Thursday, August 23, 2012

UPDATE: Lawsuit over PERA could delay Memorial lease deal

Posted By on Thu, Aug 23, 2012 at 5:32 PM

We just received this explanation from City Attorney Chris Melcher via e-mail. Melcher believes the litigation of the PERA issue WILL NOT delay the transition of city-owned Memorial Health System to the University of Colorado Health, assuming voters approve that transition. The election's outcome is due Aug. 28.

The City filed a request in El Paso County District Court on August 15, 2012 asking the court to issue a ruling that, if the voters approve the proposed Lease of the operations of Memorial Health System to University of Colorado Health, the City will not have any liability or obligation to make a payment to PERA regarding the employees that would be transferring to new jobs with UCH. The court action, called a declaratory judgment action, was filed in response to a demand letter sent by PERA to the City on August 3, stating that PERA intended to sue the City on August 17, 2012 unless the City agreed to PERA's demands for a large exit payment from PERA. The City has been in conversations with PERA for nearly 3 years on issues related to a proposed MHS transition, and had repeatedly requested that PERA wait to resolve these issues until after the voters first decide whether to approve the UCH partnership. PERA refused, and the City was forced to forward to protect the rights of the community.

City Attorney Chris Melcher offered the following comment: "We have consistently said over the past many months that the City believes that it has no obligation to PERA in the event the voters approve the transition of Memorial to the University of Colorado Health system, and the Memorial employees then become UCH employees. This is no different than countless situations in the past when individual public employees, groups of public employees, or even entire departments of employees have left employment with the City, and have thereby left the PERA system. PERA has never before requested a payment when City employees have transitioned to new careers or opportunities, and there is no valid reason why a payment should be required now from PERA if the voters approve the Memorial transition.

We are confident the courts will agree with the City's position, if the Memorial transition is approved by the voters. We repeatedly asked PERA to wait until after the Memorial vote to discuss this dispute, in order to first see whether the voters would approve the UCH partnership. PERA refused to do that, and threatened to file suit against the City before the vote. PERA's position left the City no choice but begin the legal process before the vote, and file a request with the court for a preliminary determination on this issue, even though a final answer will be months if not years away. We look forward to hearing the voters' wishes next week on the proposed lease of Memorial Health System. If the community approves a new era for Memorial with the UCH system, we will move forward promptly on all the issues associated with a transition, including a vigorous defense of our community's rights on the PERA issue. We do not expect the legal process on the PERA issue to slow down in any way the transition of Memorial Health System to a lease arrangement with UCH if the voters approve the ballot measure next Tuesday."

——————————-ORIGINAL POST, Wednesday, August 22, 5:01 P.M.———————————-

Colorado Springs Memorial Health System
  • Memorial: Still destined for limbo?

The city has filed a lawsuit in El Paso County District Court seeking a declaratory judgment that the city owes nothing to remove Memorial Health System employees from the Public Employees Retirement Association.

PERA counters with a threat to sue the city, and to prohibit the city from leasing Memorial to University of Colorado Health, regardless of the outcome of a special election now underway for voters to approve of that lease.

The legal actions could prolong transfer of Memorial to UCH, assuming voters approve the lease in the mail-ballot election that ends Aug. 28. And it comes at a time when Memorial is struggling to maintain half the market share in the Pikes Peak region. Memorial's struggles stem in some degree from uncertainty over its future caused by the city's protracted debate over its ownership and governance, which dates to 2009.

The city's court action, filed Aug. 15, seeks a decision, either by a judge or a jury, on whether the city must pay PERA a settlement to assure PERA has adequate reserves to cover the retirements of Memorial employees who will transfer to UCH under the lease, effective Oct. 1. Memorial employs 4,136 people, not all of whom are vested in PERA.

The election that's underway will decide whether the city can lease Memorial to UCH for 40 years. The lease calls for UCH to pay the city $74 million up front and $5.6 million annually for 30 years.

It also calls for UCH to provide $185 million to the city to pay PERA, but City Attorney Chris Melcher has contended the city owes PERA nothing.

In the lawsuit, filed by Hogan Lovells law firm on behalf of the city, the city argues that PERA's termination clause doesn't apply "when a public hospital that participates in PERA is sold, leased, or otherwise transferred."

"Neither at the time of the City's affiliation with PERA, nor at any time since, has the City ever been compelled to pay PERA when the status of any department, division, or enterprise of the City has changed such that it or its employees were no longer eligible to participate in PERA," the lawsuit states.

That's the same argument made more than a year ago by former CEO Larry McEvoy in denying that the city owed PERA anything.

"Although it has known of the matters related to the Transaction for several years," the lawsuit states, "PERA has only very recently threatened to file suit against the City and certain other parties to prohibit the Transaction from being completed unless the City first complies with the Termination Provisions."

The city seeks a ruling saying PERA's termination provisions don't apply to Memorial under its lease transaction and that because of that, the city doesn't need to pay PERA anything.

Katie Kaufmanis, PERA's director of communications, declines to release the letter in which PERA issued its so-called threat, calling the document privileged.

But she says via e-mail, "PERA believes that a judicial resolution of this issue will be necessary. PERA anticipates that we will be filing a counterclaim in this matter because the full amount is due and payable. Previous estimates of the cost of these earned and promised retirements are in the range of what we expect the liabilities to be."

Memorial Health System Colorado Springs
  • Melcher: Getting ahead of voters?

PERA has said in the past that $246 million was needed to cover Memorial employees' retirements. It later revised the estimate to cap at $191 million. If the city has to come up with more than the $185 million it will be given in the UCH transaction for the PERA expense, the balance would come from its up-front $74 million — which city officials have pledged would go into a philanthropic fund.

Melcher did not respond to an e-mail asking what impact the lawsuit would have on the lease transaction being closed as planned, assuming voters approve at next week's election.

It's unclear why the city would move ahead with a lawsuit before the election is completed. The Council met in closed legal session on Aug. 13 for the purpose of "legal advice and negotiation consultation with the City Attorney regarding the proposed Memorial Health System Lease." It met in closed legal session again today, but the purpose was listed as "a personnel matter."

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