Government Development Bank President Javier Ferrer appears to be pinning the fate of Puerto Rico’s shaky credit rating on the outcome of a legal challenge of the García Padilla administration’s public pension reform.
The Puerto Rico Supreme Court is currently weighing a case filed by government employees who argue that the Law 3 pension reform is unconstitutional in that it reduces acquired benefits.
“I don’t have the slightest doubt that Puerto Rico’s credit would be downgraded to junk if that is what the Supreme Court ultimately determines,” Ferrer told a local Spanish-language newspaper.
“The public must be aware of the adverse consequences if the Supreme Court ultimately decides that Law 3 is unconstitutional,” he added according to the El Nuevo Dia report.
The pension reform was pushed through urgently under warnings from the Wall Street credit raters that a lack of action to shore up the ailing retirement system would lead to downgrades to junk status.
However, Standard & Poor’s, Fitch and Moody’s and prominent municipal bond market analysts have all signaled that, despite pension reform, Puerto Rico still faces the threat of further downgrades over budget and revenue issues as the García Padilla administration and lawmakers have been scrambling to hammer out a tax deal to fund his $8.93 billion budget for fiscal 2014.
Ferrer’s comments come amid a brewing power struggle between the Popular Democratic Party governor and the PDP-controlled Legislature on one side and the Supreme Court on the other.
The charged scenario erupted after the Supreme Court shot down a new law that blunted its powers to take up cases as part of its evaluation of the Law 3 legal challenge. The law rejected by the top court would have stopped the justices from taking up the pension case directly as petitioned by the plaintiffs.
The 6-3 ruling declaring Law 18 unconstitutional fell along partisan lines within the nine-member court. The majority opinion was backed by all of the justices named by a former New Progressive Party governor. The minority judges, including Chief Justice Federico Hernández Denton, were all appointed to the top court by Popular Democratic Party governors.
The law’s author, Senate President Eduardo Bhatia called the decision “judicial nonsense” and said the majority justices “are doing whatever they feel like.”
The PDP lawmaker and Gov. Alejandro García Padilla, who heads the commonwealth party, have signaled a new measure will be filed, approved and inked into law.
The Law 18 bill was approved by the upper chamber clearing the House and being signed into law by García Padilla last month. The NPP Senate delegation and Puerto Rican Independence Party Sen. María de Lourdes Santiago voted against.
Santiago was critical of the process leading up to the vote, saying the bill wasn’t brought to public hearings and that the Senate only sought input from two government agencies. One of them, the Courts Administration, backed the bill in general terms. The other, the Justice Department, did not submit an opinion, the PIP senator told NotiCel.
Santiago noted that other interested parties, including the Puerto Rico Bar Association or the island’s law school, weren’t consulted on the measure.
The majority justices echoed those concerns and said the true aim of Law 18 “as expressed openly by its author and evidenced by the rushed and uneven passage” was to clip the top court’s wings and sidestep the revision of cases against the government.
The court’s decision came in in the case filed on behalf of hundreds of government employees challenging the constitutionality of the García Padilla administration’s pension reform, which cuts benefits to current and future retirees.
The plaintiffs had asked the top court to take the case up directly from the lower court, arguing that the looming implementation of Law 18 would impede it from doing so. That led to the justice’s examination of the constitutionality of Law 18 itself.
The measure focused case reviews at the appellate level, limiting broadened powers that the Supreme Court acquired a decade ago under judicial reform. The top court had used the authority to expedite or fast-track cases including the so-called “pivazos” votes that decided the 2004 gubernatorial election.
García Padilla’s comments after the court ruling Tuesday point to the clash of powers between the executive and legislative branches on one side and the judicial branch on the other.
“As governor of Puerto Rico, I am called on to protect the democratic principles covered by the island Constitution, including the balance of powers between the executive, legislative and judicial branches of government,” García Padilla said in a statement Tuesday. “Soon we will be filing another measure to determine by law, as required by the Constitution, under what circumstances the Supreme Court can take up first jurisdiction in a case.”
Ratcheting up the rhetoric during a press conference on Wednesday, the governor said the majority justices don’t understand the island Constitution.
“If they need me to explain it them in terms of rice and beans I will,” he said. “If they still don’t get it I’ll explain it in terms of baby food.”
García Padilla said he took an oath to protect Puerto Rico’s Constitution from enemies from “outside and inside” the island.
The law would serve to give the PDP more control over the Supreme Court, which currently is comprised of six justices appointed by NPP governors and three appointed by PDP governors.
Former Gov. Luis Fortuño enacted legislation in 2010 increasing the number of judges on the Supreme Court to nine from seven.
That legislation was quickly approved by the then-NPP-controlled Legislature after the Supreme Court requested the increase in its membership by two members, a process spelled out in the Constitution. The petition cited the need to cover the workload of the top court, which at the close of the last fiscal year had 792 pending cases.
The court expansion has been criticized as unnecessary and a partisan attempt by the NPP to expand its political clout. PDP lawmakers and other critics contended the expansion is a simple attempt to stack the court with NPP appointees.
In his four years in office, Fortuño tapped six justices to the top court: Rafael L. Martínez Torres, Mildred Pabón Charneco, Erick Kolthoff Caraballo, Edgardo Rivera García, Roberto Filiberti and Luis Estrella.
Since the creation of commonwealth in 1952, the Supreme Court had a majority of justices appointed by PDP governors until 2010. Hernández Denton, named to the top court during the Hernández Colón administration in 1985 and later promoted to chief justice by former Gov. Sila Calderón, is one of the three remaining PDP-appointed justices. The other two — Annabelle Rodríguez and Liana Fiol Matta — were appointed by Calderón.
The three justices named by PDP governors have not always decided in favor of PDP administrations in court cases involving the government. The four justices appointed by Fortuño have so far sided with the sitting administration’s views.
The process to hike the number of justices formally began when the NPP-appointed justices approved a resolution asking the Legislature to amend the 2003 judicial branch charter law to increase from six to eight the number of associate justices. That resolution, which argued that more justices are needed to handle a heavy caseload, passed 4-3 along partisan lines.
The action marked the first time in the island’s history that a resolution to change the makeup of the Court was approved in a divided vote and without debate on the bench.
The PDP-appointed justices argued in dissenting positions that the expansion was unnecessary, arbitrary and rammed through without substantive debate.
A request to change the size of the court coming from the Supreme Court itself is the process mandated by the Constitution of Puerto Rico. Article V, Section 3 of the Constitution requires that the number of justices of the Supreme Court only be altered through a request of the court itself.
The court was expanded from five to seven members shortly after commonwealth was created. In 1961 it was widened to nine justices after the judicial branch charter law was amended to allow the court to work in panels.
In 1975, the court was pared back to seven justices after a backlog of cases was whittled down.
In 1994, a referendum to increase the number of justices through a constitutional amendment was defeated by voters.
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