Andrews v. Lombardi

• Decision Date: 02 February 2017
• Docket Number: KC-13-1129,C.A. KC-13-1128
• Parties: MANUEL ANDREWS, JR., et al., Plaintiffs, v. JAMES J. LOMBARDI, in his capacity as Treasurer of the City of Providence, Rhode Island, Defendant. MANUEL ANDREWS, JR., et al., Plaintiffs, v. JAMES J. LOMBARDI, in his capacity as Treasurer of the City of Providence, Rhode Island, Defendant.
• Court: Rhode Island Superior Court

MANUEL ANDREWS, JR., et al., Plaintiffs, v. JAMES J. LOMBARDI, in his capacity as Treasurer of the City of Providence, Rhode Island, Defendant.

MANUEL ANDREWS, JR., et al., Plaintiffs, v. JAMES J. LOMBARDI, in his capacity as Treasurer of the City of Providence, Rhode Island, Defendant.

C.A. Nos. KC-13-1128, KC-13-1129

Superior Court of Rhode Island

February 2, 2017

For Plaintiff: Stephen H. Burke, Esq.; Thomas J. McAndrew, Esq. Kevin F. Bowen, Esq.

For Defendant: Jeffrey M. Padwa, Esq.; William M. Dolan, III Esq.; Nicholas L. Nybo, Esq.

DECISION

TAFT-CARTER, J.

This matter is before the Court for decision following a non-jury trial on consolidated Complaints^[1] filed by Plaintiffs, retired City of Providence police officers and firefighters (Plaintiffs or Retirees), against Defendant, James J Lombardi, in his capacity as Treasurer of the City of Providence (Defendant or City). The Plaintiffs are sixty-seven retired members of the Providence Police Department and Providence Fire Department who retained their right to sue the City by excluding themselves from a class action settlement. The Court is tasked to decide whether a State statute and certain City ordinances violate the Contract Clause of the Rhode Island and United States Constitutions. See U.S. Const. art. I, § 10; R.I. Const. art. I, § 12. Specifically, Plaintiffs assert that they had vested contractual rights to lifetime healthcare benefits; therefore, requiring them to enroll for Medicare upon eligibility is a violation of the federal and state Contract Clause. In addition, Plaintiffs assert that the annual compounded cost of living adjustment (COLA) is a vested contractual right, the suspension of which amounts to a violation of the Contract Clause. Plaintiffs also allege breach of contract and seek declaratory and injunctive relief.

In each case, the City maintains that its actions do not violate the Contract Clause. It argues that Retirees have not satisfied their burden to show that the City's actions amounted to a substantial impairment of contractual rights. The City also contends that it has presented sufficient credible evidence that its actions were reasonable and necessary to achieve a significant and legitimate public purpose. In April of 2016, the matter proceeded to a non-jury trial. The Court exercises jurisdiction pursuant to G.L. 1956 §§ 8-2-13 and 9-30-1.

I Findings of Fact

The Court has reviewed the evidence presented at trial by both parties and makes the following findings of fact.

Angel Taveras (Mayor Taveras) was sworn into office as Mayor of the City of Providence on January 3, 2011. Trial Tr. 47:20-48:1 Apr. 19, 2016 (Afternoon Session) (Mayor Taveras). When he assumed office in 2011, unemployment in the State's capital city was above the State and national average; car taxes were the highest in the State; and the commercial tax rate was one of the highest in the country. Id. at 60:25-61:15. Upon taking office, Mayor Taveras knew that there was a budget deficit. The severity of the crisis facing the City, however, was unknown. Id. at 48:10-49:4.

In order to accurately examine and fully appreciate the City's finances, Mayor Taveras executed an executive order creating the Municipal Finances Review Panel (panel).^[2] Id. at 49:12-15; see Ex. 104 at 24. The panel met over the course of several weeks and issued a final report on February 28, 2011. See Ex. 104. The report concluded that the City faced a $69.6 million structural budgetary deficit for the fiscal year ending June 30, 2011 and a $109.9 million structural budgetary deficit for the fiscal year ending June 30, 2012. Id. at 2.

The report outlined the significant financial challenges confronting the City. These challenges included the underfunded City pension plan. Ex. 104 at 11. It was determined that the pension plan was 34% funded, with an unfunded accrued actuarial liability of $828, 484, 000.^[3]Id. The annual required contribution (ARC) was expected to increase dramatically. Id. It was projected that the fiscal year ending June 30, 2039 would require an ARC in excess of $210 million. Id. The root causes of the poorly funded pension plan resulted from years of inadequate funding, generous benefits and COLAs provided to the retirees, liberal disability pensions, and early retirement. Id. Furthermore, 27% of the retirees received the benefit of a compounded COLA of 5% or 6%. Id. at 12. The rich COLA benefit resulted in the doubling of the retirees' annual pensions every sixteen or thirteen years, respectively. Id. Another observation negatively impacting the City's pension plan concerned the actuarial valuation of the plan's use of the investment return assumption of 8.5%. Id.

In addition to the issues involving the pension plan, medical costs for current employees and retirees represented more than 15% of the City's annual budget. Id. at 14. The unfunded accrued actuarial liability of the City's retiree health plan reached $1, 497, 451, 000. Id. at 15. Furthermore, many employees received lifetime medical coverage, and copays for retirees were minimal. Id.

Mayor Taveras took immediate action to address the financial crisis. Trial Tr. 56:7-9, Apr. 19, 2016 (Afternoon Session) (Mayor Taveras). He first consulted with the Director of Administration, Michael D'Amico. Id. at 53:13-54:6, 55:23-24; Trial Tr. 11:21-12:7, Apr. 20, 2016 (Morning Session) (Mr. D'Amico). Both men were aware that the City filing for bankruptcy was a real possibility, particularly if there was no pension or healthcare reform. Trial Tr. 64:4-16, Apr. 19, 2016 (Afternoon Session) (Mayor Taveras); Trial Tr. 14:2-8, Apr. 20, 2016 (Morning Session) (Mr. D'Amico). Unwilling to concede bankruptcy, Mayor Taveras was determined to approach and solve the crisis in a collaborative manner, which he termed as "shared sacrifice." Trial Tr. 58:3, Apr. 19, 2016 (Afternoon Session) (Mayor Taveras). Mayor Taveras sought to have all stakeholders in the City-its employees, retirees, taxpayers, universities, and hospitals-carry the burden of sacrifice and become part of the fiscal solution. Id. at 58:5-17. To lead by example, Mayor Taveras immediately reduced his compensation by 10% and renounced his elected official pension. Id. at 56:12-16. Mayor Taveras took the additional steps of laying off approximately 10% of nonunion employees, terminating teachers, closing five schools, alerting the Governor of the extent of the problem, and seeking assistance from the General Assembly. Id. at 56:17-57:2, 58:25-59:1. To increase revenue, the City sought and obtained additional reimbursement for payment in lieu of taxes, generated fees with fire hydrants and alarm boxes, increased parking enforcement, cut funding to libraries and across departments, including a 13% reduction in the budget for the Mayor's office, and negotiated with tax-exempt universities and hospitals. Id. at 58:25-59:11. Despite all of these efforts, Mayor Taveras was forced to increase taxes above the tax levy. Id. at 59:12-15. This action required approval from the State Director of Revenue. Id. at 59:15-60:3.

Meanwhile, Mayor Taveras continued to explore the option of a bankruptcy. This option was considered despite the realization that it would be devastating to the City. Id. at 66:4-5. A bankruptcy would affect the ability of the City to attract business. Id. at 66:7-14. The Taveras administration determined that prior to filing bankruptcy, it was incumbent upon the City to take all steps to prevent a filing. These steps included negotiating contracts, making budgetary cuts, and generally doing everything possible to solve the problem in the first instance. Id. at 66:15- 19. The City considered closing libraries and recreational centers to cure the financial crisis. Id. at 66:20-25. The overall impact of those options, however, would have been disastrous for the City's youth as well as public safety. Id. at 66:25-67:1. Mayor Taveras felt a legal and moral responsibility to solve the problem without a bankruptcy filing. Id. at 67:2-6. In reaching this conclusion, Mayor Taveras took into account the interests of the City's retirees. He noted the Central Falls bankruptcy reduced retirees' pensions approximately 55%. Id. at 67:7-18.

Thus, Mayor Taveras turned to the City's other stakeholders to further increase revenues. He engaged in negotiations with the tax-exempt universities and hospitals in an attempt to persuade them to increase their contributions to the City in lieu of taxes. Id. at 67:19-69:6. This endeavor was successful. The contributions from the tax-exempts totaled approximately $1.9 million in 2011. The amount increased to $8 million per year after the negotiations. Id. at 69:7- 18. The City also considered selling several of its properties and repurposing some of its schools, but it was unsuccessful. Id. at 69:19-71:1, 71:24-72:13, 72:25-73:8.

At the same time, Mayor Taveras directed Mr. D'Amico to reduce the overall cost of union contracts by approximately 10%. Id. at 74:3-25; Trial Tr. 33:22-35:5, Apr. 20, 2016 (Morning Session) (Mr. D'Amico). Through negotiations, Mr. D'Amico succeeded, saving approximately $4 million per year on the Local 1033 Laborers Union contract, $6 million annually on the firefighters and police union contracts, and $18 million yearly on the Providence Teachers Union contract. Trial Tr. 75:4-16, Apr. 19, 2016 (Afternoon Session) (Mayor Taveras); Trial Tr. 33:22-36:5, 36:20-40:23, Apr. 20, 2016 (Morning Session) (Mr. D'Amico).

The City also turned to its retirees for concessions. In order to address the unfunded accrued healthcare liability, Mayor Taveras sought enabling legislation from the State allowing the City to require the retirees to enroll in Medicare. Trial Tr. 77:15-18, Apr. 19, 2016 (Afternoon Session) ...