Court: Ficano can't tap Wayne County retirees' fund, must repay $32M
Wayne County Executive Robert Ficano (Ricardo Thomas/The Detroit News)
Detroit — Wayne County's shaky finances took another blow Friday, when a court ruled it must repay $32 million that Executive Robert Ficano redirected from a pension fund used to pay bonuses to retirees.
Ficano and county commissioners in 2011 made the county's annual payment to the Wayne County Employees Retirement System by dipping into a fund for the "13th check" — an annual extra payment retirees have received since 1986 instead of cost-of-living increases.
Pension lawyers called the move illegal and the Court of Appeals agreed in a decision released Friday.
"It was as if the County Board reached into the pockets of the Retirement System, retrieved Retirement System funds previously allocated to (the 13th Checks) under the County Board's very own ordinance, and then handed the funds back to the Retirement System … pretending like it was County money and depriving the Retirement System of $32 million," read the ruling released Friday.
County officials expect to appeal.
The ruling comes amid heightened scrutiny over the county's finances. The county faces a $167 million deficit, has hit at least four triggers for an emergency manager and this year must set aside $70 million to fund its retirement system, a 20 percent increase from last year.
"Even if times were good, the county wouldn't have an extra $32 million," said commission chairman Gary Woronchak, D-Dearborn. He said he expects the county to try to pay the debt through payments if an appeal fails.
The 13th check has been controversial for years. Ficano has long blasted it as a bonus and tried to eliminate it in 2010. The check comes from the retirement system's Inflation Equity Fund and is composed of surpluses from pension investments.
By 2010, it had grown to $44 million, prompting Ficano to back an ordinance change that capped the fund at $12 million and allowed the county to use any excess for its annual payment to the retirement system.
County officials said they were pleased the Court of Appeals upheld other reforms, including the cap and a payout limit of $5 million a year for retirees.
"Going forward, we have strong restrictions on the 13th check," said Ken Wilson, the county's director of labor relations, who argued the payouts have helped drain the struggling pension system. "Over time, that is a lot more than $32 million."
Even so, the ruling is the latest in a series of setbacks as Ficano struggles to rein in the county's finances, said Commissioner Laura Cox, R-Livonia.
"One would hope we make the right move and appeal," Cox said.
In late 2011, the county agreed to spend $500 million on a new courthouse to end a lawsuit over funding with the Third Circuit Court. Last year, Ficano asked the state for permission to pare the deficit by diverting unused grant money. The idea went nowhere — and prompted the state to order county officials to submit monthly spending reports to state Treasury officials.
Late last month, a budget battle with Prosecutor Kym Worthy ended with a settlement that gave her office an extra $5.6 million a year atop her $25.4 million budget.
"The problems continue to mount," Woronchak said.
The county's pension system also has struggled and last year was funded at 49 percent, well below most municipal systems.
Ficano blamed some of the problems on the 13th check that has paid retirees $391 million since 1986. Pension officials have said investments are doing better and blame Ficano's lucrative early retirement deals for the system's troubles.
Retirees said they depend on the 13th check to supplement pensions that averaged $23,000 last year.
"That was a binding agreement when you retired and a lot of us counted on that," said Gerald Murawski, who retired from the county roads division in 2007. "They've been trying for years to get their hands on that money to bail out the county."
Pension officials also welcomed the court decision.
"Our clients brought this lawsuit in order to protect the Wayne County Employees Retirement System members and retirees that rely on them to properly manage and protect their retirement assets," Marie Racine, a pension system attorney, wrote in an email to The Detroit News. "This decision will be helpful to achieving those goals.
The county's pension board last summer voted 7-1 to divide only $1 million from the fund among 5,500 retirees. That's significantly less than the $3.9 million distributed in 2011. At the time of the vote, board members said they wanted to be conservative because they anticipated costly legal fees from the Court of Appeals case.
The payout is based on years of service and age.
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From The Detroit News: http://www.detroitnews.com/article/20130511/METRO01/305110347#ixzz2SyuXEXF1
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