LEGISLATING UNDER FISCAL OVERSIGHT:
A PUBLIC POLICY REPORT REVIEWED BY THE FISCAL OVERSIGHT BOARD
NOTE: This is a beta translation made with AI, which can cause discrepancies with the information presented. An official translation will be published in the near future. The revised, official version in Spanish can be found here.
I. Introduction
The relationship between the Government of Puerto Rico and the Fiscal Oversight and Management Board (hereinafter, the Board) has been described by Judge Laura Taylor Swain as a "power sharing structure," or more specifically, an "awkward power sharing agreement." This is because PROMESA's legal framework, despite granting broad powers to the Board, also presupposes a degree of collaboration with the Government and the Legislature. One of the powers "shared" with the Legislature is precisely the power to legislate. Judge Swain recognized from the earliest cases that the Board did not have the affirmative power to legislate, and that this authority continued to reside in Puerto Rico's constitutional branches of government.¹ Nevertheless, while the Board lacked the faculty to legislate motu proprio, PROMESA inserts the Board into the legislative process in other ways, confers upon it significant review powers, and—more importantly—grants it such broad fiscal powers that, in practice, they determine the viability of any legislation.
As for the Board's legislative review authority, it arises primarily from Section 204 of the law, titled "Review of activities to ensure compliance with Fiscal Plan."² The purpose of this provision is to ensure that legislation and public policy approved by Puerto Rico's democratic bodies do not deviate from the fiscal plans approved by the Board. However, the Board's fiscal plans have been drafted so broadly that they exceed fiscal considerations and venture into public, economic, and social policy. As a result, the Board's legislative review powers have been exercised for numerous reasons stemming from PROMESA itself or from the approved fiscal plans. In this regard, the metaphor offered at PROMESA's outset—that the Board would only define the "size of the fiscal room" while the Government would decide and arrange the furniture³—has not matched reality. A thorough analysis of the legislation reviewed and discussed in this Report demonstrates the use of those powers to intervene in matters that include but clearly exceed the fiscal realm.
This Report primarily references the portal titled "Legislative Review Process" available on the Fiscal Oversight and Management Board's website.⁴ On that portal, the Board publishes its communications with the government branches regarding pending and/or enacted legislation. The portal contains dozens of letters in which the Board has issued comments, objections, and requirements about legislative measures—documentation that was compiled and analyzed to draft this Report. It should be noted that the Board's communications available on the portal begin in April 2020, under the administration of then-Governor Wanda Vázquez. Accordingly, the portal does not cover all of the Board's positions on legislation under its oversight, as it excludes the tenure of former Governor Ricardo Rosselló, during which the Board's work began along with the initial legal clashes. The core legislation subject to controversy during that period is addressed in this Report using federal case law as a source.
II. The Legislative Process Under PROMESA
PROMESA requires the Governor to remit to the Board any newly enacted laws within no more than seven days of signing them into law. When submitting laws, Section 204 requires that the submission be accompanied by a formal estimate of the law's fiscal impact and a certification as to whether the measure is or is not consistent with the current Fiscal Plan. This arises from the following text of PROMESA:
With each law presented to the Oversight Board under paragraph (1), the Governor shall include:
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A formal estimate, prepared by an appropriate entity of the territorial government with expertise in budgets and financial management, of the impact, if any, the law will have on expenditures and revenues.
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If the appropriate entity described in subparagraph (A) finds that the law is not significantly inconsistent with the Fiscal Plan for the fiscal year, it shall issue a certification of such finding.
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If the appropriate entity described in subparagraph (A) finds that the law is significantly inconsistent with the Fiscal Plan for the fiscal year, it shall issue a certification of such finding, together with the entity's reasons for such finding.⁵
Section 204 has thus been the breeding ground for many of the procedural controversies between the Government and the Board regarding legislation. The exchange of communications, as well as the arguments raised in litigation, reveal both parties' positions on the fiscal impact (or lack thereof) of each measure, on the sufficiency (or insufficiency) of the fiscal estimates provided by the Government, on the consistency (or inconsistency) of legislation with the respective fiscal plans, and on the scope of the Board's powers under PROMESA to require certain information or actions from the Government.
Additionally, another relevant section of PROMESA prohibits the Executive and the Legislature from taking certain actions, including enacting or implementing legislation that defeats the purposes of PROMESA. This arises from Section 108(a), which states: "Neither the Governor nor the Legislature may: ... (2) enact, implement, or enforce any statute, resolution, policy, or rule that would impair or defeat the purposes of this chapter, as determined by the Oversight Board."⁶ Therefore, this provision has reinforced the Board's powers to review, halt, or in the most extreme cases, invalidate legislation approved by the democratic branches when it determines that such legislation "defeats the purposes of PROMESA." Anchoring itself primarily in Sections 204 and 108(a), the Board has developed a regular practice of legislative review that falls into three categories of intervention, which will be addressed in detail below: (1) objections to pending legislative measures; (2) extrajudicial objections to enacted laws; and (3) judicial challenges to laws.
III. Objections to Pending Measures
This category of legislative review includes objections to legislative measures that have been filed or are in progress. These are bills that have not yet been enacted but that, from the moment of their filing, raise concerns on the part of the Board. This is the most frequently and preventively used mechanism of legislative intervention by the Board. Through this mechanism, the Board issues communications directed to the presidents of the legislative chambers, to the chairs of legislative committees, to the Governor, and/or to AAFAF, expressing its reservations about specific bills. In these communications, the Board signals its objections to the measures and reserves its right to intervene later in the process and exercise its prerogatives under PROMESA, should the Legislature disregard the concerns and proceed with enactment. The Board's objections are typically based on considerations such as the following: impact on expenditures or revenues; absence of fiscal neutrality; inconsistencies with fiscal plans; contradictions with adjustment plans; contradictions with the purposes of PROMESA; effects on federal funds; and possible impacts on economic competitiveness or labor force participation.
According to data from the Board's portal, from 2020 to the close of this Report, we identified 64 legislative measures that have been subject to this type of flagging. Faced with these objections, the Legislature may choose to address them through bill amendments, negotiate targeted changes, or halt the legislative process. It may also choose to disregard the observations and continue the legislative process, at the risk of later facing legal action by the Board. In practice, all of these courses of action have occurred and have led the Board to either abandon or intensify its legislative review prerogatives at later stages. Thematically, the distribution of legislative measures objected to by the Board is as follows:
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Debt Restructuring: Legislation addressing aspects of debt restructuring, adjustment plans, or the rights of specific groups (such as bondholders or retirees). An example is House Bill 1003, which the Board initially objected to but eventually endorsed, becoming Law 53-2021, known as the "Law to End Puerto Rico's Bankruptcy." Another example is House Bill 1383, which imposed specific conditions on the debt restructuring of the Puerto Rico Electric Power Authority (PREPA). Regarding these measures, the Board argued they infringed upon its powers while departing from PROMESA's purposes of correcting prior governmental mistakes, stabilizing finances, and promoting sustainable management.
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Public Services and Expenditures: Legislation that allocates funds to specific projects or agencies, or establishes special initiatives or programs such as debt forgiveness, moratoriums, or public utility payment amnesties. Examples include proposals to forgive debts or grant moratoriums to customers of the Puerto Rico Aqueduct and Sewer Authority (AAA) and PREPA during the pandemic. Regarding these measures, the Board raised inconsistencies with fiscal plans and mismatches in the financial obligations of those entities. The Board also opposed measures with indirect fiscal impact, such as Senate Bill 1583, which proposed establishing a maximum of fifteen students per classroom as an educational policy. The Board argued that this policy would entail unbudgeted expenditures for hiring personnel, since its practical effect would be to require a greater number of teachers per school.
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Rights, Benefits, and Public Employee Retirement Plans: Legislation that expands or increases the labor rights of public employees, such as salary amounts, vacation or sick leave, special incentives, pension norms or rights, among others. Numerous pieces of legislation regarding labor benefits for teachers, nurses, judges, prosecutors, court officers, firefighters, police, and others have been processed in this area. Although most of these measures were halted by the Board, others were approved through negotiations with the Legislature or due to broad social pressure, such as certain pension protections in the government's Debt Adjustment Plan and teachers' salary increases following the 2022 protests.
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Tax Measures: Legislation that modifies tax rates, grants exemptions, credits, or tax incentives, among other similar measures. Numerous pieces of legislation have been processed to revise tax rates (known as "tax reforms"), grant temporary incentives, or grant sector-specific incentives based on criteria of social vulnerability or economic development. The Board's main objections to these measures focus on fiscal neutrality, demanding that any revenue reduction be offset by alternative revenue sources. The most recent examples are House Joint Resolution 278 (which eventually became Joint Resolution 6-2026 and established a "Tax Relief Check") and House Bill 1014 (which proposes a new "tax reform").
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Municipal Affairs: See Section V of this Report, on Municipal Affairs.
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Public Administration: Legislation that modifies the administrative structure of one or more agencies, as well as operational or administrative procedures of public management. This includes legislation creating governmental offices or entities, ordering specific actions from government bodies, reorganizing agencies, imposing requirements for certain contracts or procedures, among others. Examples of this type of legislation are proposals to subdivide agencies that had previously been consolidated, such as the Tourism Company under DDEC and the Puerto Rico Police under the Department of Public Safety. As the Legislature has moved to reverse these actions to restore some operational autonomy to certain bodies, the Board has objected on the grounds that they contradict the Fiscal Plan, increase public expenditure, and delay governmental "rightsizing" reforms. This category also highlights measures to regulate or oversee public-private partnerships through legislative action, which the Board has questioned on the premise that it interferes with or obstructs the private operation of certain services, such as energy services.
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Private Sector: Legislation that regulates some aspect of the private sector, such as labor relations in private industry or norms applicable to the insurance industry. Despite involving private-sector legislation, the Board has raised questions when it believes there may be an aggregate effect on the economy, an indirect impact on government revenues, or some contradiction with general objectives of economic development and labor participation. The paradigmatic example of this type of legislation was the multiple attempts to reverse aspects of the 2017 Labor Reform through various bills (HB 3, HB 1244, HB 1651), including Law No. 41-2022 (eventually nullified).
IV. Extrajudicial Objections to Enacted Laws
This category of Legislative Review includes objections to enacted laws communicated by the Board through letters. These are laws signed by the sitting Governor (in exceptional cases, approved by the Legislature over the Governor's veto), but about which the Board has reservations. When this occurs—since we are now in the phase of an enacted law—the review process under Section 204 of PROMESA is formally activated. Based on the information the Executive has submitted after the law's signing, the Board proceeds to request documentation or clarifications. If not satisfied with the responses, it may demand a halt to the law's implementation and, in turn, reserve its right to go to court. According to the Board's portal, from 2020 to the close of this Report, approximately eighteen laws have been subject to this type of review. In some cases, these are laws whose approval the Board had been objecting to beforehand (during the bill phase), and in other cases, laws the Board objects to for the first time upon becoming aware of their signing (during the phase of receiving or requesting documentation required by PROMESA). The following is a summary of the 18 laws objected to by the Board.
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Law No. 80-2020: Established the "Incentivized Retirement and Justice for Our Public Servants Program." Its objective was to guarantee a retirement alternative for public employees covered under Laws No. 447-1951 and No. 1-1990. The program granted a lifetime pension equivalent to 50% of salary, plus a $100 employer contribution to the health plan and payment of accrued leave. The Board objected to the law as inconsistent with the Fiscal Plan and based on inadequate estimates. At the time, Governor Wanda Vázquez had submitted actuarial reports prepared by Integrum LLC, which analyzed an earlier version of the bill, not as amended during the legislative process.
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Law No. 81-2020: Established a legislative mandate for a dignified retirement for members of the Police, the Fire Corps Bureau, and the Corrections Officers of Puerto Rico. The law did not specify the scope or details, but rather mandated the relevant agencies to adopt regulations on the "phased retirement of the respective members of the security corps." As with Law No. 80-2020, the Board objected to it as inconsistent with the Fiscal Plan and based on inadequate estimates. In this case, the actuarial report from Integrum LLC only analyzed the impact of police retirement, not that of firefighters and corrections officers.
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Law No. 82-2020: Amended Law No. 26-2017 (which had eliminated the cashing out of excess sick days for public employees) to allow teachers in the public school system to apply excess sick leave toward their retirement. In this way, that balance would count as worked time. The Board objected to the law as having an erroneous fiscal estimate in concluding that there would be no expenditure impact. According to the Board, the law did have a fiscal impact since it entailed an extension of retirement benefits—an estimate that was not contemplated in the documentation submitted by Governor Vázquez.
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Law No. 90-2020: Established public policy to prevent workplace harassment in Puerto Rico, both in the public and private sectors. In addition to establishing the applicable legal framework and general duties to prevent such conduct in the workplace, it also provided for civil liability and compensation against employers and individuals who engage in workplace harassment. The Board objected to the law as inconsistent with the Fiscal Plan, while disagreeing with the government on its fiscal impact. Whereas the government stated the law would have no fiscal impact, the Board took the opposite view, noting that the government as an employer would be exposed to civil liability actions entailing monetary compensation. Eventually, the Board withdrew its objections and Law No. 90-2020 has been implemented in both the public and private spheres.⁷
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Law No. 123-2020: Established a pilot program of educational incentives for young people from foster homes or group homes, who upon turning 18 find themselves without shelter or government financial assistance. The program's objective was to encourage these young people to pursue university education through aid for tuition, housing, food, books, and materials. In addition, postsecondary institutions providing this aid would receive reimbursements from a government fund ("Permanent Fund for Economic Aid to Postsecondary Students"). The Board objected to the law as the available fund did not contain sufficient funds to cover the number of young people included in the pilot program. It therefore concluded that the fiscal estimate was deficient. Additionally, it held that the law represented a reprogramming of funds requiring Board approval, which had not been obtained.
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Law No. 136-2020: Amended Law No. 28-2005 to provide new minimum salary scales for nursing personnel in the public service. The new salary scales ranged from $1,800 to $3,000, depending on the nurse's experience and category. The Board objected to the law, expressing doubts about the fiscal estimates provided by the Government, which indicated the law would have an annual impact of over $2 million. Likewise, the Board objected that the certification provided by the Government did not clarify how those estimated costs would be covered by the Department of Health.
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Law No. 142-2020: Established a prohibition on insurers altering the medical criterion when approving medications covered by health plans. The law also ordered ASES to adopt such prohibitions by regulation insofar as they concern the Government of Puerto Rico's health plan. The Board objected to the law as it disrupted the financial model of the Government's health plan, as ASES itself had noted during the legislative process. The Board further argued that the fiscal estimates for the law were deficient, as they did not account for the impact on pharmacy costs.
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Law No. 146-2020: Ordered the Department of Education to create a specialized pilot program in technology, computer programming, and video games, as an area of professional and economic development potential in the modern economy. The pilot program would consist of a new Vocational High School located in Loíza, and based on its results, the initiative would be modified or expanded. The Board objected to the law, disagreeing with the Government's position that the pilot program would be funded with previously budgeted funds. According to the Board, not only was the program not part of the Fiscal Plan, but there was also no cost estimate nor identification of which Department of Education budget lines would be affected to finance it.
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Law No. 104-2022: Modified the rights payable for gambling machine licenses and increased the availability of permitted machines. The stated purpose of the law was to obtain and designate revenue for the retirement of the Puerto Rico Police. The Board objected to the law in a brief letter, arguing that changes to the legal framework entailed reductions in "Commonwealth tax and fee revenues" without identifying substitute funds or cuts in public spending.
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Joint Resolution 33-2021: Ordered the Office of Management and Budget and the Retirement Systems Administration to implement Law No. 80-2020, which established the previously explained "Incentivized Retirement Program." The controversy between the Government and the Board lasted for years and was eventually resolved through an agreement announced in February 2024. Under the agreement, approximately 1,130 public employees would retire with 50% of their highest annual compensation from the three years preceding their retirement.⁸
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Law No. 119-2022: Repealed and amended various legal provisions to revise the calculation of public employees' vacation leave, establishing it at a rate of 2 days per month of service (previously set at 1.25). The Board objected to the law for its fiscal impact and deficiencies in the documentation provided. Subsequently, the Government estimated the fiscal impact at $58.3 million, which the Board concluded was inconsistent with the Fiscal Plan. In response, the Government communicated that it would not implement the law until an agreement was reached with the Board.
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Law No. 99-2024: Established a Fiscal Reform Law for the Puerto Rico Cooperative Savings and Credit Corporation (COSSEC), with the primary purpose of restoring the capitalization of Puerto Rico's cooperatives that were affected by impairments generated by the fiscal emergency of the bankruptcy. Although the Governor had vetoed this bill, the Legislature enacted it into law by overriding the Governor's veto through the affirmative vote of a supermajority in both chambers. Prior to and after its enactment, the Board has objected to the law as violating the Fiscal Plans of the central Government and COSSEC. The Board argues that the law provides economic relief to cooperatives for bonds issued by the government that represent a violation of the Confirmation Orders of the already-resolved Debt Adjustment Plans. Therefore, the Board has maintained communication with the Government and COSSEC to ensure it is not implemented.
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Law No. 215-2024: See Section V on Municipal Affairs.
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Law No. 141-2024: See Section V on Municipal Affairs.
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Law No. 224-2024: Amended the "Law on Death-in-the-Line-of-Duty Pensions" to include employees of the Emergency Management and Disaster Administration Bureau, as well as employees of equivalent offices at the municipal level. Benefits include the right to a pension in cases of disability or death, which depending on the circumstances, would be received by the employee or their beneficiaries. The Board objected to the law as inconsistent with the Fiscal Plan and with the central Government's Debt Adjustment Plan. Likewise, and despite the Governor having signed the law, AAFAF acknowledged the inconsistency with the Fiscal Plan through a certification to the Board.
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Law No. 83-2025: Reversed the prior consolidation of the Puerto Rico Police as a "bureau" under the Department of Public Safety. It therefore re-separated it as a governmental body with administrative and fiscal autonomy, directly under the authority of the Governor and the respective Superintendent. The Board objected to the law for procedural violations at the time of its signing, particularly the absence of a fiscal impact estimate. In this regard, the Board expressed concerns about the potential increase in administrative costs. It therefore required details of the expenditures, as well as plans to mitigate them.
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Law No. 111-2025: Amended the "Law for the Reform of the Permits Process of Puerto Rico," with the purpose of centralizing and expediting permit approvals. Among other things, it established that if a government body does not issue recommendations within the applicable deadline, it will be understood to have no recommendations or objections to the proposed project. The law also clarifies that agency or municipal recommendations will not be binding, while setting and shortening the deadlines for agency appearances. In addition to the lack of a fiscal impact estimate, the Board objected to the law as it argued that the insertion of DNER in the permitting process contravenes the Fiscal Plan's objective of centralizing these processes in OGPe under a single regulation (the "Joint Regulation"). The Board submitted six proposals that must be incorporated as amendments to the law before determining it complies with the Fiscal Plan and allowing its implementation.
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Law No. 1-2026: Established an incentive to promote the accelerated payment of traffic fines, consisting of a 40% discount on the total debt during a 120-day period from the effective date of a regulation to be approved by DTOP. The government argued the measure would generate revenue by facilitating and encouraging the immediate payment of debts. However, the Board objected to the law for lack of the corresponding certification regarding its fiscal impact. After several exchanges and upon receiving the certification and proposed regulation, the Board approved its implementation.⁹
V. Judicial Challenges to Laws
This category of Legislative Review includes objections to enacted laws that are elevated to judicial proceedings by the Board or by the Government itself. This scenario typically occurs when the Board believes its prior objections have not been addressed or remedied, requiring it to turn to the federal court to request the suspension or nullification of the law. It may also occur when the Government does not accept the positions communicated by the Board and requests judicial intervention. In most cases, the exchange of communications between the Board and the Government reflects disagreements about the Board's authority to demand certain information or actions, as the Government has maintained that the Board has exceeded its powers or adopted expansive interpretations of PROMESA. In all scenarios, the judicial record has been overwhelmingly favorable to the Board's positions and undefeated in legislative matters.
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Law No. 29-2019: See Section VI on Municipal Affairs.
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Law No. 82-2019: Created the Office of the Regulatory Commissioner of Pharmacy Benefit Managers with the aim of increasing transparency in the costs and services of medications negotiated among PBMs, pharmaceutical companies, and third-party payers. The Board objected to and challenged the law for noncompliance with the requirements of Section 204 of PROMESA (lack of formal fiscal impact estimate and lack of certification of consistency with the Fiscal Plan). The Board also raised a possible conflict with existing federal legislation. Subsequently, the Government stated the law would have a fiscal impact of $475,000 on the Department of Health, to be covered with budgeted funds. Regarding the conflict with federal legislation, the Government questioned the Board's authority under PROMESA to require such explanations. In response, the Board reiterated its concerns about fiscal impact, arguing that the estimate provided was not accurate. It also reiterated that inconsistencies with federal laws could entail inconsistencies with the Fiscal Plan. After multiple exchanges, the law was the subject of litigation in federal court, which ruled in favor of the Board, concluding that the Government's fiscal estimate was not adequately substantiated, despite the multiple opportunities provided by the Board. The District Court's decision was confirmed by the First Circuit on appeal.
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Law No. 90-2019: The law sought to prohibit Medicare Advantage insurers from negotiating rates with healthcare providers below those established by the Centers for Medicare and Medicaid Services (CMS) for Puerto Rico. Originally, the government included this and other laws in a lawsuit seeking a declaratory judgment, as the Board argued noncompliance with the certifications under Section 204 of PROMESA—a position the government considered arbitrary. Several of the laws continued through judicial proceedings, but the government voluntarily withdrew the lawsuit insofar as it concerned Law No. 90-2019. However, this law was also challenged by private insurers on the grounds that it violated federal laws, particularly the Medicare Advantage Act. The District Court concluded that Law No. 90-2019 violated the Medicare Advantage Act, a decision later confirmed by the First Circuit. Although this law was not invalidated in proceedings brought by the Board, it is included in this Report because of the objections the Board had raised.
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Law No. 138-2019: The law sought to prevent insurers from denying participation to authorized providers (such as physicians, hospitals, and health centers), despite their meeting the applicable legal and professional requirements. The Board objected to and challenged the law for noncompliance with the requirements of Section 204 of PROMESA (lack of formal fiscal impact estimate), while finding insufficient AAFAF's position that the law merely inserted a procedural requirement. For its part, the government had argued that the law had no fiscal impact and was not inconsistent with the Fiscal Plan. The Board reiterated the noncompliance with the deadlines for submitting estimates and the Government's scant certification denying the law's fiscal impact, while submitting specific questions about the potential effect the law would have on costs to the government for administered health plans. Although the government attempted to justify the law based on the need to retain medical talent in Puerto Rico, the federal court sided with the Board regarding the lack of compliance with the required fiscal analysis. The District Court's decision was confirmed by the First Circuit on appeal.
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Law No. 176-2019: The law sought to restore vacation and sick leave days to public employees, which had been reduced by Law No. 8-2017 and Law No. 26-2017. The government established in its certification that the law would have no expenditure impact because it only affected leave accrual, not cash-outs. However, the Board objected to the law, arguing it would entail indirect costs to the government due to reduced productivity of public employees. Additionally, the Board argued that the law conflicted with the fiscal plan's objectives of "rightsizing" the government's labor costs, and in turn, defeated PROMESA's purposes of promoting fiscal responsibility. The District Court sided with the Board on the fiscal impact of the law and therefore ordered its suspension and prohibited its implementation. The District Court's decision was confirmed by the First Circuit on appeal.
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Law No. 181-2019: The law established a monthly salary increase of $125 for firefighters (members of the Puerto Rico Fire Corps Bureau). In turn, the law allocated the funding to cover said increase from funds generated by the Bureau's inspections. The Board objected to the law, arguing that the $2.8 million cost it entailed would not be fully covered by the indicated funds, thus requiring budgetary reprogramming. Moreover, even if the funds were sufficient, the Board concluded that the law established an unbudgeted expenditure, contradicting the Board's budgetary authority. The District Court concluded that Law No. 181-2019 represented a budgetary reprogramming without the Board's approval, thus failing to comply with PROMESA. It therefore ordered its suspension and prohibited its implementation.
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Law No. 47-2020: The law amended Puerto Rico's Incentives Code to broaden the scope of physicians who qualified for incentives. The Legislature justified the amendment based on the exodus of physicians to other jurisdictions for economic reasons. The Board objected to the law, arguing it would impact tax revenues and, with that, the government's fiscal projections. It further argued that the law did not substitute the revenues it would forego nor reduce expenditures, thus failing to meet the principle of fiscal neutrality. The District Court concluded that Law No. 47 contradicted the fiscal plan with respect to the principle of fiscal neutrality and, in turn, defeated one of PROMESA's purposes of promoting fiscal responsibility.
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Law No. 7-2021: The law sought to protect pensions during the debt restructuring process. Given that the Board needed the cooperation of the Government of Puerto Rico in the debt restructuring process and the implementation of the Debt Adjustment Plan, Law No. 7-2021 established certain positions and conditions in this regard, particularly the policy of zero pension cuts. The Board objected to this legislation throughout its entire process, arguing it infringed upon PROMESA's purposes. In fact, AAFAF itself acknowledged in its certification of the law that it was inconsistent with the Fiscal Plan. However, when the Board requested confirmation that it would not be implemented, the Governor only responded that he would promote legislation to substitute or correct the law. Faced with this, the Board challenged the law and requested the court to declare it null. The court sided with the Board regarding the law's interference with the Board's powers and those of the federal court itself in the debt restructuring, conflicting with PROMESA's purposes. Unlike most cases, which only prohibited the implementation of the law, in this case the court declared the law "null, unenforceable, and of no effect."¹⁰
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Law No. 41-2022: The law sought to reverse the changes introduced by the 2017 Labor Reform, known as the "Labor Transformation and Flexibility Act." It therefore restored rights to the working class that had been eliminated or reduced by the 2017 Reform. This legislation applied to the private sector, so the Legislature expected the Board to have less justification for intervening since it did not involve public employees or public funds. The Board, however, argued that the law contradicted economic policy recommendations included in the fiscal plans, which recommended deregulatory measures to increase labor force participation in Puerto Rico. Faced with the Board's objections, the Government questioned its obligation to provide fiscal impact estimates for legislation with no fiscal impact whatsoever, while also questioning the viability of calculating the macroeconomic effect of labor changes such as those included in Law No. 41-2022. The federal court resolved the controversy in favor of the Board and, in turn, nullified the law, finding in this case that nullification was the only way to ensure it would not be implemented (as it was regulation applicable to private parties).
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Law No. 10-2024: The law created the "Net Metering Program," with the purpose of allowing the interconnection of renewable energy systems to Puerto Rico's electrical grid. The law establishes eligibility requirements and metering mechanisms to provide credits for the electricity generated and exported by residential, commercial, and industrial customers (prosumers), among others. The Board objected that the signing of the law did not include fiscal impact estimates, and that it violated the fiscal plans of the government and PREPA. In this regard, the Board particularly objected to the law's limiting of the Energy Bureau's powers to modify the Net Metering Program based on studies. After several exchanges with the government and Legislature seeking the law's repeal or amendment, the Board chose to challenge it in court. The case is still pending adjudication before the District Court.¹¹
VI. Municipal Affairs
Although Puerto Rico's municipalities have been treated as covered entities under PROMESA, the Board's intervention in them has been limited so far. Between 2019 and 2021, the Board implemented a pilot program through which it approved fiscal plans and reviewed budgets for a select group of municipalities, subject to its evaluation and certification. That effort covered Aibonito, Barranquitas, Camuy, Cidra, Comerío, Isabela, Orocovis, Quebradillas, San Sebastián, and Villalba. However, the Board itself has noted that once the program concluded, "municipalities no longer submit fiscal plans and budgets to the Oversight Board for certification."¹² Therefore, the Board does not currently maintain a direct role in the day-to-day management of Puerto Rico's 78 municipalities.¹³ In this sense, its procurement review powers reflect minimal interventions in municipal transactions. On the other hand, the exercise of its legislative review powers over municipal affairs has been quantitatively low, yet qualitatively high. When compared to the other legislative topics in which the Board maintains an active and continuous role, objections to municipal legislation are few. However, when considering the fiscal impact of that objected legislation (e.g., Law No. 29-2019), its effect has been significant and determinative for the municipalities.
On the other hand, it is essential to note that the Board's primary vehicle for intervening with respect to municipalities has not been legislation but rather the central Government's fiscal plans. Since the 2017 Fiscal Plan, the Board took on the objective of reducing what it characterized as "subsidies" to municipalities from the Government. Since then, the Board has reiterated in subsequent fiscal plans that appropriations to municipalities would be reduced in order to promote "fiscal discipline."¹⁴ Subsequently, the Board also raised questions about the CELI (Tax in Lieu of Taxes) and recommended reforming what it interpreted as another form of subsidy to municipalities.¹⁵ In addition to these reforms, the Board has recommended service consolidation and revision of the property tax as alternatives to improve the fiscal health of municipalities. Nevertheless, the fiscal measure with the greatest effect on municipalities was the progressive elimination of the Equalization Fund between 2017 and 2025.
The following is the legislation on municipal affairs reviewed by the Board:
Objected Bills
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RCS 473 (2020): Proposed the creation of an incentive program for the payment of municipal tax debts. Specifically, it proposed the development of payment plans with adjusted penalties or interest. The Board objected to the measure because, even though it might provide a temporary benefit to taxpayers, it could affect long-term municipal fiscal stability. It therefore insisted on the need for a rigorous budgetary analysis prior to approving such legislation.
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RCC 640 (2020): In the context of the Covid-19 pandemic, it proposed the use of $3 million from the Emergency Fund for the acquisition of equipment and to cover the compensation of municipal personnel in emergency situations. The Board objected to the measure as it believed it was a redundant effort for which state and federal funds were already available. Despite the Board's objections, this measure was eventually approved by both legislative chambers but received an express veto by Governor Vázquez in April 2020. The Governor's veto was based on the fact that she had already signed Joint Resolution No. 23-2020, which allocated funds to municipalities for the same purposes.
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RCC 140 / RCS 82 (2021): Proposed extending by one additional month the deadline for filing the 2020 personal property return, as well as granting automatic two-month extensions from the extended date. The Board objected to the measure as it believed it would cause a "liquidity squeeze," affect revenues, and delay statutory disbursements to municipalities. Despite the Board's objections, this resolution was approved by both chambers and signed by Governor Pierluisi in May 2021, becoming Joint Resolution No. 1 of 2021.
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HB 359 (2025): Proposed amending Puerto Rico's Incentives Code (Law No. 60-2019) to modify the incentive promoting housing development in municipalities' urban centers. The Board objected to the measure as it believed it failed to comply with the Fiscal Plan and would cost approximately $31.2 million per year, with no alternative revenue sources included to offset the fiscal impact. Despite the Board's objections, this measure was eventually approved by both legislative chambers but received a pocket veto by Governor González in August 2025.
Objected Laws
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Law No. 141-2024: Amended the Puerto Rico Municipal Code to increase the threshold for works or improvements requiring a public auction. Prior to the law, projects requiring a public auction were those exceeding $200,000. With the amendment, projects requiring a public auction are those exceeding $500,000. Additionally, the law exempts from public auction works exceeding $1 million provided there is a declaration of emergency by the Mayor, the Governor, or the President of the United States. The Board has objected to this law on the grounds that it discourages competition and will very likely increase construction project costs in the municipalities. The Board reinforces its objection by noting that the prior threshold of $200,000 already exceeded the threshold of most U.S. states, making the increase to $500,000 not a fiscally responsible amendment. The Board has requested confirmation from the government that it will not be implementing the law, arguing that the law's approval process failed to comply with the corresponding estimates and certifications. At the same time, it has reserved the authority to formally challenge it in court. Faced with communication difficulties with the central Government regarding this law and Law No. 215-2024, the Board has chosen to communicate directly with the municipalities.¹⁶
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Law No. 215-2024: Amended the Puerto Rico Municipal Code to increase the threshold for contracts for goods, works, or services that require requests for proposals (RFPs). Prior to the law, contracts requiring proposals were those exceeding $100,000. With the amendment, contracts requiring proposals are those exceeding $200,000. The Board has objected to this law on the grounds that it exacerbates the transparency problems in Puerto Rico's public administration that caused the fiscal crises and governmental corruption problems. The Board reinforces its objection by noting that most U.S. states require competition for contracts of such amounts. Additionally, the law included amendments modifying exemptions from the payment of construction arbitrios, allowing individuals or entities performing construction work for government bodies to be subject to the payment of arbitrios. The Board also objects to this aspect of the law on the grounds that it "could be seen by the federal government as a misuse of federal funds" when it involves federally funded projects.¹⁷ Accordingly, the Board has requested confirmation from the government and municipalities that they will not implement the law until the Board concludes that it does not violate PROMESA. At the same time, it has reserved the authority to formally challenge it in court. Likewise, faced with communication difficulties with the central Government regarding this law and Law No. 141-2024, the Board has chosen to communicate directly with the municipalities.¹⁸
Judicially Challenged Laws
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Law No. 29-2019: Established the "Law for the Reduction of Administrative Burdens on Municipalities," based on the Fiscal Plan approved by the Board directing a systematic reduction of transfers from the General Fund to municipalities. As a remedy to that foreseeable situation, the Government decided to reduce two administrative costs borne by the municipalities: payments to the health plan and the "pay as you go" system, which together represented a fiscal impact on municipalities of $400 million annually. The Board objected to the law, arguing that the fiscal impact certification did not include a formal estimate of the effect it would have on the Government's expenditures and revenues. Additionally, the Board objected to the law as inconsistent with the 2019 Fiscal Plan. Since the Government did not respond to the Board's objections, the Board filed a lawsuit the following month challenging the law for noncompliance with PROMESA. Law No. 29-2019 generated two legal proceedings and, in turn, two precedents. In the first proceeding, what was at issue was the validity of the law under PROMESA's legal framework. The court ruled that the law violated the Fiscal Plan and defeated the purposes of PROMESA by making the central Government responsible for fiscal obligations belonging to the municipalities. Therefore, the District Court ordered the law's suspension and prohibited its implementation. In the second proceeding, what was at issue was the specific effect that the first proceeding's judicial decision would have. This is because the League of Puerto Rican Cities argued that the effect of the first proceeding's ruling was not retroactive but prospective, which prevented the municipalities from having to cover the fiscal obligations at issue during the period the law was in effect. However, the District Court revisited its prior decision and reinterpreted it to conclude that its effect had been to nullify the Law, not merely to suspend it prospectively. Both proceedings became legal precedents regarding the Board's authority to intervene with legislation, whether for purposes of suspension or nullification. In this regard, the Board has used them as an interpretive source of its authority and the remedies available to it when its disagreements with the Government of Puerto Rico have not been resolved through extrajudicial channels.
VII. Analysis and Final Comments
In procedural terms, legislating under the Board's oversight can be compared to the famous myth of Sisyphus, condemned to push a boulder as high as possible, only for it to always roll back down. When the government fails to provide a fiscal impact certification, the Board treats it as noncompliance. When the government does provide a fiscal impact certification, the Board questions the sufficiency of the estimates. When the government provides an adequate fiscal impact certification, the Board questions the lack of fiscal neutrality or alternative revenues to offset the new expenditures. When the government provides fiscal neutrality alternatives, the Board raises noncompliance with the objectives and specific policies of the Fiscal Plan. And when none of the previous objections is reasonable, the Board invokes PROMESA's general purposes as a virtually omnipotent basis for reviewing any legislative action about which it has reservations. In short, it is difficult to overlook the relationship between the political and the legal, such that in many instances legal argumentation is used to justify a previously determined political position.
In substantive terms, most of the Board's interventions in legislative matters respond to fiscal recommendations or concerns, but not all. The Board has exercised its powers on numerous occasions to promote or discourage administrative, economic, and social policies whose guiding criterion is not properly fiscal. To do so, the Board shelters and reinforces its positions under PROMESA's general purposes, the objectives or projections of the approved fiscal plans, or specific theories about the indirect fiscal effect of a given measure. It has thus justified positions on how the government of Puerto Rico and its agencies should be organized, which services should be managed under public or private models, which types of industries or sectors should be fostered or incentivized, and which types of regulations should be maintained or modified in the public or private sector. Therefore, although the Board does not intervene in all pending legislation, its track record and conduct expose virtually any legislative proposal to the possibility of such intervention, with an undefeated judicial record when the government has opposed it in the enactment of laws.
In municipal affairs, the Board has viewed municipalities primarily through the lens of the central Government's bankruptcy, seeking to reduce expenditures it interprets as belonging to other bodies to identify and cover. Hence the policy of eliminating the so-called "subsidies" to municipalities, such as the Equalization Fund, Law 29-2019, and on occasion, the "Tax in Lieu of Taxes" (CELI). Although that position has some internal logic with respect to the fiscal stability and sustainability of the central Government, it simultaneously ignores the continuing delegation of services that the Government makes directly or indirectly to municipalities. In this sense, as a matter of governmental history and practical reality, the Government of Puerto Rico has delegated more responsibilities to municipalities than the public funding it provides them. Thus, eliminating the so-called "subsidies" without modifying the municipal public financing structure is, as the saying goes, leaving the municipalities without a rope or a goat in terms of operational resources. Beyond this, the Board's other legislative interventions regarding municipalities have focused on promoting sound fiscal practices and/or discouraging questionable administrative practices, as has recently occurred with Laws No. 141-2024 and No. 215-2024 (regarding changes to competitive process requirements in municipal procurement).
Finally, it should be emphasized that the legislative review role exercised by the Board has been active and continuous, with a team focused on legislative affairs, a constantly updated Legislative Review portal, and recurring communication with the legislative chambers. During the PROMESA era, the Board has de facto become a fourth governmental branch in Puerto Rico's constitutional structure. It holds two enormous powers in any governmental system that grant it a central role in public administration and public policy in Puerto Rico: the power to budget public funds ("the power of the purse," as it is known in U.S. constitutional law) and the power to veto legislation (which, although not called that in PROMESA, the legislative review powers operate as a veto power given their effects described in this Report). Therefore, unless the legal requirements for its exit materialize under PROMESA's current provisions,¹⁹ or federal legislation is instead revised, the Board will continue to be an inescapable entity in Puerto Rico's public policy decisions.
* NOTE: This paper expands on the findings and comments presented at the conference "Legislating Under Guardianship: Limitations of the Legislative Assembly Under PROMESA," offered as part of the Symposium "Reflections on a Decade of PROMESA," held on March 14, 2026, by the Law Review of the University of Puerto Rico. It was made possible by a research grant awarded by the League of Puerto Rican Cities.
Footnotes
¹ In re Financial Oversight and Management Board for Puerto Rico, 330 F.Supp.3d 685, 701 ("the Oversight Board has not been given power to affirmatively legislate").
² 48 U.S.C.A. § 2144.
³ B. Torres Gotay, La vida más allá del cuarto, El Nuevo Día (July 1, 2018)
.⁴ Legislative Review Process, https://juntasupervision.pr.gov/proceso-de-revision-legislativa/.
⁵ 48 U.S.C.A § 2144(a)(2).
⁶ 48 U.S.C.A. § 2128 (a)(2).
⁷ According to the Legislative Report of House Resolution 819, workplace harassment guidelines for the private sector were approved on February 3, 2021, while guidelines applicable to the Government of Puerto Rico were approved on May 4, 2021. Final Report, H.R. 819 (June 25, 2023)(19th Leg. Assem. of P.R.).
⁸ Government reaches agreement with the Board for partial implementation of incentivized retirement for non-essential employees, Metro (February 27, 2024).
⁹ Fiscal Board approves 40% amnesty on traffic fines, El Vocero (March 12, 2026).
¹⁰ In re FOMB, 634 B.R. 187, 207 (2021)("Pursuant to sections 204(a)(5) and 104(k) of PROMESA, Act 7 in its entirety and all actions taken pursuant to it are hereby declared nullified, unenforceable and of no effect.")
¹¹ Status Report of the FOMB for December 10-11, 2025 Omnibus Hearing, p. 21 (Case No. 17-BK-03283).
¹² FOMB, https://juntasupervision.pr.gov/planes-fiscales/
¹³ Id. According to the Board, the pilot program "provided important insights into the scope of the financial problems faced by municipalities and the profound systemic challenges that must be overcome to enable fiscal sustainability."
¹⁴ New Fiscal Plan for Puerto Rico: Restoring Growth and Prosperity (2018).
¹⁵ 2019 Fiscal Plan for Puerto Rico: Restoring Growth and Prosperity (2019)("Efforts should be made to ensure compliance with the program, whereby municipal power consumption counted towards a contribution in-lieu of taxes - effectively power exempt from payment - is capped at an agreed level and PREPA is reimbursed for any power sales to municipalities above the established cap.").
¹⁶ See Letter from the FOMB dated April 17, 2026 (addressed to the Mayors of Dorado, San Juan, and Vega Baja).
¹⁷ See Letter from the FOMB dated June 1, 2026 (addressed to the Federation of Mayors and the Association of Mayors).
¹⁸ Id.
¹⁹ 48 U.S.C.A. § 2128 (a)(2)("An Oversight Board shall terminate upon certification by the Oversight Board that—(1) the applicable territorial government has adequate access to short-term and long-term credit markets at reasonable interest rates to meet the borrowing needs of the territorial government; and (2) for at least 4 consecutive fiscal years—(A) the territorial government has developed its Budgets in accordance with modified accrual accounting standards; and (B) the expenditures made by the territorial government during each fiscal year did not exceed the revenues of the territorial government during that year, as determined in accordance with modified accrual accounting standards.").