Monday’s City Council work session, scheduled for a 1 p.m. start, didn’t get underway until 2:22. It wasn’t because Councilors were shirking their duty – they were there, meeting behind closed doors in “executive session,” considering an undisclosed legal matter.
It seemed obvious that they were discussing the city’s strategy regarding the Public Employees’ Retirement Association of Colorado lawsuit, but no one was talking. Emerging from the closed meeting, Councilors refused all comment, as did the various attorneys who were closeted with our elected leaders.
The stakes couldn’t be higher. PERA had won the first round when retired District Court Judge Harlan Bockman peremptorily dismissed the city’s claim that it owed nothing to PERA as a consequence of the Memorial Hospital lease to University of Colorado Health. The city had taken a one-time payment from UCHealth of $259 million to take care of any possible PERA liability, but our leaders had a different plan.
It was simple: Keep the cash!
State statutes that establish procedures for local government entities seeking to withdraw from PERA are clear. In his decision, Bockman referenced them.
“The Court finds that the City and MHS violated the statutory termination provisions by failing to apply to the PERA Board to withdraw,” Bockman stated, “and by failing to comply with all of the statutory termination provisions prior to withdrawing its status as a PERA employer.” Further, the judge continued, “The mandatory process ensures that a withdrawing employer pays for the accrued, unfunded benefits of its retirees and employees before leaving PERA.”
In October 2012, when the suit was filed, PERA calculated the city’s liability to the pension fund at $185 million. With accrued interest, it now stands at more than $200 million.
As reporter Pam Zubeck reported in this week’s Colorado Springs Independent, the city has paid two outside law firms (Hogan Lovells and Fulbright & Jaworski) a total of $1.6 million to litigate the case, and the clock is still running.
Undeterred, the city appealed Bockman’s ruling on Tuesday. It’s reasonable to ask why there was absolutely no public process, or whether any of our city’s elected officials disagreed with the decision. It may be reasonable to ask, but you won’t get any answers.
In a Kafka-esque voyage through a bureaucratic hall of mirrors, we asked Councilors whether the appeal had been authorized during Monday’s executive session. None would answer, directing us to the city attorney’s office. Wynetta Massey, the interim city attorney, would not speak to us, referring the question to city’s public communications department. A staffer forwarded our question to Massey.
Here’s the response:
“Regarding your questions about the decision to appeal the PERA case, the City Attorney’s office will not be commenting on this because it is a pending litigation matter.”
Such transparency! Was the decision to appeal transmitted from outer space by the city’s alien overlords on the Planet Zark?
Joking aside, it appears that Council and its legal advisers are comfortable with making secret, unaccountable decisions on an unimaginably large scale.
They’re not playing with the city’s chips. Whatever money is left after settling with PERA will fund the Memorial Health Foundation. Under its charter, the foundation cannot give out grants until its assets exceed $100 million, but that day may be far in the future.
According to an individual close to the process, the city could have settled with PERA for $150 million in 2012, but chose to go for the gold ring instead. Such a deal would have immediately put $109 million in the foundation’s coffers, and the community might have already received more than $5 million in grants.
But if the litigation continues in the appeal process for another two or three years, and PERA prevails, the foundation will receive nothing.
And while City Council may be willing to gamble with the foundation’s prospective assets, the organization’s board members might find themselves in an uncomfortable situation. They owe a fiduciary duty to the foundation. They’re bound by the “prudent man” doctrine that governs fiduciaries, requiring that they oversee the investments and assets of the organization as would a prudent and careful steward.
Would a prudent man gamble $100 million on a throw of the dice, hoping to increase his stake to $259 million? I don’t know – it seems a little risky. But don’t worry, guys – City Council has your back, as does the interim city attorney. Don’t believe me? Just take a walk in the hall of mirrors.
And FYI, here are the foundation’s board members: