The municipalities of Puerto Rico have an uphill battle to defend themselves on the island's bankruptcy process.

As eleven municipalities seek to establish a committee to represent them in bankruptcy proceedings, both the central government and the bankruptcy trustee of the United States government filed a motion to prevent its creation.

As if that were not enough, the Rosselló Administration's project for the 'Law for Debt Restructuring of the Government Development Bank of Puerto Rico (GDB)' could halt any lawsuits issued by the municipalities for the payment of the Special Additional Contribution that cities like those of San Juan and Caguas maintain the GDB owes them.

According to the motion submitted by the Government of Puerto Rico to the judge in charge of Puerto Rico's bankruptcy proceedings, Laura Taylor Swain, the instrumentalities of the government must be in unison 'not at war with each'.

'The Commonwealth is fighting for its life and future within a fiscal emergency declared by Congress where the Commonwealth cannot 'provide its citizens with effective services,' states the Government's motion.

In the document submitted, they establish that the creation of more committees would mean more legal battles at the expense of other government entities.

At the same time, while citing the motion filed by these municipalities, the Government rationalizes that they 'contradict themselves'.

'The Motion, in pertinent, part provides: ‘Although the interests of the Municipalities may align with those of the other Official Committees in some areas, in other areas they will be completely opposed.' The Ad Hoc Municipalities Committee's admission that it wants a statutory committee to champion, at everyone else's expense, the Municipalities' unique parochial interests dooms the Motion for two reasons. First, it demonstrates the Municipalities' abilities to organize and to represent themselves. Second, on its theory, every constituency having unique interests will be entitled to a separate committee at everyone else's expense.' the government continues.

On the other hand, the United States Trustee states that municipalities lack an important quality for the appointment of any official committee, personhood.

''Person' as defined in the United States Constitution includes 'individual, partnership and corporation but does not include governmental unit,' with three limited and detailed exceptions not applicable here.' they presented in their motion.

Using the Bankruptcy Act as basis, the trustee explained that 'provisions state that only 'persons' are eligible to serve on a creditors' committee and that the term 'person' specifically excludes virtually all governmental units, including specifically municipalities.'

At the same time, the municipality of San Sebastian supported these motions, and refused to back the creation of the committee for the municipalities. In a document submitted to the federal court, the municipality of the western town lists their reasons for believing that municipalities should be denied the creation of the committee.

According to the document, 'although the plan of adjustment may treat municipalities different, the budgets are determined by the Fiscal Plan, which has already been certified. Moreover, although movants complain of the reduction in the amounts they receive in the approved budget, the reality is that they have no control over it since it is a function of the Executive, the Legislature and the Board, irrespective of the existing Title III.'

Likewise, the document states that only two of the eleven municipalities have sued over the restructuring agreement made for the GDB and approved by the Fiscal Control Board.

'Although municipalities claim [this] might also affect them, they do not explain how they would be affected in a manner different from all other residents of Puerto Rico,' said the document.

For the municipality of San Sebastián, no committee can adequately represent all municipalities as these have different needs and interests.

'It makes more sense for municipalities to represent themselves,' they express in the document.

Finally, the document categorizes the claims of the municipalities against the GDB as a 'long criticism' and does not specifically explain their qualms or why they are interested parties.

New Law Fortifies GDB

Meanwhile, in the legislature, the approval of the new 'Law for Debt Restructuring of the Government Development Bank of Puerto Rico' is underway to set the GDB on the path to the restructuring of their debt through Title VI.

If approved, the law would establish the legal framework for restructuring while at the same time creating the GDB Debt Recovery Authority, the Public Entity Trust and establish provisions related to it, provide the determination of the balance sheets of certain liabilities of the GDB and other government entities, among other things.

As part of this law, article 208 grants 'quasi-immunity

'In the absence of clear and convincing evidence of gross negligence leading to reckless indifference of their duties or failure to carry them out, no member of the Board of Trustees or officers, employees and agents of the Authority shall have civil liability for any person, and shall also be indemnified by the Authority and exempted from civil liability for actions or omissions in good faith in their capacity or within their authority,' states the bill.

'Any civil action brought before a court alleging gross negligence shall be dismissed without prejudice if the respondent produces documents proving that he has received information on the relevant data that he or she reasonably believes are true, participated in person or by telephone and deliberated and acted in good faith and relied in good faith on expert advice regarding any act or omission that is the basis for the claim,' concludes Article 208.

In that same document, Article 703 states that 'Notwithstanding any other Law of the Government of Puerto Rico, no Government Entity shall have the authority or active standing to question the validity of this Law, the Restructuring Transaction, or any other transaction contemplated in this Law in any local or federal court.'

These determinations could eliminate the lawsuits filed by the municipalities of San Juan and Caguas for the payment of the Special Additional Contribution which charges a total of $192.6 million and $230.3 million respectively.

In an interview with CyberNews, Mayor of the municipality of Isabela, Carlos Delgado Altieri, claims that these amendments to the law do not give municipalities the opportunity to apply for Title III.

'There has been communication from some municipalities, directly with the Board, in which they have given a forum, but they have not recognized any of our arguments, such as, allowing us to enter Title III; there has been no response. We have been denied any action. And this responds to the governor's plan to destroy the municipalities,' the mayor said during a press conference.

'There is a public policy not to shoot the municipalities, but they can allow you to die of hunger and have to close. Meanwhile, we see how the mayors of the New Progressive Party are in relative tranquility, because they are saying that the government will subsidize them in anther manner. But they forget that we are all in this boat, and today we are up and tomorrow we are down,' he claimed.

The mayor of Isabela, accompanied by several representatives of the Popular Democratic Party, mentioned that if the GDB project is approved, the municipalities will have to make regular payments of the amount of the loans they made with the entity, although the amount was adjusted off of the debt. That means that, although the municipality will only pay for the funds received, it will have to pay off the debt under the payment plan established in the entire loan.