Puerto Rico’s oversight board is unconstitutional, according to the First U.S. Circuit Court of Appeals. The seven board members, including me, were nominated by congressional leadership and selected by President Obama under the Puerto Rico Oversight, Management, and Economic Stability Act of 2016, or Promesa. The court’s Feb. 15 ruling held that board members are federal officers subject to the Constitution’s Appointments Clause, and therefore must be nominated by the president and confirmed by the Senate.
Puerto Rico would collapse into chaos if the ruling took immediate effect. The hedge fund that is the principal plaintiff in the case asked the court to dismiss the bankruptcy-like proceedings the oversight board began in May 2017. That would cause a mad scramble as creditors used every legal and political lever available to force Puerto Rico to pay.
Promesa gave the board powerful tools—including the authority to certify fiscal plans and budgets—to help restore fiscal balance in Puerto Rico. The current fiscal plan calls for a major consolidation of the territory’s government (saving more than $5.5 billion over six years), health-care reforms ($3 billion) and major improvements in the ease of doing business in Puerto Rico. The lawsuit did not seek to undo these reforms, but if the board wasn’t properly appointed, all its decisions are in doubt.
Gov. Ricardo Rosselló has already threatened to stop seeking board approval before shifting funds from one part of the budget to another. Carlos “Johnny” Méndez, speaker of the Puerto Rico House, says the decision “leaves open the door to review certain aspects related to the determinations of the Fiscal Control Board.”
Fortunately, the ruling won’t take immediate effect. The First Circuit delayed its effective date for 90 days and invoked the “de facto officer” doctrine, which upholds actions taken by officers who appear to have proper authority. But unless action is taken within 90 days, everything could collapse.
The cleanest solution would be for President Trump to nominate the seven members of Puerto Rico’s oversight board and for the Senate to confirm us to serve out the remainder of our three-year terms. They also could choose different members. Either approach would salvage the reform and debt-restructuring efforts. The new board would have full authority going forward, and it could remove any doubt about the current board members’ actions by expressly ratifying them.
Another option is for the board to appeal the First Circuit ruling to the Supreme Court. The justices don’t have to review the case, but the constitutional issues at stake are important. The board could ask for a stay of the ruling while the high court decides whether to review it, and thereafter if the court takes the case.
At any rate, at least until May 16 the board has the full authority Congress and the president vested in it when they enacted Promesa in 2016. The board is fully open for business and continues to push for a better Puerto Rico.
Mr. Skeel is a professor at the University of Pennsylvania Law School and a member of the Puerto Rico oversight board.