Firefighters’ deal with Mitch Landrieu exchanges lawsuit payments for pension overhaul

Richard Rainey photo NOLA.com

New Orleans firefighters have agreed to a deal with New Orleans Mayor Mitch Landrieu that resolves nearly $100 million in legal judgments and addresses the firefighters’ pension fund, according to a source with knowledge of the negotiation.

The source, whose name is being withheld because the deal has yet to be officially announced, said the agreement was reached Thursday afternoon (Oct. 15).

A spokeswoman for the city confirmed the deal.

“The settlement with the firefighters keeps the city on a positive fiscal track, gets major reforms to the pension, and ensures that the pension fund will be there for firefighters in the future,” the mayor’s office said.

The resolution, if it holds together, would be a landmark achievement of Landrieu’s administration, putting an end to a half-dozen lawsuits, the oldest of which was launched during former president Jimmy Carter’s administration. At the same time, it would also set a clear path forward for the firefighters’ pension fund, which is nearly broke and set to sap more than $60 million from the city’s budget in 2016, enough to fund the parks system five times over.

The deal will also come as pleasant news to hundreds of older and retired firefighters who are owed money for back pay they never received. Some stand to reap a windfall of $100,000 or more that many never thought they would live to see. The fight has been raging so long that dozens have died without seeing a dime.

The Business Council of New Orleans and the River Region, which sponsored mediation between the firefighters and the city and participated in the negotiations, heralded the deal as a win for taxpayers and residents alike, as it will finally address the firefighters’ pension system. The fund’s assets had been going up in smoke little by little over the last decade, but the portfolio became an out and out dumpster fire during the financial crisis, causing the city’s annual payments to shoot up. As of its most recent actuarial report, the pension system’s liabilities outstripped its assets by about $358 million.

“I think this is a fair deal for the firefighters. It addresses the long-term health of their pension fund and allows the city to meet its obligations,” said Paul Flower, chairman of the Business Council.

The city did not release specifics of the deal, saying those would be disclosed at a news conference scheduled for Friday.

A second source, who also asked not to be named, said he knew the general outline of the agreement but had not been briefed on the final details as of Thursday evening.

That source said the deal will see the city satisfy a pair of legal judgments worth $96 million in exchange for structural changes to the firefighters’ beleaguered pension fund.

Much of the agreement is contingent upon the passage of a property tax increase, somewhere around 3 mills, that would be used to pay down the judgments and help keep the pension fund afloat as the city’s outsized annual contribution declines over time.

Flower said that the Business Council would support passage of the millage on the grounds that the deal will save the city money in the long run by preventing another collapse of the pension fund.

The larger, and more important, of the two judgments is an order by Civil District Judge Kern Reese. In that case, Reese directed the city to pay the firefighters union $75 million to make up for state-mandated raises that previous administrations were supposed to enact but didn’t.

That judgment, which Landrieu agreed to pay in 2014 but then held hostage as he demanded pension relief for the city, will be satisfied with an upfront payment in the neighborhood of $15 million. The balance will be paid in installments over a dozen or so years, the source said.

The second judgment stems from Landrieu’s refusal to pay in full the city’s annual pension contribution during the first several years of his tenure in office, a period during which a budget crisis threatened the city’s ability to provide basic services.

Civil District Court Judge Robin Giarrusso ordered Landrieu to pay $31 million into the fund to make up for it.

During a period of detente, the city allocated $10 million of that but withheld the rest when negotiations on structural changes to the pension fund broke down.

Rather than being forced to pay the remaining $21 million right away, the city will be allowed to fold it into their normal annual contribution into the fund, the source said. Thanks to the fund’s structure, that effectively stretches the city’s debt service on the liability over 30 years.

The pension fund has serious cash flow problems but will be able to survive a leisurely payout schedule, provided the city makes its payments on time, which, thanks to a court order, Landrieu has vowed to do.

In exchange for payment of the back pay lawsuit and a resolution of the pension debt, the firefighters have agreed to a menu of structural changes that would clamp down on the autonomy of the board of trustees, which is controlled largely by the firefighters. Significantly, most big decisions would require a two-thirds majority of the board’s vote, effectively handing the administration’s representatives veto power on many issues.

The single largest sticking point in negotiations, the method by which firefighters’ retirement checks are calculated, was not wholly resolved, the source said.

For each year of service, firefighters accrue a few percentage points that, upon retirement, are multiplied against their final salaries to calculate how much they receive each month.

The city claims that firefighters have for years been inflating their pension benefits misreading a state law so they could earn benefits faster than they should have. Not only did the city want future benefits to be calculated according to a strict reading of the statute, which would result in dramatically slower accrual of pension benefits, the administration said it wanted money recouped from former firefighters that collect allegedly overgenerous retirement checks.

The source said that the city has agreed not to pursue clawbacks against those who are already retired, but wouldn’t agree to allow current firefighters to continue using the allegedly faulty calculation method.

That put firefighter union leaders in a tough position, as an agreement to accept cuts to pensions would pit young firefighters against older and retired ones.

Young firefighters who signed on recently would see their accrual rate significantly diminished under the city’s interpretation of the law. On the other hand, collection of the $75 million back-pay settlement would benefit predominantly older and retired firefighters, since the case stems from wages lost decades ago. For many, a small dip in their pensions would be more than made up for by their share of the settlement. The younger workers, meanwhile, won’t see a penny.

In the end, both sides agreed to allow the courts to decide which interpretation of the law is the correct one, the source said.

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