AFAF backs 'zero cuts' but warns Puerto Rico Senate bill likely conflicts with PROMESA

Omar Marrero Díaz, executive director of the Financial Advisory and Fiscal Agency (AFAF), told the Senate Commission on Finance that the administration supports a public policy of "zero additional pension cuts" but cannot endorse House Bill 120 in its present form because parts of the measure likely conflict with the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).

Marrero presented AFAF's ponencia to the committee and walked senators through the bill’s main elements: a declaration of public policy rejecting pension cuts, creation of a consolidated trust (referred to in the measure as the "faxir") to administer the retirement systems jointly, and numerous proposed amendments to existing retirement laws so the trust can assume pension payment obligations.

Why it matters: AFAF argued the bill’s broad prohibitions and contractual mandates could displace or limit functions AFAF currently performs when negotiating or mediating with the Fiscal Oversight Board (Junta de Supervisión Fiscal). Marrero said two formal communications from the Board (January and February 2021) concluded the measure is inconsistent with the certified fiscal plan and certain PROMESA provisions, and warned that the statute, if approved as drafted, would likely face legal challenge in federal bankruptcy court.

Key fiscal details the agency cited include roughly 120,000 active participants and about 125,000 retired beneficiaries in the government central system, annual pension disbursements of about $1.7 billion, and an actuarial deficit AFAF estimated at approximately $38 billion. Marrero listed proposed restitution amounts in the bill — about $2,063,376,000 for withheld individual contributions and roughly $232,663,000 to compensate interest not accrued — plus other credits and general‑fund transfers the text contemplates.

Legal tension: Marrero emphasized that PROMESA grants the Board authority to represent the debtor and to certify a plan of adjustment, and that federal precedent gives courts the power to invalidate local statutes inconsistent with a certified fiscal plan. That legal framework, he said, creates a material risk that aspects of House Bill 120 would be declared unenforceable or prompt costly litigation.

AFAF’s stance: "Apoyamos el principio de cero recortes a las pensiones... pero nos vemos impedidos de avalar el proyecto de la cámara ciento veinte, según redactado por los fundamentos legales anteriormente expresados," Marrero said, reaffirming the administration's political commitment to avoid pension cuts while urging careful technical redrafting to reduce conflict with PROMESA.

Next steps: Marrero offered AFAF’s availability to answer questions and suggested technical amendments could be submitted to the committee to preserve the bill’s policy goals while minimizing legal exposure.

The commission did not vote on the measure during the hearing; senators asked for additional data and for clarifying language to address the Board’s objections.