A state court has sided with the City of Duluth in a long-standing dispute over the generous health benefits provided to hundreds of retired city workers.
The court ruled the city is free to change the retiree's benefits to match those of current workers.
State District Judge Kenneth Sandvik said Duluth can change the terms for retired workers' health care and that the city is not bound by whatever terms were in effect the day a particular worker retired.
“It's difficult to overstate the importance of this decision to the long-term sustainability of city finances.”Mayor Don Ness
The ruling will directly affect what the city pays each year to cover retirees and members of their families, and it will make a huge difference in the city's long-running budget troubles.
Duluth Mayor Don Ness didn't hold back in declaring victory during an afternoon news conference.
"It's difficult to overstate the importance of this decision to the long-term sustainability of city finances," Ness said. "Judge Sandvik has upheld the very clear language of city contracts regarding retiree health care and in doing so has given us the ability to save the City of Duluth from financial ruin."
Duluth has been trying for several years to restrain the benefits given retirees. For example, some retirees have enjoyed name brand prescription drug coverage with co-pays of just 50 cents.
When the city moved last year to consolidate the retiree's multiple plans to match the current employee's plans, three retirees filed suit. That suit was certified as a class action last summer, and included more than 800 former city workers.
Mayor Ness said the court's ruling will create significant savings for Duluth.
"From a conservative basis I think we could, once this is implemented, we could see over a million dollars of cost savings the first year it's implemented," Ness said.
In the long term, Ness said the City could trim $60 million to $100 million off its long term liability for retiree health care, an unfunded liability once nearing $300 million.
And Ness said the retirees won't be left struggling for health coverage.
"City retirees will still receive a very generous health care benefit," he said.
The court ruling drew cheers and sighs of relief from other city officials, who've had to contend with ever rising expenses and a shrinking pool of money to pay for them.
"This is huge news for the City of Duluth," City Council member Todd Fedora said. "It allows us to move forward with a benefit that's more manageable."
Fedora said a good deal of the savings will come from administrative costs. Duluth has been administering about 100 different versions of health care plans between retirees and current employees.
"We have a very large contract with a third-party administrator, who, I think it was about $900,000 dollars that we were contemplating, that we paid to manage these 100 different health plans," Fedora said. "So, by nature of collapsing these health plans down to one, we're going to save a lot of money in annual cost savings just because of administrative support that's not needed."
Some retirees were a lot less enthused.
Former Duluth Police Chief Eli Miletich said he thought the court would force the city to honor contracts negotiated with labor groups over the last 26 years. He said former workers gave up plenty for nearly free health benefits.
"We gave up accumulated sick leave," Miletich said. "We gave up salary adjustments in order to achieve this, and it was at the city's suggestion that we accept this way back then in 1982."
Miletich said the ruling flies in the face of state law, which prevents current employees from bargaining on behalf of retired ones.
Apparently the judge felt different. We were moderately optimistic, but we also have talked over the contingency of an appeal if the judge didn't rule in our direction, and our Ad Hoc committee is meeting tomorrow to discuss that possibility," Miletich said.
Duluth Mayor Ness, meanwhile, said he won't immediately impose new benefit terms on the retirees; at least not until city officials have had a chance to meet with retiree groups and their attorneys.