The cornerstone of L.A. City Hall's recent plan to fix its finances and rein in soaring retirement costs has been thrown into jeopardy.
Faced with a growing pension burden, Los Angeles Mayor
and the City Council moved this summer to freeze the amount of healthcare benefits given to thousands of police and firefighters once they retire. Those benefits would not increase in coming years, Villaraigosa said, unless employees contribute more toward retirement from their paychecks.
But in a reminder of the risks faced by local agencies when they tinker with public pension benefits, a law firm retained by the city's Fire and Police Pensions board concluded this month that those benefits were already guaranteed — and that the city is legally obligated to cover the cost of rising healthcare premiums for its retirees.
One group of retirees has already begun calling on the pension board to block the cap on health benefits from going into effect. Meanwhile, civilian city workers have begun demanding their own legal opinion to determine whether they too should be spared from new limits on their retiree healthcare.
City Administrative Officer Miguel Santana, the city's top budget official, said the decision to freeze the monthly medical payment for retirees was the single most significant step toward balancing this year's budget. If that decision is reversed, the city will face a $100-million hole in its budget, Santana said.
Villaraigosa went further, describing the arguments in the legal opinion provided to the pension board as "absolutely ludicrous." The pension board has nine members, five of them selected by the mayor.
"I believe we're absolutely on strong legal ground," he said.
Pension and retirement costs have been steadily rising in recent years, consuming $769 million of this year's general fund budget, which pays for basic services such as parks and public safety.
Retired police officers and firefighters now receive a monthly healthcare stipend of $1,097 per month, enough to cover a monthly premium for two people enrolled in either Kaiser or a Blue Cross HMO, according to city officials.
Since the opinion was released, the city's labor negotiations committee — a group made up of Villaraigosa and four council members — obtained its own legal advice, which defended the city's action limiting retiree health benefits. That opinion failed to persuade Ken Buzzell, a director of the Los Angeles Retired Fire and Police Assn., which wants the public safety pension board to refuse to impose the freeze on the monthly medical payments.
"I don't care what [Santana's] attorney said," he said. "The pension department paid for a legal opinion and they got that opinion."
Healthcare coverage for police officers and firefighters has been increased regularly since 1975. Because of the recently approved freeze, that coverage will no longer rise with inflation unless individual police officers and firefighters pay an extra 2% of their salaries toward retirement.
So far, roughly 3,500 police officers and firefighters have agreed to do so. Although many made that decision before the new legal opinion was produced, their decision is "irrevocable," Santana said.
The deadline for police and firefighters to decide is Thursday.
Fire and Police Pensions board member George Aliano, a retired officer, said employees should not have to pay the extra amount, based on the legal advice his agency received. He also said city leaders should not have put public safety workers in the difficult position of having to decide what to do when the legal issues remain unresolved.
"They've gotten themselves in a mess. Because if they lose [in court], they have to stop everything — stop the people from paying the 2%, and give back money to the people who paid the 2%," he said.
The Fire and Police Pensions board is scheduled to discuss the legal opinion next week. Meanwhile, the issue of the healthcare freeze also has riled some civilian city employees, who are entitled to receive a monthly $1,190 healthcare subsidy upon retirement.
The issue has the potential to embarrass the city's union leaders, who backed the push for higher contributions on the assumption that the retiree healthcare subsidy was not already a guaranteed employee benefit.
Paul Castro, a spokesman for the website lacityworkers.com, said he and his colleagues argued without success during recent labor talks that the city was always obligated to pay for rising retiree healthcare premiums.
"We always said the city didn't have a right to make us pay for something we were already getting," he said.
Castro went to the civilian pension board Tuesday to ask it to obtain its own legal opinion on retiree health benefits. He voiced doubts that the board — controlled by a majority of mayoral appointees — would act.
"Eventually we're going to have to sue the city," he said. "There's no way around it."