The Coming Public Pension Fight

The first in a series on Puerto Rico’s Pensions


Last week, the Supervisory Board held its 9th Public Meeting in Fajardo, Puerto Rico. A key item on the agenda, “Discussion of Pension Reform,” was over-shadowed by the pending fight over furloughs, but is perhaps one of the most important items discussed.


As many know, one of the critical issues before the Supervisory Board is how to address the future of Puerto Rico’s public pension system and a $49 billion actuarial deficit. In fact, this is one of the reasons Speaker Ryan and the Congressional Republicans insisted on having an expert like Andrew Biggs on the Board. His knowledge of pensions ostensibly would help reform Puerto Rico’s public pension system to become a model for cities and states across the country.


What PROMESA Says the Board Must Do


Section 211(a) of PROMESA requires the Board, if it determines pensions are underfunded, to conduct an analysis prepared by an independent actuary […] to assist the Oversight Board in evaluating the fiscal and economic impact of the pension cash flows.” The Board hired Pension Trustee Advisors, Inc., a Colorado corporation, for this endeavor in February. To date, we have yet to see any documents or plans generated by this company or produced by the Board.


Instead, the government with the support of the Board moved first. Since February, Puerto Rico passed a law to convert the government and its component units into a single employer and although the Board instructed that pensions had to be cut by 10% by fiscal year 2020 in the Fiscal Plan, the Board green-lighted the government to move over $2 billion from the General Fund to the public pension system. At the same time, neither Governor Rosselló nor the Board provided any monies for debt service in FY18. This had the effect of elevating payment of public pensions above secured creditors.


Then, on May 21, 2017, the Board filed a Title III bankruptcy petition for the Government Retirement and the Judiciary Retirement Fund. Further, the government passed a measure to transfer $390,480,000 from the Central Government, Judiciary and Teacher’s retirement funds to the General Fund for the payment of pensions, known as RC 188.


All of this was done with the Board’s approval, but not without opposition from other stakeholders. On July 27, 2017, Altair Global Credit Opportunities Fund (A), LLC and others filed an adversary proceeding to challenge this action by the Puerto Rican Government. Altair & company claim they have a lien over Government contributions to the retirement fund and that RC188 is null and void; that they hold a secured claim to the full extent of their allowed claim against the ERS; that they hold a secured claim to the full extent of their allowed claim against the Commonwealth and that their lien continues in any Pledged Property transferred to the Commonwealth from the ERS. They also claim that the transfer of the Pledged Property from the ERS to the Commonwealth pursuant to Joint Resolution 188, on its face, constitutes an unconstitutional taking of private property without just compensation within the meaning of the U.S. and P.R. Takings Clauses; and that RC 188 substantially interferes with their contract rights with the ERS in violation of the U.S. and P.R. Contracts Clauses. Finally, they also ask for damages and that PROMESA does not preclude such claim. Since it was filed only recently, we have no idea how Judge Swain will handle it, except that it will be done swiftly.


Echoes of the Chrysler-UAW Pension Bailout


This strategy by the Board – elevating pensioners over secured bondholders – evokes memories of the Chrysler bankruptcy, which saw the Obama Administration support unsecured UAW pensioners become secured creditors – literally jumping the line ahead of actual secured creditors. The judge in that case was none other than Judge Arthur Gonzalez, the key architect behind the Board’s legal strategy.


Neither the Constitution nor PROMESA explicitly do not allow for the payment of public pensions to be put ahead of bondholders, which was the ultimate outcome in the Chrysler case. Now, the PR Supreme Court granted pensioners rights in Bayron Toro v. Serra, 119 D.P.R. 605, 608 (1987), stating that, “Once an employee is retired, when he has complied with all the conditions for his retirement, his pension is not subject to changes or impairments.” However, this precedent is subject to Article VI, Section 8 of the PR Constitution that states:


“In case the available revenues including surplus for any fiscal year are insufficient to meet the appropriations made for that year, interest on the public debt and amortization thereof shall first be paid, and other disbursements shall thereafter be made in accordance with the order of priorities established by law.”


While Section 201(b)(1)(C) of PROMESA states that the Fiscal Plan must provide adequate funding for public pension systems, Section 201(b)(1)(N) requires the Fiscal Plan to respect the relative lawful priorities or lawful liens, as may be applicable, in the constitution, other laws.”


Moreover, the Committee on Natural Resources Report on PROMESA states the following:


“The Committee acknowledges the concern as to the ambiguity of the language regarding the funding of public pension systems. To clarify, Section 201(b)(1)(C) tasks the Oversight Board with ensuring fiscal plans ‘provide adequate funding for public pension systems.’ This language should not be interpreted to reprioritize pension liabilities ahead of the lawful priorities or liens of bondholders as established under the territory’s constitution, laws, or other agreements. While this language seeks to provide an adequate level of funding for pension systems, it does not allow for pensions to be unduly favored over other indebtedness in a restructuring.


Realizing that creditors and Congress are onto them, the Board has attempted to mask their strategy.


In their latest document, Explanatory Memorandum on Pension Reform,” the Board claims, “expenditures are being reduced throughout the Commonwealth’s budget and holders of government bonds are not likely to be repaid in full. Retirement plan participants, like other unsecured creditors, will have a reduction in the amounts paid to them by the Commonwealth.” Board member Ana Matosantos went further, rejecting Christian Sobrino’s claim that Governor Rosselló will fund 100% of the public pensioner’s benefits, stating “honoring 100% of the obligations is not workable.”


The Board has shown its hand, and they will face a stiff test before Judge Swain. Congress was clear that funding pensions was important, but not equal to or above existing constitutional and lawful priorities. To date, the Board and Puerto Rico have decided unsecured pensioners have higher priority.


Why is the Board and the government putting payment of pensions before payment of public debt in direct contradiction of both PROMESA and the Puerto Rican Constitution? Why is the Board pursuing this legal strategy?


I will explore and hope to explain the reasons for this in my series on public pensions in Puerto Rico.








No les vengo a hablar de que todo va a ser mejor en la estadidad (vean mi blog donde explico como la estadidad no lo cura todo el link está abajo en la descripción de este video) ni voy a mencionar los anuncios ridículos que hemos escuchado. Vengo a hablar de porque la estadidad es importante para Puerto Rico.


Todos sabemos que el estatus que es responsable en gran medida de los problemas que vivimos. La falta de poderes bajo el ELA y el mejor ejemplo es PROMESA y la junta de supervisión fiscal que impuso, es lo que nos tiene en el subdesarrollo.


En el 2012 hubo una votación donde claramente los votantes rechazaron el ELA. Durante una vista del Comité de Recursos Naturales la Senadora Murkoski reconoció el rechazo pero indicó que no estaba tan segura de que había Ganado la estadidad. Por esa razón nos dieron $2.5 millones para un plebiscito de alternativas que resolvieran el estatus. Alejandro y el PPD nada hicieron con ello, ni siquiera para promover la Asamblea de Estatus. Cuando gana RR, empuja el plebiscito eliminando el ELA ya que este no resuelve el estatus. Los soberanistas y los pipiolos hacen fiesta ya que sin el ELA, sacarían muchos más votos. Entonces viene la carta del Secretario de Justicia Sessions.


La carta de Sessions fue un balde de agua fría para todos. Cuando la vi, inmediatamente dije que había que impugnarla en el Tribunal Federal de PR. Claramente el ELA no resuelve el estatus y había sido rechazada apenas 5 años atrás. Traerla nuevamente es un burdo acto de colonialismo que requería el más enérgico rechazo y el más rápido pleito. Había que impugnarlo y tal vez aplazar el plebiscite. Sin embargo, el Gobierno de PR claudicó.


Al saber que el ELA iba a estar en la papeleta los soberanistas y los independentistas dijeran que no iban y el liderato del PPD igual. Ahora el plebiscito se considera amañado y habrá poca participación.


Yo siempre había considerado a Ricardo Rosselló el portaestandarte de la estadidad y cuando claudicó al Imperio, me sentí y me siento, sumamente desilusionado. Y como soy persona non grata y a mi nadie en el gobierno me hace caso por rehusarme a aplaudir todo (aunque esté mal) eso es sin contar que si tienes canas y mas de 55 años ya eso te descalifica para saber nada para este gobierno. Pero a pesar de todo esto, voy a votar en el plebiscito.


A pesar de todo esto que mencioné, admito que hasta hice el research para impugnar esta carta y mi research me llevó hasta a que se podían hacer inaplicables los Casos Insulares a Puerto Rico…pero pues, ya saben, canas, 55+, persona non grata, no fotuto, etc., etc.


Por que votar por la estadidad? La estadidad te une, para siempre, a la democracia más grande y la nación más poderosa del mundo, cuyas instituciones son tan fuertes, que pararon en seco las políticas migratorias de Trump. Podrás votar para seleccionar el presidente Y tal vez evitar otro Trump.


Ustedes saben que los soldados boricuas con residencia en PR, siempre al frente en las guerras de nuestra nación, no pueden votar por le Presidente? Por que? Porque no somos estado.


Bajo la estadidad podremos elegir 2 senadores y 5 representantes. Parece poco, pero recordemos que ahora mismo, no tenemos nadie que vote en nuestro nombre en el Congreso. Como estado, NADIE nos podrá discriminar, todos tendrán que contar con nosotros para pasar legislación y seremos escuchados con atención. Mejor aún, a un estado no le pueden imponer una Junta de Supervisión Fiscal, lo prohíbe la 10ma Enmienda.


Y no me vengan con el cuento que bajo la independencia nosotros mandaremos. Miren lo que pasa en Grecia, Portugal y España, o lo que le paso a Korea del Sur y Malasia en los noventa. No te gusta la pena de muerte? Como ELA nada puedes hacer para evitar que la imponga el Gobierno Federal, pero con representantes en el Congreso puedes contribuir a que la prohíban.


En la estadidad habrá más fondos federales para los viejitos que van a sufrir bajo los recortes de la Quiebra del ELA. Hablo del Suplemental Security Income, paridad de Medicare/Medicaid, y múltiples otros programas.


Si, habrá que pagar impuestos federales sobre el ingreso (ya pagamos SS y Medicare) pero el 70% de la población no los pagará. Si ustedes son una pareja que tiene un sueldo de $20,700 o menos, no tiene que RADICAR una planilla federal. Como estado nos aplicarían deducciones que no podemos usar en PR aún los que como yo pagamos impuestos federales. Los que pagarían serían los grandes intereses contribuyentes continuos del ELA y el PPD que no quieren pagar impuestos federales y saben que los embustes que le meten a Hacienda no se los pueden pasar al IRS.


Para muchos de nosotros las ciudadanía Americana es importante. Algunos dicen que no hay que preocuparse, que la carta de Sessions nos dice que esta garantizada bajo el ELA. Not really. La carta dice claramente que bajo el ELA esta garantizada estatutoriamente. O sea, POR LEY, NO POR LA CONSTITUCION FEDERAL. Me explico; la ciudadanía de las personas nacidas en los USA o naturalizados esta garantizada por la 14ava Enmienda, PERO el Departamento de Estado dijo durante las vistas del Proyecto Young que la 14ava enmienda no aplicaba a la ciudadanía de los nacidos en PR porque no era una ley uniforme de nacionalización. Y lo mismo pasaría en la independencia o la soberanía. Te vas, cero fondos federales, cero ciudadanía. End of Story.


Nos dicen que bajo la estadidad, perderemos la cultura, el idioma, representación olímpica, Miss Universe etc. Sabían ustedes que la primera inmigración puertorriqueña bajo los USA fue a Hawaii? Mi abuelo fue uno de ellos. Y allí hay una orquesta de cuatro. Este diciembre, Vivi y yo vacacionamos en Nags Head, North Carolina en los Outer Banks, población 7,000. Y en uno de sus supermercados había toda una sección de productos latinos Goya. Y en un restaurant me sirvieron tostones. Cuando pregunte donde consiguieron los plátanos, me dijeron fue en el supermercado más grande del pueblo Food Lion. Los USA han cambiado mucho mis amigos.


Sobre el olimpismo, este comenzó en 1948, antes que el ELA y como el Comité Olímpico Internacional es un ente privado, puede hacer con PR lo que quiera. Pero si usted es de los que pone las medallas olímpicas y las miss universe por encima del dinero para los viejitos, sus prioridades están bien trastocadas. Y para los que pensarán que estoy en contra del deporte, mi tío, Manuel Carrasquillo Herpén, esta en el Hall de la Fama del Baloncesto Puertorriqueño y era oficial de pista en atletismo hasta su muerte. Y mi tío Osvaldo, tuvo en record de 100 metros por años y era veterano de la Segunda Guerra Mundial.


Además, ustedes no creen que las beldades de PR no pueden ganar Miss USA y luego Miss Universe o que nuestros atletas no pueden representar a USA y ganar medallas en las Olimpiadas? Cuando fui a Boston University a hacer mi maestría, un amigo me dijo que nosotros no podíamos competir con esos estudiantes. Yo eso no lo acepte ni lo acepto hoy. No solo me gradué en un año si no que fui el primer estudiante en hacerlo en tan corto tiempo y lo hice con todas A. Los boricuas podemos competir de tu a tu con cualquiera siempre que nos eduquemos y trabajemos dura para hacerlo.


Hablemos del idioma, parte quintaesencial del puertorriqueño. Déjenme hacerles una pequeña historia. De 1900 a 1935, la educación pública en PR se llevó acabo en ingles, si en ingles. Se perdió el español? no. Así que no se preocupen. Y sobre la imposición del idioma por el Congreso como medida para ser estado, la 10 enmienda lo prohíbe.


Pero se hizo en Louisiana, Oklahoma, New México y Arizona, me van a decir. Cierto, PERO en Coyle v Smith, del SCOTUS de 1911, el Tribunal dijo que el requisito de que la capital de Oklahoma fuera en un lugar y no donde el estado lo puso después, era inconstitucional ya que lo que no se requirió a los demás estados no se podía requerir a Oklahoma. Y como dije, la 10ma enmienda lo prohibiría.


Los oponentes de la estadidad me van a hablar del informe del GAO, que hunde la estadidad. Claro, como el PNP nada hizo para desmentir esa aseveración, muchos se lo creen. El informe del GAO NO dice que la estadidad es imposible. De hecho, habla de las ventajas de la estadidad y pueden ver mi posting en el blog sobre ello en el los links van a estar en el description box abajo.


Otros dicen que nosotros somos puertorriqueños, que no somos USA, etc. Pero fíjense como vivimos, vestimos, comemos etc. Todo es a base del American way of life. O ustedes creen que los que protestan lo hacen por todos los derechos que les daba la ley española de 1898, No, es por la Primera Enmienda y la adopción de PR de la misma. Vivimos cada día más como se viven en USA. Esa es la realidad.


Y por eso, a pesar de que pienso que se debió impugnar la carta y aplazar un poco el plebiscito, de todas formas voy a ir a votar. ¿Que vas a hacer tu? Y le advierto a los que dicen que van a protestar contra el plebiscito, protesten todo lo que quieran pero NO BLOQUEEN EL ACCESO A LOS COLEGIOS. Eso es ilegal y atenta contra el mas fundamental derecho, el derecho al voto.


Bueno, hasta aquí todo por hoy, les recuerdo que me pueden seguir en mis redes sociales. Todos los links estarán abajo en el description box. Muchas gracias y nos vemos el 11 de junio.

Links mencionados:




The Negotiation Farce

We are now in April and, come May 1, the PROMESA stay on litigation expires. Where are we on bondholder negotiations? What happens if there is no Title VI restructuring?

It looks like the answers to those questions might be “nowhere” and “we’re about to find out,” respectively.

Last year, the Oversight Board announced with great fanfare the start of bondholder’s negotiations set for December 19, 2016, but aside from a meet and greet session, nothing happened. And that has remained the case even after the board certified Governor Rossello’s second fiscal plan last month.

After certifying the plan, the board requested that the two senior-most bondholder groups, General Obligations and COFINAs, enter into private mediation to settle their ongoing dispute.

This request kicked off a flurry of letters from creditors, including joint letters authored by holders of some $13 billion of both GO and COFINA debt, which outlined numerous criticisms of the fiscal plan. The letters also asked the government to commence negotiations with bondholders immediately, arguing that the stay expires too soon to waste time negotiating a creditor dispute rather than negotiating with all bondholders.

Despite these overtures, however, the Puerto Rican Government and the Board have not moved onto negotiation, and have instead pushed forward with the mediation process, assigning Judge Allan Gropper to serve as mediator in talks reportedly starting tomorrow and lasting through the end of the week.

Why? To Sow Confusion

It appears that the Oversight Board and the Government are intentionally conflating mediation between two creditors in active litigation and actual negotiation with creditors.

It is impossible that a real solution to the GO/COFINA dispute will be brokered over a mere 48-72 hours, especially given the numerous, unaddressed problems that parties on each side have with the fiscal plan. Moreover, even if a settlement was reached, there will be only two weeks for real negotiation to occur after the mediation ends.

But the Board does not appear genuinely interested in a resolution to the dispute or conducting serious negotiation talks. Rather, I think the board is intentionally confusing the issue with the hope of stalling for Title III.

Once the stay runs out, the Board will most likely say that the mediation proceedings themselves actually qualify as a good faith effort toward reaching a consensual agreement under Title VI of PROMESA, and will use that to justify throwing the entire process into a Title III restructuring.

Will Mediation Count as a Good Faith Effort at Negotiation?

Mediation is a type of alternate dispute resolution where a supposedly neutral person helps the parties involved to resolve their disputes. It is not the same thing as a negotiation, especially when some of the parties say they don’t want to participate in the process.

Section 206 of PROMESA requires the entity (PR) to make “good-faith efforts to reach a consensual restructuring with creditors” before the Board issues a certification for Title III. Good faith negotiations is part of Chapter 9 of the Bankruptcy Code, but the section that deals with it, 109(c), was not adopted by PROMESA. Nevertheless, it is a requirement and likely bankruptcy law precedents will be used by the Courts to determine if there have been any.

To be sure, bondholders will raise this point in court. While we often hear from Oversight Board members and Commonwealth leaders that this process is not subject to judicial review – and while that also seems to be the intellectual opinion of Judge Gonzalez and Marty Beinenstock – I don’t think any judge appointed to oversee the Title III process will just let such a crucial issue like this go unquestioned.

Thus it seems very unlikely that a judge will agree with the Board that its attempts to force bondholders into mediation will satisfy PROMESA’s requirement of a good faith effort at a consensual negotiations.


Has the Board or the Puerto Rican Government Provided Sufficient Information for Good Faith Negotiations to Commence?

In the Detroit litigation, the Court determined that the city had not negotiated in good faith for failing to provide sufficient information to make counterproposals and that there was not sufficient time to do so. In this case, negotiations started on June 14 and bankruptcy was filed on July 18. See In Re Detroit, 504 B.R. 97, 175 (E.D. Mich. 2013). As I said earlier, after the conclusion of mediation proceedings on April 14, there will be only 16 days until the end of the stay. Even in the unlikely event that mediation is allowed to constitute part of a negotiation process, there will still only be 18 days between April 13 and the end of the stay.

The issue of sufficient information is important with respect to Puerto Rico’s financial statements, since sec. 206(a)(2) requires PR to adopt   procedures necessary to deliver timely audited financial statements; and . . . made public draft financial statements and other information sufficient for any interested person to make an informed decision with respect to a possible restructuring.

Since the Board’s report by Ernst & Young, at pages 5, 9-10 and 16 states that the financial information it used (provided by the PR Government) is poor, it can hardly mean that it is sufficient for any interested person to make an informed decision with respect to a possible restructuring.

Hence, the way in which these negotiations are conducted and the information provided is of paramount importance for the Title III petition not to be dismissed by section 304 of PROMESA. As of yet, it does not appear that the government has submitted sufficient information for real negotiations to occur.

Does the Fiscal Plan Satisfy Requirements in PROMESA?

It is my belief the Court may review the fiscal plan to determine whether it complies with PROMESA in the intersection of sections 201(b)(1)(N) and section 314(b)(7). Section 201(b)(1)(N) requires that the Fiscal Plan “respect the relative lawful priorities or lawful liens, as may be applicable, in the constitution, other laws, or agreements of a covered territory or covered territorial instrumentality in effect prior to the date of enactment of” PROMESA.

The Fiscal Plan as approved, however, does not do this in any of it sections. In fact it states, at page 6 that it does not determine, inter alia, “the scope, timing or specific use of revenues to be frozen or redirected as ‘claw back’ revenue, the value, validity and/or perfection of pledges or whether any particular bond or debt issuance may have been improvidently issued” Since the Bankruptcy plan, pursuant to section 314(b)(7), must be “consistent with the applicable Fiscal Plan certified by the Oversight Board under title II” one can argue that any Bankruptcy Plan based on a deficient Fiscal Plan is invalid and hence the Court would have to make said review of the Fiscal Plan. Moreover, the Fiscal Plan cannot violate the US Constitution and bondholders seem poised to make that challenge.

What if the Court were to find that the Bankruptcy Plan is not consistent with what should be the Fiscal Plan? Pursuant to 11 U.S.C. § 930 (adopted in PROMESA by section 301), if the Court could determines that the Bankruptcy Plan could not be certified, it can dismiss the proceeding and PR would not have the protection of the automatic stay.

Or is the Strategy to File for Title III, then Negotiate?

Given all of these obvious shortcomings of an impending Title III petition, it’s worth asking why the Board would file for Title III and risk having it dismissed. The answer likely lies in Section 304(b) of POMESA, which does not allow the dismissal of a Title III petition during its first 120 days.

Therefore, the Board could use this window to negotiate AFTER filing Title III (including Court mandated mediation as in Detroit) and then claim that it negotiated in good faith. It could then aver that it would be a shame to dismiss the claim after all this time. Essentially, the board could file for Title III with full knowledge that its petition will most likely be rejected, if only to buy itself four more months.

Let’s see.