WASHINGTON — The U.S. Court of Appeals for the Fourth Circuit last week ruled in favor of Prince George's County, Md., and its 2008 plan to furlough about 5,900 workers, overturning a lower federal court ruling and restoring a savings opportunity for the triple-A rated county.
The three-judge panel in the Richmond district unanimously sided with the county and struck down a U.S. district court's ruling from last August that rejected the furlough attempt.
Labor unions in collective bargaining agreements with the county had objected to the furloughs, arguing that the county had reserve funds available to pay employees, but chose instead to furlough workers to preserve a AAA rating from Standard & Poor's.
The unions did not identify a provision in their collective bargaining agreements "that actually prohibits furloughs," Judge Robert King wrote in the court's opinion. The August decision from Judge Alexander Williams in the U.S. District Court in Greenbelt said the county's furlough decision violated the contract clause of the Constitution.
But King said the unions "are unable to identify any authority that has invalidated, under the contract clause, a statutory provision reserving to a governmental entity a limited right to modify its own contracts."
Moody's Investors Service last September said the county had an $11 million liability for fiscal 2009 related to the lower court's ruling against the county's furlough bid.
Prince George's County is not liable for any repayment to the workers until a full legal settlement is reached, Moody's said.
"We don't see this as a significant factor in the ratings," said Barbara Rosenberg, an analyst with Fitch Ratings.
Fitch has rated the county AAA with a negative outlook since September 2009.
County officials have told Fitch that they were confident Prince George's would win the furlough case in the appeal, she said, and that assumption was taken into consideration for the rating.
Standard & Poor's affirmed its AAA rating for the county in September. Moody's recalibrated its rating to Aaa from Aa1 this spring as part of its move to a global ratings scale for municipal bonds.
The furlough case originated from September 2008 vote by Prince George's officials to cut annual salaries by 3.9% in an effort to save $17 million.
Steep property tax declines forced the country to revise down its fiscal 2009 revenue estimates, triggering the need to cut costs.
Still, the county's general obligation bonds were upgraded to AAA by Standard & Poor's in June 2008 from AA.
The unions claimed workers were furloughed so that the county could maintain reserve funds protecting the rating.
The county had $210 million of unreserved funds in fiscal 2007, according to a June 2008 Standard & Poor's ratings report.
The Prince George's Fraternal Order of Police division, which led the plaintiffs' case, is "still in the process of reviewing the decision and discussing what possible alternatives the FOP may have," the group said in a statement on its website.
An attorney representing the plaintiffs could not be reached Friday. Any further appeals would have to be made to the U.S. Supreme Court.
"We are glad the federal appeals court understood the circumstances we were working under in this economy," Prince George's County Executive Jack Johnson said in a statement.
Williams, in his August ruling in favor of the unions, warned against interpreting the ruling as a precedent for other state and local government employees that have been furloughed amid declining revenues.
"This court's holding is not a pronouncement regarding furloughs in general, but rather applies to the narrow issue of legality" in Prince George's County, he said.