It seems unlikely that the U.S. Supreme Court will rule against Puerto Rico’s fiscal oversight board in a case that challenges its legitimacy and which the court heard this week.
The stakes are high. The fiscal board, officially the Fiscal Oversight and Management Board or FOMB, was created by Congress in 2016 because federal bankruptcy laws do not apply to Puerto Rico, which was struggling with more than $100 billion in debt.
The board’s seven members are appointed by Congress, raising doubts about whether they are local or federal officers, as claims Aurelius Capital, a hedge fund holding Puerto Rico debt.
If they are federal officers, their appointments require Senate confirmation, which they do not have. Further, if it’s an illegitimate board, its authority to restructure Puerto Rico’s debt is called into question. Last month, the FOMB produced a plan, still to be approved by a federal court, that slashes the island’s debt by 60%.
The case landed in the U.S. Supreme Court because a federal appeals court ruled earlier that the FOMB was illegitimate. According to SCOTUSblog, the court was packed with spectators, many of whom flew in from Puerto Rico.
In the middle of the court hearing, Associate Justice Samuel Alito cut to the chase, asking an Aurelius Capital attorney, “I mean, you don’t have to answer this if you don’t want to, but there is no money issue involved here?” which produced laughter in the court.
“I’d like to know what’s really going on here. .. Your client wants more [money] and somebody else you think is getting too much,” Alito said according to the transcript.
The Aurelius Capital attorney replied, “Yes, you’re right. Of course, it involves a lot of money.”
But it was Associate Justice Sonia Sotomayor who first interrupted oral arguments and maintained a line of questioning throughout the hearing. “There’s a serious problem that the federal government is creating an entity that no one can control,” she said.
Later, Associate Justice Rose Ginsburg stated that the board is, “above the Puerto Rican government, and it’s above the legislature and the governor.” But an FOMB lawyer rejected that, saying “That’s simply an incorrect characterization.”
FOMB argues its decisions are Puerto Rico-specific and not national or federal in nature, and this is why they are not federal officers and no Senate confirmation is necessary.
Associate Justice Elena Kagan pushed back, “Wasn’t Congress thinking about the broad interests of the United States? Now one option could have been some kind of financial bailout. Congress didn’t want to do that. It instead chose an option that had less financial cost for the American people as a whole.”
FOMB is unpopular in Puerto Rico precisely because it is an unelected board that is making all of the island’s major fiscal decisions, including cuts to budgets, pensions, programs and agencies. The board can veto decisions by the legislature and the governor.
Congress’ creation of the FOMB underscores the island’s territorial status under which, constitutionally, Congress has complete oversight of Puerto Rico. It was not until the 1950s that Puerto Rico elected its own governor and was allowed limited self government.
Chief Justice John Roberts spoke to this issue: “Certainly much of it has to do with territorial issues, but you can certainly appreciate congressmen viewing this obviously as something with nationwide significance.”
FOMB has been in operation for three years, issuing hundreds of decisions restricted to Puerto Rico and is facing nearly 100 adversary proceedings and hundreds of thousands of claims, its attorneys said. “I have no idea how one unwinds this,” the United States Solicitor General said.
More important, what happens in the Puerto Rico case is unlikely to stay in Puerto Rico. It may have ramifications for other territories and Washington, D.C., a point raised by Associate Justice Brett Kavanaugh.
Which is why the hight court is likely to render another 5-4 decision leaving things as they are.
˜˜ María Padilla, Editor