by Pam Zubeck
After a flurry of legal activity in the last week or so, the city and the Public Employees' Retirement Association have agreed to start over, clearing the way for the city's deal to lease Memorial Health System.
The lease, with the University of Colorado Health, will close Oct. 1 as planned. That had been placed into question by litigation filed Aug. 15 and Aug. 31 by the city and PERA, respectively. The city sought a declaratory judgment saying it owes PERA nothing. PERA sued the city and UCH alleging it's owed $220 million on behalf of the departing Memorial employees and seeking an injunction to prevent the lease transaction from going through.
Late yesterday, the city issued a press release saying all is well, and PERA followed up with its own press release today.
Here's what the city said:
The City is pleased to announce that it has successfully negotiated with PERA an agreement not to seek to delay the Memorial partnership with University of Colorado Health. The parties today completed and signed an agreement in which PERA withdrew their request for injunctive relief regarding the Memorial Lease; PERA agreed to dismiss UCH from its current lawsuit and to not name UCH in any future lawsuit and PERA agreed not to seek to undo or invalidate the City’s partnership with UCH to operate the Memorial Health System. As part of the agreement, the parties will place the initial proceeds from the UCH transaction in the amount of $259 million into escrow to be supervised by the court pending the final resolution of the dispute between PERA and the City regarding the Memorial employees’ transfer to new employment with UCH.
The City had announced its intention previously to place the $259 million initial payment from UCH in segregated accounts pending resolution of any issues related to the transaction, including any PERA issues, for a period of up to five (5) years. Today’s arrangement is consistent with the stated intention as presented to the voters and the community regarding the use of the lease proceeds. PERA and the City further agreed to voluntarily dismiss their respective lawsuits in Adams County and El Paso County on the PERA issues, and allow the City to refile its declaratory judgment action in the Denver District Court. The City will retain all rights to raise the facts and the law associated with its view that the UCH partnership will not create any obligation for the City to provide additional payments to PERA.
City Attorney Chris Melcher provided the following comments: “We are very pleased to have successfully removed the last major uncertainty with regard to the exciting new partnership between the City and UCH for the operation of a world-class health system in Colorado Springs. The community and Memorial can now focus without any further distraction on a smooth transition of the health system, the creation of a new branch Medical Campus at UCCS, and a bright future for higher levels of healthcare and potential economic development in our community. The City and PERA will revisit in the future the disagreement regarding whether the City is obligated to make any additional payments to PERA, and the City remains well positioned to present and defend its view that no additional payments are due following transfer of operations at Memorial.”
The City and UCH will continue to work diligently on all transition issues, and remain confident that the partnership will be finalized and completed on October 1st, as scheduled. This development provides reassurance to the Memorial employees, the physicians, the patients, and the entire community that the trust and overwhelming support shown for this new partnership was justified and will move forward on schedule.
DENVER—On Thursday, September 6, the Colorado Public Employees’ Retirement Association (PERA), the City of Colorado Springs, and the University of Colorado Hospital (UCH) agreed to set aside $259 million of the Memorial Health System transaction proceeds in a court-supervised escrow account pending resolution of the dispute between PERA and the City. The parties agreed that existing lawsuits would be withdrawn and that the claims would be re-filed in Denver County District Court. The new lawsuit will ask the court to determine how much the City owes to PERA for funding Memorial employees’ earned retirement benefits.
“The creation of a court-supervised escrow account to secure the funds is appropriate and now the court will decide how much is owed to PERA for the retirement benefits already earned by Memorial employees,” said Gregory W. Smith, PERA’s Interim Executive Director. “All along it has been PERA’s goal to ensure that this transaction does not negatively impact the employers and members in PERA’s Local Government Division Trust fund. We believe this is a good first step toward reaching that goal,” Mr. Smith added.
Colorado PERA provides retirement and other benefits to more than 483,000 current and former employees of more than 500 public entities in the state of Colorado. Colorado PERA is the 21st largest public pension plan in the U.S. with more than $40 billion in defined benefit and defined contribution assets.
UCH has agreed to pay the city $185 million for the PERA obligation and another $74 million up front, and $5.6 million annually for 30 years during the 40-year lease. It also will pay $3 million a year for 40 years toward a medical school branch.