admitted that bondholders who say they would reject a postponement of the effective date could be “feigning”, although he went on to argue that, given the cash that the government has accumulated in its bank accounts for years, it could be “attractive” for investors. creditors seek a renegotiated agreement.
Méndez Colberg, meanwhile, pointed out that the First Circuit itself has arranged an expedited process to attend to the appeal.
“Is it really in the best interest of the bondholders to get out of the deals to keep what? Dismissing Title III and then suing the government when they have a better chance with the settlement they already have? It is a matter of extending the date, not for a year, not even six months”, said the lawyer.
In addition to Thompson, the oral hearing was attended by the judge William Kayatta Jr.and Jeffrey R. Howardpresiding judge of the First Circuit.