Baltimore County has repaid more than $13 million it borrowed last year from its employees' pension fund, leading the county police union to drop a lawsuit over the loan.
The county recently paid about $13.1 million, plus more than $500,000 in interest, for the loan, which it took out in 2012 to upgrade a transfer station and build a single-stream recycling system in Cockeysville.
Union leaders said this week they were pleased the money was paid back and have filed paperwork to drop their lawsuit against the county retirement system's board of trustees. They had alleged that members of the retirement board had breached their duties and failed to get enough advice or obtain adequate security when they approved the loan after a request from County Executive Kevin Kamenetz's administration.
"Our concern from the very beginning was that they were using a pension fund as a bank account to fund capital projects," said Cole Weston, president of the Baltimore County Fraternal Order of Police Lodge No. 4.
The union recently verified the August payment. The county's $2.3 billion pension system covers about 17,000 county employees and retirees.
Still, Weston said he now has questions over the way the county is repaying the funds — by borrowing money from its Police, Fire and Widows' Pension Fund, a much smaller and lesser-known pension fund managed by the county for people hired before 1959.
"We'll have to take a look at that," Weston said.
The county also turned to the Police, Fire and Widows' Pension Fund when a $21 million investment was downgraded to junk status weeks after the county bought it in 2007. In that case, the county transferred commercial paper that was tied to subprime mortgages to the fund.
A trial on the police union's lawsuit had been scheduled to begin in January in Baltimore County Circuit Court.
"I believe that to avoid having to furnish all the information under discovery ... and ultimately the court trial — that they paid it back," Weston said. "And that's what we wanted them to do."
A grand opening for the new recycling facility, which is expected to generate a profit for the county, will take place within the next few weeks, county spokeswoman Ellen Kobler said.
Don Mohler, chief of staff for Kamenetz, said the county had always intended paying the loan back early as a possibility. The retirement system's board of trustees had approved a proposal letting the county repay the money within 15 years.
"We always said that we may pay it back sooner," Mohler said.
Mohler said the loan was "a great deal for the pension system" because of the interest rate of 7.875 percent — higher than the average rate of return on investments.
"[Union leaders] weren't able to produce one witness that said this wasn't proper or that this wasn't in the interest of their members," Mohler said.
County Council Chairman Tom Quirk raised questions about the loan last year, including why the administration didn't tell council members about the proposal. However, he said he believes the latest loan will not jeopardize pension payments for people in the old pension fund.
"Of course it's something that we'll continue to monitor," said Quirk, a Catonsville Democrat. "Baltimore County is exceptionally highly regarded from a fiscal management standpoint."
The county now has five years to pay back the new loan to the Police, Fire and Widows' Pension Fund, and must pay 7.875 percent in interest.
The $50 million fund has 280 beneficiaries —110 retired police officers and firefighters, and 170 widows, Mohler said. The old fund's board is made up of the county's finance director, its administrative officer, and the police and fire chiefs. They approved the loan in August.