SCOTUS Ruling leaves Puerto Rico’s debt woes in U.S. Congress’ hands

For the second time in a week, the Supreme Court has again rejected Puerto Rico’s attempts to exercise its self-governing powers — this time, nullifying the island’s legislative enactment of its own bankruptcy law which would have provided a way to enable it to work its own way out of more than $20 billion in public debt. The five-to-two ruling in Puerto Rico v. Franklin California Tax-Free Trust on Monday further limited Puerto Rico’s plenary powers by precluding the island from trying to unilaterally restructure the huge financial debt incurred by its public utilities.

While U.S. states are free to allow their local governments to file for bankruptcy if they become financially insolvent, Puerto Rico was omitted from the federal bankruptcy code protections when it was enacted. Puerto Rico’s legislature had passed its own financial Recovery Act two years ago in an effort to restructure the island’s public utilities’ debts. Several investment hedge funds holding the debt immediately sued claiming Puerto Rico had exceeded its authority in passing the Recovery Act. The Supreme Court struck down Puerto Rico’s legislative effort to address its debt in a decision holding that federal bankruptcy law preempts any local law enacted by the commonwealth to restructure its debt by its public utilities. LatinoJustice PRLDEF, on behalf of more than twenty national Latino advocacy and service organizations had filed an amicus brief urging the U.S. Supreme Court to allow Puerto Rico to move forward with a plan to restructure part of its debt given the dire economic and humanitarian crisis the island is currently facing.

Monday’s ruling left the island’s financial fate entirely in Congress’s hands, which last week belatedly passed a negotiated bi-partisan compromise that now awaits Senate action. The National Hispanic Leadership Agenda of which LJP is a member had last year urged Congress and the President to take responsibility over the financial crisis besetting Puerto Rico and its 3.5 million U.S. citizens. H.R. 5278, The Puerto Rico Oversight Management &and Economic Stability Act known by its acronym “PROMESA” which overwhelmingly passed the House last week would create a new federally appointed financial oversight board comprised of seven members, only one of whom is required to be a resident of the island to govern its financial restructuring.

Last week in a separate case, Puerto Rico v. Sanchez Valle, the Supreme Court in a 6-2 ruling affirmed a prior decision by the Supreme Court of Puerto Rico that two defendants could not be prosecuted for illegal gun sales in a Puerto Rican court if they had already been charged in federal court given such prosecution would violate “double jeopardy” which protects defendants from being tried twice for the same crime. The court ruled that the commonwealth could not independently prosecute individuals after they had faced federal charges for the same crime, finding that the island was not a separate sovereign entity as are states for purposes of criminal prosecution. The court determined that "separate sovereigns" doctrine, which treats criminal law in the court systems of the 50 states and in the federal courts as separate because of the sovereign status of each, does not apply to Puerto Rico which derives its limited authority from Congress. The Court was not swayed by arguments that Puerto Rico should be treated as a sovereign because it functions as a sovereign, with a congressionally approved constitution and its own laws and government. It was also not swayed by arguments that the United States had inadvertently created sovereignty by declaring to the United Nations that Puerto Rico is a self-governing "commonwealth" in 1953.

You can read our press release calling on Congress to act on the Puerto Rico debt crisis here.

You can also read the amicus supporting Puerto Rico's right to debt restructuring here.

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