SAN JUAN (Reuters) – A U.S. judge ruled on Wednesday that bankrupt Puerto Rico cannot fund more than $300 million in annual pension and health costs for its municipalities, but suspended the effective date of the order for three weeks due to the ongoing coronavirus health crisis.
Puerto Rico’s federally created financial oversight board sued the U.S. commonwealth’s governor and fiscal agency in July, contending a new law authorizing the funding does not comply with its fiscal plan and violates the 2016 federal PROMESA Act, which established the board and a restructuring process for Puerto Rico’s $120 billion of debt and pension obligations.
Judge Laura Taylor Swain, who is hearing Puerto Rico’s bankruptcy, voided Law 29, a measure enacted last May to aid the Caribbean island’s cash-strapped municipalities by eliminating their obligation to pay for employee health and pension costs.
The order, however, will not take effect until May 6 due to “the additional challenges facing the parties during the COVID-19 public health crisis,” according to Swain’s ruling.
“We are examining the court ruling together with our lawyers in order to decide on a legal strategy,” Puerto Rico’s fiscal agency said in a statement. “In addition, we will resume good faith negotiations with the oversight board in order to reach an agreement.”
It added, “Our goal has always been to find a fair and fiscally responsible solution that allows municipalities to continue operating and providing basic services to the people.”
The head of Puerto Rico’s Federation of Mayors told local newspaper El Nuevo Dia that with the economy halted by the virus, the decision was devastating for cities.
The board estimated that Puerto Rico’s government would spend about $311 million in fiscal 2020 and an estimated $1.7 billion over the next five fiscal years to fund local pensions and healthcare – costs that the fiscal plan allocates to municipalities.
The ruling comes as restructuring plans for Puerto Rico’s core government debt and for its electric power authority (PREPA) debt have been put on hold due to the coronavirus.
The island has 932 reported cases of the virus, the most of any U.S. territory, according to the Centers for Disease Control and Prevention.
(Reporting by Karen Pierog in Chicago; Additional reporting by Luis Valentin Ortiz in San Juan; Editing by Matthew Lewis)