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The Elusive Promise of Special Treatment for Puerto Rico

Since the 1950s there has been a story that Puerto Rico’s relationship with the U.S. is unique and, unlike all other U.S. territories, this relationship confers entitlements and powers that are even greater than those found in states.

The First Circuit Court of Appeals issued an opinion last week that clarifies, once again, that this story is not the truth.

Is Puerto Rico autonomous?

Puerto Rico is a territory belonging to the United States. As such, it is subject to the Territory Clause of the U.S. Constitution, which says, “The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States.”

While every branch of the federal government has made this relationship clear over the years, one of the strongest piece of evidence is the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), which set up an oversight board to help Puerto Rico manage its debt.

The latest court decision

Last week, the First Circuit Court of Appeals affirmed that the PROMESA oversight board has the right to block laws in Puerto Rico.

Governor Pierluisi and the Puerto Rico Fiscal Agency and Financial Advisory Authority sued the PROMESA fiscal oversight and management board (FOMB). They argued that the FOMB had been “arbitrary and capricious” in blocking five laws.

The FOMB had objected to these laws and was preventing the territorial government from enforcing them. The bill establishing PRMOESA states that “[n]either the Governor nor the Legislature [of the Commonwealth] may . . . enact, implement, or enforce any statute, resolution, policy, or rule that would impair or defeat the purposes [of PROMESA], as determined by the Oversight Board.” A lower court affirmed the board’s ability to block the laws, and the territorial government appealed that ruling.

Four of the five laws were specifically mentioned in the appeal:

  • Act 82, which established an “Office of the Regulatory Commissioner of Pharmacy Services and Benefit Managers” within the Puerto Rico Department of Health to regulate negotiations of costs between pharmaceutical companies and third-party payers
  • Act 138, which prevents health care insurers from denying provider enrollment applications submitted by qualified health care professionals or terminating their contracts
  • Act 176, which canceled reductions in sick leave and vacation days for public employees
  • Act 47, which extended the number of healthcare professionals eligible for incentive tax benefits

In each case, the board objected to the process the government followed in submitting the laws for review. The government, according to the FOMB, had not sent the required information within the required time frames. The board also claimed that Acts 176 and 47 would be expensive for the territory and that the government had falsely claimed there would be limited or no economic effects without proving those claims.

The court agreed with the board.

What’s the takeaway?

The court ruled that “the governing structure” of the FOMB allowed it to make these decisions, and that Puerto Rico’s government was not allowed to make an end run to avoid the board’s decisions.

The ruling confirms what PROMESA and subsequent government actions taught us:  labels aside, Congress can do what it wants as long as PR remains a territory.

The 2016 Sanchez Valle case and the 2022 Vaello-Madero case are two other recent court decisions that show the continued force of the Territory Clause. These two Supreme Court cases prove that Puerto Rico is not autonomous. Puerto Rico is a territory.

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