New Orleans Mayor Mitch Landrieu led a bipartisan delegation of five other mayors who met in Washington Wednesday with three Republican and two Democratic senators on tax reform, health care and infrastructure issues.
New Orleans Mayor Mitch Landrieu said a union settlement ensures that firefighters get paid what they are owed while taxpayers remain protected.

BRADENTON, Fla. - A settlement between New Orleans and its firefighters’ union resolving a decade of pension and wage disputes is credit positive for the city, though it will stress city finances, according to Moody’s Investors Service.

“Although the back pay settlement will cost $75 million and put near-term pressure on the city’s finances, the pension reforms will provide greater savings of $275 million over the next 30 years, which is credit positive for the city,” Moody’s analyst James Hobbs said Thursday.

Under terms of the deal announced Oct. 16 by Mayor Mitch Landrieu, the city agreed to provide $75 million for firefighters’ back pay, starting with a $15 million payment in February followed by $5 million annually until the debt is paid.

The city will ask voters in April to approve a 2.5 mill property tax increase to pay the obligation.

“We expect that the initial two annual payments related to back pay will stress the city’s budgets for the fiscal years 2016 and 2017,” Hobbs said. “The initial $15 million payment will be included in the city’s 2016 budget and will likely come from general fund revenues rather than a dedicated funding source.”

Failure of the referendum to increase the tax rate would put additional stress on the city to identify alternative funding for the future payments, he said.

“Favorably, we expect pension reforms to save the city $275 million in pension contributions over the next 30 years,” Hobbs said.

For back pay, the firefighters union reportedly agreed to pension concessions that include restricting their ability to collect supplemental disability payments on top of a full pension for 10 years after retirement, changing how the pension plan makes investment decisions, and reducing benefits for new hires.

The pension plan changes are particularly favorable given that the city for many years has contributed less than its actuarial required contributions for its combined four pension plans, according to Moody’s.

New Orleans’ single-employer pension plans include new and old plans for firefighters. In fiscal 2014, the city’s total pension contributions were $17.7 million below actuarial requirements with $15.5 million of the shortfall attributable to the newer firefighters’ pension plan, Moody’s said.

The city and firefighters’ union fought lawsuits for years over back pay, a situation that reached new heights in September when Landrieu was found in contempt of court for failing to submit a plan resolving the pay issue.

At the same time, he demanded that a plan to address back pay include pension reforms.

Landrieu said the Oct. 16 settlement extinguished the city’s potential liability for firefighters’ wage claims, which were more than $200 million.

“The settlement resolves these significant liabilities, keeps the city on a positive fiscal track, makes major reforms to the pension, and ensures that it will be there for future generations of firefighters,” he said when announcing the deal.

The deal also “ensures that firefighters will get paid what they are owed in back pay in the 80s, 90s and 2000s, while ensuring that our taxpayers are protected,” Landrieu said.

New Orleans had $507 million of outstanding general obligation bonds as of Dec. 31, 2014. The GOs are rated A3 by Moody’s and A-minus by Fitch Ratings and Standard & Poor's.

In March, S&P upgraded its GO ratings to A-minus from BBB-plus saying that the boost reflected the city’s improved budget flexibility and liquidity, as well as rising property and sales taxes from ongoing commercial and residential development

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