Mitch Landrieu’s administration will be in court on Tuesday arguing that the city shouldn’t have to pay an extra $17.5 million into the city’s pension fund for firefighters, a case that underscores the extent to which this year’s budget process is playing out as much in the courts as in the Mayor’s Office or council chambers.
In March, a Civil District Court judge ordered the city to pay $17.5 million to the troubled New Orleans Firefighters Pension and Relief Fund, finding that Landrieu has ignored his legal responsibility to pay into the fund since shortly after he took office in 2010.
Tuesday, the Mayor’s Office is scheduled to go before the 4th Circuit Court of Appeals and argue that Judge Robin Giarrusso got the decision wrong, that the pension fund’s trustees lack standing to force a payment from the city, and that the trustees should be held responsible for the fund’s beleaguered financial status, given their poor investment decisions over the past few years.
It’s one of several court cases with dire potential consequences for the budget. Another judge will be deciding how much the city has to pay in order to improve conditions inside the Orleans Parish Prison, an expense that could run in the millions of dollars. A third judge has already forced the city to begin implementing expensive police reforms, a process that will include paying out millions to finance a court-appointed monitor to verify progress.
The firefighters case could be as critical as any. The $17.5 million in question would only cover what the fund’s trustees say the city owes through the end of 2012. The trustees argue that the city has been underpaying this year as well, bringing the overall bill to more than $20 million. Their lawyer, Louis Robein, said he has another lawsuit ready to file for 2013 once 2012 is resolved.
And then there are next year’s obligations. If the courts ultimately decide that Landrieu’s monthly contributions have been too small, based on what the fund needs to cover current and future benefits to retired firefighters, the mayor may have to budget more for 2014 to avoid yet another lawsuit, forcing cuts elsewhere.
As in the jail and police cases, Landrieu has joined technical legal arguments with a broader assertion: that the courts have ignored the financial predicament he faces in trying to balance competing claims on the city’s resources.
In a recent filing, the city argues that losing the firefighters case would “throw the city’s budget into chaos” and “open the floodgates for similar suits by other city departments who are dissatisfied with their budgetary allocations.”
Nowhere, the city points out, do the pension fund’s trustees “identify the other vital services that must be cut in order to fund its demand for an additional $17.5 million,” amounting to about 2 percent of the city’s budget.
For their part, the trustees make a similar case as the city’s other antagonists, that a tough budget situation shouldn’t be an excuse for shirking the city’s legal responsibilities, whether that be running a jail and a police force that conform to the constitution or funding pension liabilities in line with state law.
Given the city’s recent contributions, they argue, the fund will have to start “cannibalizing” assets by using more of the money it has on hand to pay benefits for retired firefighters rather than investing it for those who will retire in the future.
In their original lawsuit, the trustees outlined what the fund’s actuary estimated the city owed for each of the past three years, based on the fund’s assets and projections of future benefits. In 2010, the bill came to about $13.9 million. But, facing a stark budget deficit, the Landrieu administration cut monthly payments and ended up contributing only about $10.6 million.
The gap only grew from there, with one year’s shortfall adding to the next. In 2011, according to the lawsuit, the fund estimated a necessary contribution from the city of $23.8 million, of which the city paid about $9 million. In 2012, the pension tab grew to $29.4 million, while the city paid about $11.9 million — producing the $17.5 million shortfall that may soon come due.
The trustees argued that state lawmakers codified how much the city must pay, based on a certain formula, when they established the fund back in the late 1960s. And given that state law, the trustees say a judge can force the city to pay immediately with a legal order known as a “writ of mandamus.”
In competing filings, the Landrieu administration challenges the fund’s financial estimates and argues that the court cannot use such a ruling to essentially order that the city “unbalance its budget.”
The Mayor’s Office also blames the ballooning contributions on poor financial decisions made by the trustees, pointing out specific missteps like the $15 million the fund invested in a now-bankrupt hedge fund in the Cayman Islands, which the fund is still trying to get back. It’s the same argument the mayor has used to try to persuade state lawmakers that they should simply turn management of the firefighters fund over to the city.
On Tuesday, a three-judge panel for the 4th Circuit will hear oral arguments. The panel will include judges Terri Love, Daniel Dysart and Sandra Cabrina Jenkins.