Supreme Court upholds federal response to Puerto Rico debt

The Supreme Court on Monday unanimously upheld a key aspect of the federal response to the worst debt crisis in Puerto Rican history, one that threatened basic services like schools and hospitals, some $50 billion in public pension obligations, and more than $70 billion in debts to bondholders.

The court ruled that members of a government board created by Congress in 2016 to clean up the financial mess had been properly appointed. Had the court come to the opposite conclusion, its ruling could have undone years of work on restructuring the commonwealth’s debts.

The 2016 law at issue in the case — the Puerto Rico Oversight, Management and Economic Stability Act, or PROMESA — created an independent entity to restructure the commonwealth’s debt, the Financial Oversight and Management Board. Since then, the board has tried to resolve about 165,000 claims from creditors, not always to their satisfaction.

Aurelius Investment, a hedge fund that had bought distressed bonds, and a labor union representing employees of an electric utility objected to the board’s actions, arguing that its members had been appointed without following the procedures set out in the Constitution, which requires Senate confirmation of “officers of the United States.”

The 2016 law took a different approach, using what Justice Sonia Sotomayor called in a concurring opinion “a labyrinthine procedure.” The law let the president appoint one of the board’s seven voting members as he saw fit and choose six more from lists compiled by congressional leaders. If the president followed those procedures, as President Barack Obama did, no Senate confirmation was said to be required.