Now that voters have weighed in on leasing Memorial Health System, the city faces a headache that only Hogan Lovells could love.
That's a lawsuit that Hogan Lovells, a law firm representing the city, filed Aug. 15 against the Public Employees' Retirement Association of Colorado. At issue is how much the city will owe PERA if it pulls Memorial's 4,136 employees out of the public retirement plan and puts them in the employ of Memorial's lessee, University of Colorado Health.
(If the lease ballot measure failed in an upset Tuesday, after the Indy went to press, the PERA issue will be moot until a new lease or sale proposal develops.)
City Attorney Chris Melcher contends it should owe nothing. The city, he notes, has paid nothing to PERA when a Memorial employee has quit or was fired.
PERA argues otherwise, believing it's owed somewhere between $150 million to $246 million, and says it will file a counterclaim. The ensuing court battle translates to lots of attorney fees for city government.
In the UCH lease, the city is assured of $185 million to pay off the PERA obligation. If that's not enough, the city must find the money elsewhere — perhaps from the $74 million up-front payment from UCH, or from the city's general fund.
First reported Aug. 22 on the Independent's blog, the city's lawsuit states the city rushed to court before the Aug. 28 election because PERA threatened to file its own case. Melcher asserts by e-mail that the lawsuit won't bar the city from leasing Memorial, but PERA could seek a restraining order to stall it. PERA also could ask a judge to order impoundment of sufficient funds for full payment to PERA pending the lawsuit's outcome, effectively locking down most of the $259 million UCH would pay the city.
That seems extreme, until you realize how big a player Memorial is in PERA's Local Government Division. Its workers comprise 25 percent of that group's active members — those still paying into the system.
In response to Indy questions, PERA spokesperson Katie Kaufmanis supplies this rationale: "PERA believes the law requires a departing employer to pay for the promises it has made to its current and former employees and it would be patently unfair and inequitable for the departing employer to be able to shift those costs to the remaining employers and employees in the Local Government Division."
To offset the loss of Memorial employees, especially if a big termination payment isn't made, PERA might sharply increase contributions required of the remaining local government members.
And guess who those are? City-owned Colorado Springs Utilities (1,806 active members) and the city of Colorado Springs (1,469) are the division's third- and fourth-largest members, after Memorial and the city of Boulder. Which means the city's attempt to shut PERA out on Memorial could mean it would face steep cost increases for its 3,275 other workers still in the plan.
Regardless, you can expect to see PERA fight tooth and nail, because its board is, by law, under a fiduciary duty to protect the financial interests of its members and benefit recipients.
The city, too, has interests to uphold. And if history is a guide, it will drag out the court battle for years, as it did with a bus drivers' union over arbitration rights. As retired Colorado College political science professor Bob Loevy says, "This is rocket science for lawyers."