United States Court of Appeals For the First Circuit

No. 21-1071

IN RE: THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative for the Commonwealth of Puerto Rico; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative for the Puerto Rico Highways and Transportation Authority; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative for the Puerto Rico Electric Power Authority (PREPA); THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative for the Puerto Rico Sales Tax Financing Corporation, a/k/a Cofina; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative for the Employees Retirement System of the Government of the Commonwealth of Puerto Rico; THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO, as Representative of the Puerto Rico Public Buildings Authority, Debtors. ________________________________________________________________

HON. PEDRO PIERLUISI, in his official capacity; PUERTO RICO FISCAL AGENCY AND FINANCIAL ADVISORY AUTHORITY,

Plaintiffs, Counterdefendants-Appellants,

v.

THE FINANCIAL OVERSIGHT AND MANAGEMENT BOARD FOR PUERTO RICO,

Defendant, Counterplaintiff-Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO

[Hon. Laura Taylor Swain, U.S. District Judge*] Before

Thompson and Lipez, Circuit Judges, and Torresen,** District Judge.

William J. Sushon, with whom John J. Rapisardi, Peter Friedman, O'Melveny & Myers LLP, Luis C. Marini-Biaggi, Carolina Velaz Rivero, and Marini Pietrantoni Muñiz LLC were on brief, for appellants. Mark David Harris, with whom Timothy W. Mungovan, John E. Roberts, Guy Brenner, Martin J. Bienenstock, Lucas Kowalczyk, Shiloh A. Rainwater, and Proskauer Rose LLP were on brief, for appellee. Jorge Martínez-Luciano, with whom Emil Rodríguez-Escudero, and M.L. & R.E. Law Firm were on brief, for the Speaker of the Puerto Rico House of Representatives, the Hon. Rafael Hernández- Montañez, amicus curiae.

June 22, 2022

________________________

* Of the Southern District of New York, sitting by designation.

** Of the District of Maine, sitting by designation. LIPEZ, Circuit Judge. In the legislation addressing the

Commonwealth of Puerto Rico's fiscal crisis, Congress gave the

Financial Oversight and Management Board for Puerto Rico ("the

Oversight Board" or "the Board") authority to object to, and block

the implementation of, local laws that are inconsistent with

efforts to return the Commonwealth to fiscal solvency. Appellants,

the Governor of Puerto Rico and the Puerto Rico Fiscal Agency and

Financial Advisory Authority (known as "AAFAF" based on its Spanish

acronym), contend that the district court erred when it rejected

their contention that the Oversight Board acted arbitrarily and

capriciously in objecting to four laws duly enacted by Puerto

Rico's legislature. We disagree and therefore affirm.

I.

A. Legal Background

In 2016, Congress passed the Puerto Rico Oversight,

Management, and Economic Stability Act ("PROMESA") to address the

Commonwealth's fiscal crisis, facilitate restructuring of its

public debt, ensure its future access to capital markets, and

provide for its long-term economic stability.1 See 48 U.S.C.

1 We have elsewhere provided a more comprehensive background on Puerto Rico's fiscal crisis and the enactment of PROMESA, including PROMESA's creation of a process for the Commonwealth to undergo bankruptcy proceedings. See, e.g., Aurelius Inv., LLC v. Puerto Rico,

(1st Cir. 2019) (overruled on other grounds by Fin. Oversight & Mgmt. Bd. for P.R. v. Aurelius Inv., LLC (In re Fin. Oversight & Mgmt. Bd. for P.R.), 140 S. Ct.

- 3 - § 2194(m)-(n). PROMESA established the Oversight Board, whose

members are appointed by the President, with wide-ranging

authority to oversee and direct many aspects of Puerto Rico's

financial recovery efforts. See, e.g., id. §§ 2141-2147. Among

its responsibilities is the certification of a fiscal plan and

annual budget for the Commonwealth. Id. §§ 2141-2142. Of

relevance to this appeal, PROMESA also provides the Oversight Board

with the authority to review and ask the district court to enjoin

the implementation of duly enacted Commonwealth legislation when

the Oversight Board determines that the legislation does not comply

with the approved fiscal plan or with PROMESA's statutory scheme

to return Puerto Rico to fiscal solvency.2

Section 108(a)(2) of PROMESA, titled "Autonomy of

Oversight Board," provides 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). To that end, PROMESA outlines a

multi-step, back-and-forth process by which the Oversight Board

1649 (2020)); Union De Trabajadores De La Industria Eléctrica Y Riego v. FOMB (In re FOMB),

, 35 (1st Cir. 2021).

2 During the period relevant to this appeal, Puerto Rico was operating under an approved "2019 Fiscal Plan" covering a five- year period. The 2019 plan was subsequently replaced by a 2020 Fiscal Plan, covering the period through Fiscal Year 2025, which was certified by the Oversight Board in May 2020.

- 4 - reviews Commonwealth legislation for consistency with the

statute's goals.

Section 204(a) provides that "not later than 7 business

days after [the Commonwealth] duly enacts any law during any fiscal

year in which the Oversight Board is in operation, the Governor

shall submit the law to the Oversight Board" along with (1) "[a]

formal estimate prepared by an appropriate entity of the

territorial government with expertise in budgets and financial

management of the impact, if any, that the law will have on

expenditures and revenues"; and (2) a "certification of compliance

or noncompliance" by that entity stating whether the law is

"significantly inconsistent with the Fiscal Plan for the fiscal

year".

§ 2144(a)(1)-(2). The Oversight Board then notifies

the Governor and the Legislature if a submission is problematic,

either because it lacks a formal estimate or certification, or

because the certification states that the law is significantly

inconsistent with the fiscal plan. Id. § 2144(a)(3). The

Oversight Board may direct the Commonwealth to provide the missing

estimate or certification, or, if the Commonwealth has certified

that the law is inconsistent with the fiscal plan, may direct the

Commonwealth to "correct the law to eliminate the inconsistency"

or "provide an explanation for the inconsistency that the Oversight

Board finds reasonable and appropriate." Id. § 2144(a)(4)(B). If

the Commonwealth "fails to comply with a direction given by the

- 5 - Oversight Board," the Board "may take such actions as it considers

necessary, consistent with [PROMESA], to ensure that the enactment

or enforcement of the law will not adversely affect the territorial

government's compliance with the Fiscal Plan, including preventing

the enforcement or application of the law." Id. § 2144(a)(5).3

In addition to this general review process for duly

enacted legislation, PROMESA also gives the Oversight Board the

authority to review any request by the Governor to the Legislature

"for the reprogramming of any amounts provided in a certified

Budget." Id. § 2144(c)(1). The Governor must submit any such

request to reallocate budgeted funds to the Oversight Board. Id.

The Board then reviews whether such request "is significantly

inconsistent with the Budget." Id. The reprogramming cannot be

adopted "until the Oversight Board has provided the Legislature

with an analysis that certifies such reprogramming will not be

inconsistent with the Fiscal Plan and Budget." Id. § 2144(c)(2).

Last, but certainly not least, PROMESA authorizes the

Board to "seek judicial enforcement of its authority to carry out

its responsibilities." Id. § 2124(k).

3 The Legislature may request that the Oversight Board "conduct a preliminary review of proposed legislation" before enactment, but "any such preliminary review shall not be binding on the Oversight Board in reviewing any law subsequently submitted."

(a)(6).

- 6 - Although several of the provisions governing the Board's

ability to review Commonwealth laws have not previously come before

this court, the district court has authored several decisions that

lay the groundwork for this appeal.4 In its Law 29 I decision,

the court rejected the Commonwealth's argument that its

"certification of lack of inconsistency [between a law and the

fiscal plan] insulates a newly enacted law from scrutiny or

challenge by the Oversight Board." In re Fin. Oversight Mgmt. Bd.

for P.R.,

, 12 (D.P.R. 2019) ("Law 29 I"). To

the contrary, the court concluded, a certification by the

Commonwealth is not "preclusive of inquiries [by the Board] as to

its sufficiency or accuracy," and PROMESA "demands recognition of

the Oversight Board's ability to question and, if necessary, bring

before the [c]ourt challenges to the sufficiency and accuracy of

documents as important as revenue estimates and certifications

regarding significant inconsistencies with fiscal plans."

. The court further explained that a "formal estimate" under

section 204(a) means a complete and accurate estimate "covering

revenue and expenditure effects of new legislation" over the entire

period of the fiscal plan.

. Simply submitting a dollar

4Pursuant to

, the Chief Justice of the United States has designated Judge Swain to preside over certain cases involving PROMESA's implementation, and the relevant district court decisions were authored by Judge Swain.

- 7 - estimate "on official agency letterhead, no matter how conclusory

or incomplete," does not suffice.

.

In its subsequent Law 29 II decision, the court held

that Board determinations that Commonwealth laws impair or defeat

the purposes of PROMESA are reviewed under the "arbitrary and

capricious" standard typically used to review federal agency

decisions. In re Fin. Oversight & Mgmt. Bd. for P.R.,

, 252-53 (D.P.R. 2020) ("Law 29 II"). While acknowledging that

PROMESA specifically provides that the Oversight Board "shall not

be considered to be . . . [an] agency . . . of the Federal

Government,"

(c)(2), the court noted that the

Board's "powers and functions are similar to those of agencies

charged by Congress with carrying out the provisions of statutes,"

Law 29 II, 616 B.R. at 252. Under the "arbitrary and capricious"

standard of review, the court "must decide whether the Oversight

Board's determinations were supported by a rational basis and must

affirm [its] decisions if they are 'reasoned[] and supported by

substantial evidence in the record.'" Law 29 II, 616 B.R. at 253

(quoting Trafalgar Cap. Assocs., Inc. v. Cuomo,

, 26

(1st Cir. 1998)). Thus, the court held that the Oversight Board's

determinations will only be set aside if they are "arbitrary,

capricious, or manifestly contrary to the statute." Id. at 254

(quoting Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc.,

(1984)).

- 8 - In Law 29 II, the district court also noted that PROMESA

"allows the Oversight Board to prevent the application or

enforcement of a law when the Commonwealth government fails to

comply with a direction given by the Oversight Board pursuant to

section 204(a)[]." Id. at 248. And the Board "is not required to

prove to the [c]ourt that [a law] is significantly inconsistent

with the fiscal plan" to demonstrate the Commonwealth's failure to

comply with its obligations under section 204. Id.

The Commonwealth did not appeal either of the Law 29

decisions.

B. Factual Background

This appeal involves four Commonwealth laws that were

passed by the Legislature and challenged by the Board.5 Below, we

describe these laws and the communications between the

Commonwealth and the Board, pursuant to section 204(a), following

their enactment.6

5 A fifth law was before the district court but is not part of the present appeal. 6 Pursuant to Executive Order 2019-057, the Puerto Rico Department of Treasury ("Treasury"), AAFAF, and the Puerto Rico Office of Management and Budget ("OMB") work together to prepare fiscal impact estimates and certifications for any enacted laws. For simplicity, we refer to the Governor, AAFAF, OMB, and Treasury collectively as "the Commonwealth."

- 9 - 1. Act 82 and Act 138

Because the communications regarding these two

healthcare-related laws were intertwined, we discuss them

together. Act 82, signed into law on July 30, 2019, creates a new

regulatory scheme and establishes an "Office of the Regulatory

Commissioner of Pharmacy Services and Benefit Managers" within the

Puerto Rico Department of Health to regulate Pharmacy Benefit

Managers ("PBMs") and Pharmacy Benefit Administrators ("PBAs"),

entities that negotiate medication costs between pharmaceutical

companies and third-party payers, including the Commonwealth. As

the district court explained, "Act 82 changes the arrangements

between [these entities] and pharmacies to require that pharmacies

be reimbursed for at least their cost of acquisition of

medications." The Commonwealth asserts that this change is

necessary to allow pharmacies to recover their actual drug

acquisition costs, ensuring that they continue to acquire

necessary medications for the people of Puerto Rico.

Act 138, signed into law on August 1, 2019, amends the

Insurance Code of Puerto Rico to (1) prohibit health care insurers

from denying provider enrollment applications submitted by

qualified health care professionals in Puerto Rico, and (2)

prohibit Managed Care Organizations from unilaterally terminating

or rescinding contracts with health care providers. The

Commonwealth asserts that the law was enacted "to discourage the

- 10 - mass exodus of health professionals [from Puerto Rico] and increase

the availability of health care services throughout the Island."

The Commonwealth did not submit any section 204(a)-

required materials on Act 82 within the statutory seven-day period.

On September 12, 2019, more than a month after Act 138 was signed

into law, the Commonwealth submitted to the Board a copy of the

Act with a certificate reading as follows:

Legislative Measure Number:

• Act No. 138-2019 ("Act 138"), herein attached.

Estimate of Impact of the Legislative Measure on Expenditures and Revenues:

• Act 138 has no impact on expenditures or revenues.

Determination of the Legislative Measure's Compliance with the Fiscal Plan:

• Act 138 is not significantly inconsistent with the New Fiscal Plan for Puerto Rico.

On November 15, 2019, the Board notified the

Commonwealth by letter of several concerns it had regarding both

Act 82 and Act 138: (1) it still had not received any materials

regarding Act 82; (2) the copy of Act 138 and certificate had been

submitted after the seven-business-day period mandated by statute;

(3) the Commonwealth had failed to provide the required formal

estimate for Act 138; and (4) both Acts may be preempted by federal

law. The Board requested that the Commonwealth submit the missing

materials, including, specifically, "a formal estimate of the

- 11 - impact each Act will have on expenditures and revenues, including

the impact on the government's medical insurance plan ('Vital')"

and "an analysis of [the Acts] in relation to the corresponding

federal statutes to ascertain there are no conflicting provisions

that may jeopardize the grant of federal funds to the [Department

of Health]." The Board noted that it "reserve[s] the right to

take such actions as we consider necessary . . . including

preventing the enforcement or application of" the Acts if it

ultimately determines the Commonwealth has "failed to comply with

our directive . . . or that [the] law[s] impair[] or defeat[] the

purposes of PROMESA."

On November 18, 2019, more than three months after it

was due, the Commonwealth submitted the following certification

for Act 82:

Legislative Measure Number:

• Act No. 82-2019 ("Act 82"), herein attached.

Estimate of Impact of the Legislative Measure on Expenditures and Revenues:

• Act 82 has an approximate impact of $475,131.47 in the Department of Health's budget. However, Act 82 will be implemented using budgeted resources. If reprogramming of budgeted resources is needed, the appropriate agency will submit to the [Board] a formal request. • Act 82 has no impact on revenues.

Determination of the Legislative Measure's Compliance with the Fiscal Plan:

- 12 - • Act 82 is not significantly inconsistent with the 2019 Fiscal Plan for Puerto Rico.

A few days later, the Commonwealth responded to the

Board's November 15 letter. The Commonwealth began by emphasizing

its commitment to complying with section 204(a) of PROMESA, noting

the then-Governor's recent Executive Order mandating compliance

with that provision. However, the Commonwealth did not address

the substance of the Board's concerns in its November 15 letter

other than to vigorously contest the Board's ability to press the

Commonwealth as to whether Acts 82 and 138 are preempted by federal

law. In making its point that the consideration of possible

federal preemption was outside the scope of the certification

process, the Commonwealth insisted that

Section 204(a)(3) only allows the Board to send notifications to the elected government under limited circumstances, specifically, if no certifications are sent or, if the Board understands an enacted law is significantly inconsistent with the certified fiscal plan.

In a December 18 response letter, the Board reiterated

its concern that the Commonwealth was not complying with the

section 204(a) requirements by failing to submit all required

materials and submitting some materials after the seven-business-

day deadline. The Board further asserted that the impact estimate

for Act 82 was not sufficiently "formal" and was "not accurate"

because "it provide[d] only an 'approximate impact' of the law on

- 13 - the Department of Health's budget" and was "dramatically at odds

with other authority on the subject; specifically, the Health

Insurance Administration's recent testimony at [a] public hearing

that [Act 82] would increase the Government's health plan budget

by $27 million." Regarding the preemption issue, the Board

insisted that requiring a preemption analysis was consistent with

section 204(a) because "if an enacted law negatively impacts the

Commonwealth's budget because of conflicts with federal statutes,

the law would not be consistent with the certified Fiscal Plan."

In a subsequent letter, the Commonwealth continued to

assert that it had complied with its obligations under section

204(a) because it had "not received any notification [from the

Board] that [the Acts] are significantly inconsistent with the

Fiscal Plan." The Commonwealth also maintained that the Board had

no authority to either determine that the Acts are preempted by

federal law or require the Commonwealth to consider whether they

are so preempted. Finally, the Commonwealth rejected the

suggestion that Act 82's estimate was "not accurate" because it

was "dramatically at odds" with the Health Insurance

Administration's testimony at the public hearing. Rather, it

asserted, "any statement by an agency during the legislative

process is subordinate to the determination of the appropriate

government entities" -- AAFAF, OMB, and Treasury -- "in charge of

issuing the [section 204(a)] certifications."

- 14 - In a letter dated April 27, 2020, the Board stated that

it had conducted its own analysis of the Acts because the

Commonwealth had "so far failed to confirm that its analysis took

into account germane factors pertaining to [the Acts] and their

impact on federal funding." Based on its own analysis, the Board

posed a series of detailed questions "regarding the financial

assumptions on which the laws appear to be based." For example,

for both Acts, the Board asked, "How will the potential impact

from increases in PMPM [Per Member Per Month] rates be mitigated

to maintain compliance with the Certified Commonwealth Fiscal

Plan?"7 The Board requested that the Commonwealth address its

specific questions as part of formal estimates to be submitted no

later than May 8, 2020. The Board further noted that

"implementation of [the Acts] prior to satisfaction of the

requirements of Section 204 would impair and defeat the purposes

of PROMESA" and warned that it could take further action, including

"seeking remedies for preventing" the Acts from being implemented.

The Commonwealth again responded that "no revised

certifications are necessary" because, among other contentions,

7Generally, the PMPM rate is the "predetermined amount" that managed healthcare "plans are paid . . . per member per month [to] manage and pay for all services included in the benefit package." Bellin v. Zucker,

, 468 n.2 (2d Cir. 2021)(quoting Antonia C. Novello, N.Y. State Dep't of Health, New York State Management Long-Term Care, Interim Report to the Governor and Legislature at 20 (May 2003)).

- 15 - section 204(a) requires only a "'good faith' effort to determine

the financial effects of a new law" and the certifications

"include[d] all of the required elements under section 204(a)(2)

and were provided in good faith." The Commonwealth also asserted,

despite its mention in the certification of possible

reprogramming, that because Act 82 would be "implemented using

budgeted resources," a formal request for reprogramming would not

be required.

2. Act 176

Act 176, signed into law on December 16, 2019, amends

the "Government of Puerto Rico Human Resources Administration and

Transformation Act" and the "Fiscal Plan Compliance Act" to undo

reductions in the accrual rates of vacation and sick days for

public employees.8 The Commonwealth asserts that the reductions

in leave had "negatively affected the public employees who are

entering the workforce because they have no time to spend with

their loved ones which, in turn, affects their family life."

On December 26, 2019, the Commonwealth submitted to the

Board a copy of Act 176 and the following certification:

Legislative Measure Number:

• Act No. 176-2019 ("Act 176"), herein attached.

8A prior law, Act 8-2017, reduced the accrual rates for certain public employees.

- 16 - Estimate of Impact of the Legislative Measure on Expenditures and Revenues:

• Act 176 amends Act 8-2017, known as the "Government of Puerto Rico Human Resources Administration and Transformation Act," and Act 26-2017, known as the "Fiscal Plan Compliance Act," in order to allow government employees to accrue 2.5 vacation days and 1.5 sick days per calendar month. • The accrual caps for vacation and sick days remain at 60 and 90 days respectively. Additionally, Act 176 does not alter the prohibition established in Act 26-2017, with regard to the liquidation of vacation days accumulated in excess of the 60 days statutory limit. • As prior to its enactment, government employees may only liquidate vacation days when there is a cessation from service. Act 176 does not allow public employees the liquidation of sick days. • In addition, every governmental entity and instrumentality is required to formulate and manage a personnel vacation plan for each calendar year, which shall be strictly complied with by all employees, in order to ensure that said employees do not accumulate excess vacation days, while ensuring that the services provided by the corresponding governmental entities and instrumentalities are not interrupted. • Consequently, insofar as Act 176 merely adjusts the accretion of vacation and sick days for public employees, but while strictly adhering to the liquidation prohibitions established in the 2019 New Fiscal Plan for Puerto Rico and Act 26-2017, we conclude that Act 176 has no impact on expenditures. • Act 176 has no impact on revenues.

Determination of the Legislative Measure's Compliance with the Fiscal Plan:

• Act 176 is not significantly inconsistent with the 2019 Fiscal Plan for Puerto Rico.

On May 11, 2020, the Board informed the Commonwealth

that it had failed to submit the required formal estimate in that

the certification "fails to account for Act 176's impact on

employee productivity, given that it permits employees to take

more vacation days during the year." The Board estimated that "if

- 17 - full-time employees utilize all of the additional days Act 176

makes available to them (12-21 days depending on employee group),

there could be a productivity loss of approximately five percent,

which in Fiscal Year 2021 is akin to losing the full-time

equivalent production of 2,400 public employees." The Board

therefore directed the Commonwealth to submit a "complete formal

estimate by May 19, 2020 taking lost productivity into account."

The Board stated that "implementation of Act 176[] prior to

satisfaction of the requirements of Section 204 would impair and

defeat the purposes of PROMESA" and expressly "reserve[d] the right

to take such actions as it considers necessary" including

preventing Act 176's implementation.

A week later, the Commonwealth responded, vigorously

defending the completeness of the submitted certification.

Specifically, the Commonwealth disputed the need to "account for

any speculative decrease in 'employee productivity'" because

section 204(a) requires only an estimate of the impact on

expenditures and revenues and the certificate "does exactly that."

The Commonwealth went on to assert that the existing caps on the

accrual and liquidation of vacation and sick days, and a

requirement that every governmental entity create personnel plans

to manage the use of vacation days, rendered the Board's employee

productivity concerns illusory.

- 18 - 3. Act 47

Act 47, signed into law on April 26, 2020, amends the

"Puerto Rico Incentives Code" to expand the scope of healthcare

professionals who are eligible for incentive tax benefits. The

Commonwealth asserts that Act 47's purpose is to encourage more

medical professionals to enter practice and to stem the "flight"

of healthcare professionals from Puerto Rico.

On May 4, 2020, the Commonwealth submitted to the Board

the following certificate:

Legislative Measure Number:

• Act No. 47-2020 ("Act 47"), herein attached. • Act 47 incorporates technical adjustments to Sections 1020.02(10), 2021.03(a) and 2023.02 of the Puerto Rico Incentives Code in order to provide tax incentives to more categories of health professionals. This legislation serves the public interest by promoting the retention of professionals in the health field[;] such a feat is particularly relevant in light of the COVID-19 pandemic.

Estimate of Impact of the Legislative Measure on Expenditures and Revenues:

• Act 47 has no impact on expenditures. • Act 47 could have an estimated annual impact on revenues [of] $25.7 million dollars. However, said amount will depend [on]: (1) medical professionals that request tax incentives; (2) medical professionals ultimately approved to receive such incentives in light of the requisites; and (3) income ultimately reported by the qualified professionals. In other words, the impact provided by the Puerto Rico Department of the Treasury consists in an educated estimate that must [be] revised on an annual basis in order to provide an accurate impact on the revenues.

Determination of the Legislative Measure's Compliance with the Fiscal Plan:

- 19 - • Act 47 is not significantly inconsistent with the 2019 Fiscal Plan for Puerto Rico.

On May 21, 2020, the Board responded that the certificate

lacked "even the barest specificity" regarding Act 47's fiscal

impact. The Board took specific issue with the suggestion that

Act 47's impact would be constant over the five-year term of the

2019 Fiscal Plan despite the Commonwealth's statement that the

impact estimate "must [be] revised on an annual basis" due to the

variables identified. The Board also challenged the

Commonwealth's determination that Act 47 was not significantly

inconsistent with the fiscal plan, opining that "it [is] difficult

to understand how the Act, which the Government itself estimates

will reduce revenue by tens of millions of dollars per year,

without any corresponding cut in spending or proposal to increase

revenues from other sources, can be anything other than

significantly inconsistent with the certified Fiscal Plan." For

these reasons, the Board requested that the Commonwealth submit a

"complete formal estimate . . . identifying," among other key

variables, "[m]inimum and maximum estimates of the percentage of

medical practitioners applying for th[e] incentive."

On May 28, the Commonwealth submitted what it termed a

"revised estimate," indicating that the Act could have a minimum

annual cost of $540,000 and a maximum annual cost of $40.1 million

(approximately $200 million over the period of the fiscal plan),

- 20 - based on 7,188 potentially eligible medical professionals. The

Commonwealth continued to maintain, however, that the Act was not

significantly inconsistent with the fiscal plan given the plan's

projected revenues of over $20 billion per fiscal year. That is,

the Commonwealth asserted that even $40 million a year is, in the

context of overall projected revenues, a relatively small amount

and could not be a "significant" deviation from the fiscal plan.

On June 5, the Board responded that the Commonwealth's submission

"inappropriately minimizes the economic impact" of the Act and

that "[v]iewing the costs of [the] Act [] in their proper context,

meaning relative to the Commonwealth's own-source revenues,

demonstrates that they are substantial." The Board concluded by

warning that "[c]ontinuing to implement Act 47 as it is written,

or proceeding to go forward with similarly significantly

inconsistent legislation notwithstanding objections from the

Oversight Board grounded in PROMESA, will lead the Oversight Board

to have no choice but to seek judicial relief."

C. Procedural Background

On June 12, 2020, the Commonwealth filed suit in federal

court seeking, in relevant part, a declaratory judgment that, for

each of the four laws in question, the Commonwealth had complied

with section 204(a)'s formal estimate and fiscal plan compliance

certification requirements. The Board subsequently filed

counterclaims requesting injunctive relief barring the

- 21 - implementation and enforcement of each law.9 The Commonwealth

moved for summary judgment on its claims related to Acts 138

(amending the health insurance code) and 176 (undoing reductions

in vacation and sick days).10 The Board filed cross-motions for

summary judgment as to Acts 138 and 176, motions for summary

9 Among its counterclaims, the Oversight Board sought "nullification" of each law. The district court eventually dismissed all claims for "nullification" because the Board "ha[d] not demonstrated that such drastic relief [was] warranted under the particular circumstances." 511 F. Supp. 3d at 128, 131, 133, 138. Neither side raises the "nullification" claims on appeal, and we do not address them further. The Commonwealth also sought declarations that the Oversight Board cannot "unilaterally" invalidate a law and must seek judicial relief under § 2124(k) to enjoin a law's implementation. In other words, the Commonwealth sought declarations that the mere invocation by the Board of noncompliance with PROMESA did not have any legal effect in and of itself. The district court eventually dismissed these counts given the court's disposition of the Board's summary judgment motions. The Commonwealth does not address these dismissals on appeal. However, we note the district court's statement that "[a] proper declaration of a negative section 108(a)(2) determination by the Board [i.e., that a law would impair or defeat the purposes of PROMESA] triggers a statutory prohibition on action by the Government to go forward with the targeted statute, . . . but it does not empower the Oversight Board unilaterally to void the legislation or create an injunction." In re Fin. Oversight & Mgmt. Bd. for P.R.,

, 134 (D.P.R. 2020). 10 After the Commonwealth's commencement of the legal proceedings, the Oversight Board inquired as to whether the Commonwealth had implemented any of the challenged Acts "notwithstanding the Oversight Board's instructions to the contrary pursuant to several provisions of PROMESA." The Commonwealth responded that the Acts had either been fully implemented, partially implemented, or it was the intention of the Commonwealth to implement them, despite the ongoing dispute with the Board.

- 22 - judgment on the Commonwealth's claims as to Acts 82 (regulating

pharmacy reimbursement for medications) and 47 (increasing tax

incentives for medical professionals), and motions for summary

judgment on its counterclaims. In its opposition to the Board's

summary judgment motions regarding Acts 82 and 47, the Commonwealth

requested an order deferring a ruling and allowing additional

discovery pursuant to Federal Rule of Civil Procedure 56(d).

In its decision on the summary judgment motions, the

court (1) reiterated its holding in Law 29 II that it would apply

arbitrary and capricious review to the Board's determination under

section 108(a)(2) that a law's implementation would impair or

defeat the purposes of PROMESA; and (2) held that it would also

apply arbitrary and capricious review to the Board's

determinations under section 204(a) that the Commonwealth had

failed to comply with its obligations to submit "formal estimates"

and certifications. In so holding, the district court rejected

the Commonwealth's invitation to apply a distinct "substantial

evidence" standard under Puerto Rico law. The Commonwealth argued

that such a standard should apply because of the Supreme Court's

holding that the Board is an entity within the government of Puerto

Rico. See Fin. Oversight & Mgmt. Bd. for P.R. v. Aurelius Inv.,

LLC (In re Fin. Oversight & Mgmt. Bd. for P.R.),

(2020) ("Aurelius"). The district court, however, noted that

"[t]he Aurelius decision was focused narrowly on the applicability

- 23 - of the Appointments Clause and does not undermine this [c]ourt's

prior reasoning about the level of deference properly afforded to

the Oversight Board determinations on account of the Oversight

Board's 'operational similarity' to a federal agency." In re Fin.

Oversight & Mgmt. Bd. for P.R.,

, 121 (D.P.R.

2020) (quoting Law 29 II, 616 B.R. at 252).

Applying the "arbitrary and capricious" standard of

review, the district court concluded that the Board's

determinations regarding the Commonwealth's noncompliance with

section 204(a), and its determinations that the challenged laws

would impair or defeat PROMESA's purposes, were not "arbitrary and

capricious." Regarding the Commonwealth's requests for discovery

concerning Acts 82 and 47, the court stated that the Commonwealth

had not "demonstrated that it lacks access to any evidence relating

to any material fact that is necessary to oppose" the Board's

motions. Id. at 127 n.22, 138 n.35. The court therefore enjoined

the implementation and enforcement of all four laws, with a

recognition that it could revisit such relief "if there emerge any

significant changes in legal or factual conditions." Id. at 128

n.23, 131 n.28, 133 n.30, 138 n.36. The Commonwealth timely

appealed.

II.

We review a district court's grant of summary judgment

de novo. López-Santos v. Metro. Sec. Servs.,

(1st

- 24 - Cir. 2020). Summary judgment is appropriate if the record,

construed in the light most favorable to the nonmovant, presents

no genuine issue of material fact and demonstrates that the movant

is entitled to judgment as a matter of law. Id.; Fed. R. Civ. P.

56(a). It is well-established that "[c]ross-motions for summary

judgment do not alter the summary judgment standard, but instead

simply 'require us to determine whether either of the parties

deserves judgment as a matter of law on the facts that are not

disputed.'" Wells Real Est. Inv. Tr. II, Inc. v. Chardon/Hato Rey

P'ship, S.E.,

(1st Cir. 2010) (quoting Adria Int'l

Grp., Inc. v. Ferré Dev., Inc.,

(1st Cir. 2001)).

Applying the "arbitrary and capricious" standard of

review, the district court evaluated whether the Board's

determinations were "reasoned[] and supported by substantial

evidence in the record." 511 F. Supp. 3d at 120. Although the

Commonwealth now agrees on appeal that the "arbitrary and

capricious" standard applies, it argues that this means more than

just considering whether the Board's determinations were reasoned

and supported by substantial record evidence.11 The Commonwealth

11 Even in rejecting application of the Puerto Rico "substantial evidence" standard in favor of arbitrary and capricious review, the district court questioned whether there is "actually a difference between the two standards." 511 F. Supp. 3d at 121. As the district court explained, "[t]he Puerto Rico 'substantial evidence' standard requires [such] 'relevant evidence as a reasonable mind might accept as adequate to support a conclusion.'" Id. at 121-22 (quoting SPRINTCOM, Inc. v. P.R.

- 25 - contends that "arbitrary and capricious" analysis must also

consider attendant principles developed through decades of

administrative law jurisprudence. Specifically, it contends that

the Board (1) "must [have] explain[ed] the standard on which it

bases its determination" (citing, inter alia, ACA Int'l v. FCC,

(D.C. Cir. 2018)) (2) "must have

contemporaneously and reasonably explained its decision" (citing,

inter alia, Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm

Mut. Auto. Ins. Co.,

(1983)); and 3) may not

rely on "hindsight rationalizations" (citing, inter alia, DHS v.

Regents of the Univ. of Cal.,

(2020)).

By contrast, the Board contends that even if we assess

whether its determinations were "arbitrary and capricious," we

should not apply "the entire apparatus of administrative law."12

Reguls. & Permits Admin.,

(D.P.R. 2008)). The court opined that this standard of adequate evidence "is appropriately considered as part of arbitrary and capricious review."

. 12On appeal, for the first time, the Board argues in the alternative that we should apply a highly circumscribed "ultra vires" standard of review to its decisions. But the Board waived this argument by not raising it before the district court and by repeatedly asserting before that court that "arbitrary and capricious" review applied. See, e.g., 20-00080-LTS, Dkt. #16, 8-10 (Oct. 5, 2020); Bos. Redev. Auth. v. NPS,

(1st Cir. 2016) ("Having urged one standard of review in the district court, [a party] cannot now repudiate its earlier position and seek sanctuary in a different standard."). Moreover, raising a new standard of review for the first time on appeal, after the Commonwealth had already submitted its opening brief, does not reflect well on the Board and is inconsistent with the respect it

- 26 - That is, the Board argues that "principles from federal

administrative law that apply to agencies -- the rule that

administrative agencies must offer contemporaneous reasons for

their actions, the ban on hindsight rationalization, and the

requirement to articulate consistent standards for their

determinations" -- do not apply here because the Board is not a

federal agency.

We see logic on both sides. On the one hand, PROMESA

provides that the Oversight Board should be treated as an entity

within the territorial government, not a federal agency,

(c)(1)-(2); territorial governments are expressly excluded

from the definition of "agency" in the Administrative Procedure

Act ("APA"),

(b)(1)(C); and the administrative law

principles cited by the Commonwealth have developed through

judicial review of "agency" action pursuant to the APA. Further,

the Board is in many ways a unique entity, which has been given,

by PROMESA's express language, a tremendous degree of authority

over aspects of Puerto Rico's financial recovery.

On the other hand, core administrative law principles

are not creatures of the APA. Rather, developed over time, these

principles promote fairness and transparency in the administrative

process and provide concrete guideposts for reviewing agency

should display in its interactions with the Commonwealth and the district court.

- 27 - action. See, e.g., SEC v. Chenery Corp.,

(1947)

(describing as a principle predating the APA's passage the "simple

but fundamental rule of administrative law . . . that a reviewing

court . . . must judge the propriety of [agency] action solely by

the grounds invoked by the agency"). As the district court

recognized, there is clear "operational similarity" between the

Board and a federal agency. In basic terms, both have been charged

by Congress with using their statutory authority and

organizational expertise to implement the terms of a complex

statute. It stands to reason that the principles used to review

whether a federal agency decision is arbitrary or capricious could

also be useful in evaluating a decision by the Board.

All that said, to decide this appeal, we need not settle

to what extent the universe of federal administrative law should

be applied in reviewing Board determinations. We do think,

however, that some guidance is warranted on one important issue

-- the extent to which either the Board or the Commonwealth can

support its position with rationales and analysis proffered for

the first time during litigation.

The Commonwealth takes issue with the Board's submission

during the litigation of declarations that, the Commonwealth

claims, provided new justifications for the Board's determinations

regarding the challenged laws. The district court repeatedly cited

two such declarations: one by Board Executive Director Natalie A.

- 28 - Jaresko regarding all four laws, and another by independent health

policy consultant Phillip Ellis stating his conclusion that Act 82

would increase healthcare costs for the Commonwealth. See, e.g.,

511 F. Supp. 3d at 129-30 & nn.25-26. The Commonwealth contends

that this reliance was improper.

"It is a 'foundational principle of administrative law'

that judicial review of agency actions is limited to 'the grounds

that the agency invoked when it took the action.'" Regents of the

Univ. of Cal., 140 S. Ct. at 1907 (quoting Michigan v. EPA,

(2015)). An agency may later "elaborate" on those

grounds, but it "may not provide new ones." Id. at 1908. In other

words, an agency must stand by the reasons it provided at the time

of its decision and cannot rely on post-hoc rationalizations

developed and presented during litigation. See Citizens to Pres.

Overton Park, Inc. v. Volpe,

(1971) ("The lower

courts based their review on the litigation affidavits that were

presented. These affidavits were merely 'post hoc'

rationalizations, which have traditionally been found to be an

inadequate basis for review." (internal citation omitted)); see

also State Farm,

; Regents of the Univ. of Cal., 140

S. Ct. at 1908-09.

There may be good reasons for applying these principles

to the section 204(a) process. Requiring the Board to present to

the Commonwealth all of its rationales for disapproving of a piece

- 29 - of legislation enables the Commonwealth to fairly respond to the

Board's stated concerns, or to address those concerns based on a

fuller understanding of the Board's reasoning. This enhanced

communication between the Commonwealth and the Board could

conceivably reduce the need for litigation. If and when a dispute

does go to court, a fully developed record enables the district

court to properly assess whether the Board's determinations were

supported by "substantial evidence" without considering post hoc

rationalizations. See Regents of the Univ. of Cal., 140 S. Ct. at

1908-09.

However, given the unique nature of the section 204(a)

process, and the relationship between the Commonwealth and the

Board under PROMESA, a hard-and-fast rule that the Board never may

proffer supplementary rationales or analysis during litigation

would not be appropriate. This case illustrates one reason why

this is so. By taking the Board to court soon after the two sides

had reached an impasse, the Commonwealth short-circuited the

process, particularly as to Acts 176 and 47, considering that the

Commonwealth filed suit just weeks after first hearing from the

Board regarding those laws. When one side cuts off the process in

this way by going to court, it is only fair that the other side

can further develop its position in the litigation.

Therefore, in proceedings arising from the section

204(a) review process, the district court should consider, on a

- 30 - case-by-case basis, whether and to what extent it will allow either

side to support its position with supplementary materials first

proffered during litigation. In this case, with one exception

discussed below, it is not clear that the materials submitted by

the Board in the litigation contained anything more than

elaboration of rationales the Board had provided in the pre-

litigation correspondence. And this elaboration was certainly

appropriate given that, as we have noted, the Commonwealth was the

party that ended the correspondence by taking the Board to court.

We thus conclude that the district court did not err in considering

the supplementary materials submitted by the Board. We turn now

to our de novo review of the district court's judgment as to each

law.

III.

A. Act 82

Before the district court, the Board generally contended

that the Commonwealth had failed to comply with the estimate and

certification requirements of section 204(a) in regard to Act 82

and that the Act is "significantly inconsistent" with the fiscal

plan. The district court ultimately ruled for the Board solely on

the basis of the Commonwealth's failure to comply with section

204(a), holding that

the undisputed factual record, when viewed in the light most favorable to the Governor, establishes that the Government failed to comply with its

- 31 - statutory responsibility to provide a formal estimate and certification that was sufficiently informative and complete, such that the Oversight Board's determination of noncompliance and its ultimate decision to seek injunctive relief under section 204(a)(5) after repeated attempts to obtain a formal estimate and certification are neither arbitrary nor capricious. The only certificate of compliance and estimate submitted by the Government, which together comprise less than half a page of text, plainly fall short of even facial compliance with the formal estimate requirement; they provide no context or analysis to support the certification's assertion of consistency with the fiscal plan imposed by PROMESA § 204(a).

In re Fin. Oversight & Mgmt. Bd. for P.R., 511 F. Supp. 3d at 126.

We agree.13

Despite the district court's prior explanation, in Law

29 I, that the formal estimate must cover the "revenue and

expenditure effects of new legislation" over the entire period of

the fiscal plan, 403 F. Supp. 3d at 13-14, the Commonwealth

submitted a conclusory and unsupported estimate that did not even

purport to account for the duration of the fiscal plan. As the

district court accurately observed, the Commonwealth provided

"absolutely no supporting rationale for the impact estimate of

$475,131.47" and no "clearly articulated compound estimate that

covers the entire duration of the 2019 Fiscal Plan." 511 F. Supp.

13In its analysis, the district court declined to consider the significance of the fact that the Commonwealth had submitted the certifications for Acts 82 and 138 well after the statutory seven-day deadline. We also decline to address these timeliness issues as they are unnecessary to our decision.

- 32 - 3d at 126. Nor did the Commonwealth take the "several

opportunities" provided by the Board "to cure the perceived

deficiencies and provide some sort of substantiation." Id. at

127. To the contrary, when the Board reasonably requested

information about "the financial assumptions on which the law[]

appear[s] to be based," pursuant to its authority under section

204(a)(4), the Commonwealth stonewalled. And then, having

stonewalled, the Commonwealth cut off the exchange and took the

Board to court. It was entirely reasonable for the Board to ask

the court to enjoin implementation of the law, consistent with

section 204(a), given that the Commonwealth had refused to comply

with its obligations under that section.

On appeal, the Commonwealth emphasizes the Board's

requests in the pre-litigation correspondence that it consider

whether Act 82 would jeopardize the receipt of federal funds.14

But the district court did not "reach whether the Board's request

for such analysis was arbitrary and capricious . . . because the

In its correspondence with the Board regarding Act 82, the 14

Commonwealth repeatedly took issue with the Board's requests that it consider whether Act 82 would jeopardize the receipt of federal funds. The Oversight Board consistently maintained in its correspondence with the Commonwealth that it "was not asking for a preemption analysis" but rather "an analysis of the [Acts] to determine whether any provisions jeopardize the grant of federal funds to the Puerto Rico Department of Health." Because we need not consider the preemption issue, we do not determine whether this distinction drawn by the Board is a distinction with a difference for purposes of the statutory review process under section 204(a).

- 33 - Government's section 204(a) noncompliance is already patent" from

its refusal to respond to the Board's other questions about Act

82's fiscal impact. In re Fin. Oversight & Mgmt. Bd. for P.R.,

511 F. Supp. 3d at 126 n.20. We again agree that it is unnecessary

to consider whether the Commonwealth had to, as part of the "formal

estimate," account for Act 82's impact on the receipt of federal

funds. Even putting this request aside, the Board made reasonable

requests for the Commonwealth to support its estimate and the

Commonwealth plainly did not comply.

The Commonwealth attempts to rewrite the record by

suggesting that the Board's entire objection to the estimate and

certification was based on the federal funds issue and the Board's

reference to "the Health Insurance Administration's recent

testimony at [a] public hearing that [Act 82] would increase the

Government's health plan budget by $27 million." While we

acknowledge that the Board did repeatedly press the federal funds

issue, a fair reading of the record demonstrates that the Board

expressed a broader concern that the Commonwealth's conclusory

"approximate impact" estimate was insufficiently supported. It is

simply not evident from the record that the Board based its

objections solely on the federal funds issue, or on the purportedly

conflicting testimony.

Finally, the district court did not abuse its discretion

in denying the Commonwealth's request to defer summary judgment

- 34 - pending further discovery. See In re PHC, Inc. S'holder Litig.,

(1st Cir. 2014) (explaining that we review

the district court's denial of a Rule 56(d) motion for abuse of

discretion). Other than a speculative suggestion that further

discovery would have somehow undermined the Board's bases for

questioning the Act's fiscal impact, the Commonwealth has not

pointed to any type of information that would be germane to its

claims and to which it did not already have access.

B. Act 138

As with Act 82, the district court ruled for the Board

on the basis of its contention that the Commonwealth had failed to

comply with its obligation under section 204(a). We again agree

with the district court's analysis. For Act 138, the Commonwealth

submitted a conclusory statement claiming "no impact on

expenditures and revenues." The Board reasonably requested that

the Commonwealth supply some analysis or data to back up that

assertion, but the Commonwealth refused to do so. Again, the

Board's determination that the conclusory and entirely

unsubstantiated "no impact" statement did not constitute the

required "formal estimate" was entirely reasonable. The Board was

justified in directing the Commonwealth to address how the Act

would impact expenditures and revenues. And it was justified in

determining that, by not submitting a formal estimate or addressing

- 35 - the Board's specific questions, the Commonwealth had failed to

comply with its obligations under section 204(a).15

Finally, for the same reasons we expressed in relation

to Act 82, we reject the Commonwealth's contention that the

district court abused its discretion by proceeding to rule on the

summary judgment motions without further discovery.16

C. Act 176

The district court concluded that the Board had

reasonably determined, pursuant to its authority under section

108(a)(2), that implementing Act 176 would "impair or defeat"

PROMESA's purposes.17 In re Fin. Oversight & Mgmt. Bd. for P.R.,

511 F. Supp. 3d at 133. In so concluding, the district court

15Regarding Act 138 and Act 47, which is discussed further below, we are cognizant of Puerto Rico's important efforts to attract and retain doctors and other medical professionals. We encourage the Commonwealth to focus on providing robust documentation regarding these efforts as it continues to develop incentives for medical professionals to practice on the island. 16We again need not address the "federal funds" issue because, setting that topic of inquiry aside, the Board's requests for more analysis by the Commonwealth were reasonable, and the Commonwealth's responses were patently noncompliant. 17Before the district court, the Board argued both that (1) the Commonwealth had failed to meet its obligations under section 204(a) to submit proper estimates and certifications for the four laws; and (2) the four laws in their substantive effect would "impair or defeat the purposes of" PROMESA. The district court based its ruling on the first ground with respect to Acts 82 and 138 and, as explained below, on the second ground with respect to Acts 176 and 47. On appeal, the Board does not raise the first ground as an alternative basis for affirming the district court as to Acts 176 and 47.

- 36 - endorsed the Board's stated concern that the law would negatively

affect expenditures through decreased worker productivity: "Common

sense and basic principles of economics dictate that, by allowing

sick days and vacation days to accrue more quickly, without

reducing pay levels, Act 176 affects expenditures by increasing

the price the Government pays for labor -- causing the Government

to pay the same amount of money to each person for fewer days

worked." Id. at 132. The district court further noted that the

Commonwealth's recourse to the provision requiring each agency to

institute plans governing their employees' taking of vacation days

did not adequately address the Board's concern.

We agree with both points. The Board reasonably

determined that Act 176 would decrease worker productivity --

resulting in the Commonwealth essentially paying higher labor

costs to provide services -- and the Commonwealth did not refute

this determination. It was thus reasonable for the Board to

determine that the Act would impair implementation of the fiscal

plan and PROMESA's purpose of securing the Commonwealth's fiscal

solvency.18

18 The Commonwealth urges us to determine the precise meaning of "significantly," as in when a law is "significantly inconsistent with the Fiscal Plan for the fiscal year". Id. § 2144(a)(1)-(2) (emphasis added). It contends that a law can only "impair or defeat the purposes of" PROMESA if it is "significantly inconsistent" with the fiscal plan, and that the purported inconsistency between the fiscal plan and Act 176 cannot be deemed "significant." We need not determine the precise meaning of

- 37 - The district court also based its decision on the Board's

contention that Act 176 conflicts with the fiscal plan's goal of

"right-siz[ing] the workforce to the population size" and ensuring

that agencies "deliver services in as efficient a manner as

possible." Id. at 132. The Commonwealth contends that these

rationales were never articulated by the Board during the pre-

litigation correspondence. We agree that these rationales were

first articulated during the litigation and were more than mere

elaborations on the Board's stated concern about worker

productivity. In the future in such a situation, the district

court, mindful of traditional administrative law principles,

should consider whether it is appropriate to accept a new rationale

in support of the Board's position. Here, however, we are not

troubled by the district court's consideration of the new

rationales. As we have explained, although it would have been a

better practice for the Board to have clearly articulated these

rationales in its correspondence with the Commonwealth, it was not

inappropriate for the Board to supplement its reasons for

challenging the laws during the litigation, given the

Commonwealth's abrupt termination of the section 204(a) process by

taking the Board to court.

"significantly." Whatever its precise meaning, Act 176, with its sizable projected impacts on expenditures, can reasonably be deemed "significantly inconsistent" with the fiscal plan.

- 38 - D. Act 47

Lastly, the district court ruled in the Board's favor

regarding Act 47, "[b]ased on [the Board's] determination that the

loss of tens of millions of dollars" from the expansion of tax

incentives "would defeat or impair PROMESA's purposes, which was

communicated to the Government in the course of correspondence

concerning section 204(a)." Id. at 136. The district court

explained that "[t]he fact that Act 47 has the undisputed potential

to reduce revenues by about $200 million over five years by

creating tax incentives with no offsets to make it revenue neutral

renders its implementation a flagrant and significant deviation

from" the fiscal plan's principle of "revenue neutrality." Id. at

137. We again agree with the district court. Simply put, it was

reasonable for the Board to determine that a law that could reduce

revenues by up to $200 million with no corresponding offsets would

"impair or defeat the purposes of" PROMESA.

The Commonwealth makes much of the fact that, in its

pre-litigation correspondence, the Board did not specifically cite

section 14.3.3, the provision regarding "revenue neutrality" in

the 2019 fiscal plan.19 But the Board expressly stated in its

The principle of revenue neutrality for tax measures, which 19

is also in the 2020 Fiscal Plan, see 2020 Fiscal Plan at 218, provides that "any tax reform or tax law initiatives that the Government undertakes must be revenue neutral, that is, all tax reductions must be accompanied by offsetting revenue measures of

- 39 - letter regarding Act 47 that "it [is] difficult to understand how

the Act, which the Government itself estimates will reduce revenue

by tens of millions of dollars per year, without any corresponding

cut in spending or proposal to increase revenues from other

sources, can be anything other than significantly inconsistent

with the certified Fiscal Plan." Given this description of revenue

neutrality in all but name and the reference to the fiscal plan,

we cannot conclude that the Commonwealth was unaware of the Board's

revenue neutrality-based objection before the litigation. In

other words, the revenue-neutrality issue was not truly raised for

the first time during litigation and we are not troubled by the

district court's consideration of this rationale.20 We conclude,

then, for the same reasons articulated by the district court, that

the Board reasonably determined that Act 47 would "impair or defeat

the purposes of" PROMESA.21

a sufficient amount identified in the enabling legislation," 2019 Fiscal Plan at 124. 20 Because we think it plain that a law that reduces revenues by up to $200 million with no offsetting measures is "significantly inconsistent" with the fiscal plan and would "impair or defeat the purposes of" PROMESA, we need not, and do not, opine as to whether the Board could seek to enjoin any law that technically violates revenue neutrality, no matter how minimal the revenue reduction. 21 The Commonwealth argues, in one paragraph of its brief, that the Oversight Board had a responsibility to "explain its change of position" because "[b]efore Act 47's passage, the Board's Municipal Affairs and Legislative Review Director had assured the Governor's Legislative Affairs Adviser that the Board had 'no issue' with Act 47." Even assuming this argument was preserved and is sufficiently developed before us, the Commonwealth has not

- 40 - ***

In summary, then, in the case of all four laws, we

conclude that the Board did not act arbitrarily and capriciously

in exercising its authority under PROMESA. To the contrary, the

Board reasonably determined that the Commonwealth had either not

met its obligations under section 204(a) to provide a "formal

estimate" and certification (Acts 82 and 138), or that the laws

would "impair or defeat the purposes of" PROMESA (Acts 176 and

47). The procedures and obligations contemplated by section 204(a)

are not procedure for procedure's sake. Rather, they serve the

critical purpose of allowing the Board to determine that the

legislation at issue adheres to the fiscal plan and will not impair

PROMESA's purpose of restoring Puerto Rico to fiscal stability.

We therefore affirm the district court's judgment with respect to

all four laws.22

demonstrated that this preliminary "assurance" from one official to another was sufficiently formal such that the Board's later position was indeed an "abrupt about face" meriting explanation. Cf. FCC v. Fox Television Stations, Inc.,

(2009) (noting that an agency usually must provide some recognition of, and explanation for, a change in agency policy). 22 The Commonwealth also argues that the Oversight Board violated a norm of administrative law by not "treating like cases alike" when it objected to Acts 82, 138, and 176. Even if we were to accept the application of this "norm" to the Board's actions, it is not clear to us that this argument was raised before the district court, and we would therefore deem it waived. To the extent the argument was preserved, it is fatally underdeveloped. See United States v. Zannino,

(1st Cir. 1990) ("[I]ssues adverted to in a perfunctory manner, unaccompanied by some effort at developed argumentation, are deemed waived."). The

- 41 - IV.

Congress had to make difficult choices in writing

PROMESA and responding to Puerto Rico's fiscal crisis. One of

those choices was giving the Board the authority to review and

block the implementation of laws enacted by the Puerto Rico

legislature if they "impair or defeat the purposes of" PROMESA.

We recognize the Commonwealth's objections to this unique

structure. But that is the governing structure that applies here.

The Board did not act "arbitrarily and capriciously" in exercising

its authority under PROMESA.23

Affirmed. Each side to bear its own costs.

Commonwealth merely cites to several other certifications that were accepted by the Board and asserts that these "other laws had a demonstrated, non-speculative fiscal effect or their certificates included similar levels of analysis." Asking us to perform this context-less comparison is simply asking us to do too much in building the Commonwealth's argument. See

(noting that counsel cannot "leav[e] the court to do counsel's work, create the ossature for the argument, and put flesh on its bones"). 23 We are disheartened by the antipathy between the parties that was evident in the briefing and at oral argument. In the future, we hope that the Commonwealth and the Board will recommit to working together in a non-adversarial fashion so that this type of litigation can be avoided, in the best interests of the people of Puerto Rico.

- 42 -