A Baltimore circuit judge has ruled that city officials broke their contract with many police officers, firefighters and retirees in 2010 by cutting a key pension provision that has cost retirees millions in pension benefits.
Judge Julie R. Rubin ruled Tuesday that former Mayor Stephanie Rawlings-Blake’s overhaul of pension benefits “unlawfully withdrew” a variable pension benefit that paid out more money to retirees when the stock market improved.
“The city breached its contract,” she wrote in an opinion that handed several victories to the unions and others to the city.
The partial ruling in favor of the police and fire unions — who have battled the city in court for years — was hailed by retirees.
“The city is going to owe a lot of money,” predicted Lt. Victor Gearhart, the former first vice president of the Baltimore police union. “Justice will be done for the retirees since [Rawlings-Blake] illegally cut our benefits. A contract is still a contract and the city will learn to respect that.”
In her ruling, Rubin did not state what damages — if any — the city would have to pay. But council members said they are bracing for a potential impact of being forced to pay out tens of millions of dollars in pension benefits dating back to the law’s passage.
An actuary has estimated the city could be liable for as much as $57 million in payments should the unions ultimately prevail in court.
The next court date in the matter has not been set.
City Councilman Eric T. Costello, chairman of the council’s budget committee, said city officials have set aside $24.3 million to pay out in case they lose the lawsuit.
“This has been ongoing for seven years,” Costello said of the legal battle. “I’d like to see it resolved as quickly as a humanly possible. This is something that’s outstanding that public safety officers are upset about and rightfully so. We want to get it resolved as quickly as possible.”
Rawlings-Blake overhauled the city’s police and fire pension system to prevent an imminent fiscal crisis, she said. The city’s pension fund for firefighters and police officers is funded at about 70 percent of the long-term costs of providing benefits. Its unfunded long-term liability is more than $1 billion.
City officials say the mayor’s legislation — which was passed by the City Council — ultimately cut about $400 million in long-term pension costs by reducing benefits, raising the retirement age and requiring higher contributions from workers.
The unions, in response, launched a campaign against Rawlings-Blake and her City Council supporters, picketing City Hall, posting billboards accusing elected leaders of turning their backs on public safety workers, and filing suit.
Since the law’s enactment, the city and public safety unions have traded court victories in the case.
In 2014, the 4th U.S. Circuit Court of Appeals in Richmond, Va., overturned a lower court's ruling in 2012 that a key provision of the 2010 law limiting cost-of-living increases for younger retirees was unconstitutional and not reasonable. But the appeals court concluded the police officers and firefighters could continue to contest the law in state court for "breach of contract."
Judge Barbara Milano Keenan of the 4th Circuit wrote at the time that the unions could try again to challenge the law using a different argument, specifically that the city has taken "private property for public use, without just compensation."
Under the mayor's overhaul, firefighters and police have been required to increase contributions to the pension fund — now 10 percent of their salaries. Officers were told that they would no longer be able to retire after 20 years, but would have to stay on the force for 25 years to receive their pensions.
Retired workers also lost what was called the "variable benefit," an annual increase tied to the stock market. Instead, the youngest retirees receive no annual increase through the variable benefit, and older retirees receive a 1 percent or 2 percent annual increase.
In 2012, U.S. District Judge Marvin J. Garbis took issue with that aspect of the law, ruling that the cost-of-living adjustments were unconstitutional in that they harmed younger retirees too severely.
The plan "had the pernicious effect of eliminating and/or reducing annual increases from retirees under 65 at the time of enactment and, consequently, significantly reducing their pensions when they became 65," he wrote.
“We have to sit down with the solicitor and get a clear understanding of the city’s plan going forward,” he said. “When folks dedicate themselves to public service, they deserve to be compensated in retirement. We also have to make sure we’re not bankrupting the city so we can continue to take care of folks who put their lives on the line for the city.”