Facing a backlog of tens of millions of dollars in unpaid legal judgments and settlements, the city will begin setting aside $2 million a year to help pay those debts, the City Council decided Thursday.
The council's unanimous vote came as a federal lawsuit is seeking to force the city to pay a judgment stemming from a 2011 case. And it followed years of fits and starts in efforts to get the city to pay more than $40 million it owes in cases dating back as much as 20 years.
The new fund approved by the council will set aside $2 million a year starting in 2019 to pay off legal rulings and out-of-court settlements against the city. The council also promised to include $5 million in the 2018 budget for that purpose.
In a separate vote, the council granted preliminary approval for the issuance of up to $10 million of bonds in order to cover outstanding judgments.
That represented the second half of $20 million Mayor Mitch Landrieu promised a year ago to spend in 2016 and 2017 to pay some of the judgments against the city, including what turned out to be $13.3 million for the Danziger Bridge and Glover cases over police-caused deaths immediately after Hurricane Katrina.
At least in part, the money for the new fund will come from lawsuits and insurance settlements brought by the city for damage to its properties. Once that property is replaced or repaired, the rest of the money will be deposited in the judgment fund.
The rest of the money will come from regular city revenue sources.
“What this will do is put in some fiscal responsibility,” said Councilman Jason Williams, who introduced the ordinance establishing the fund. “History has told us these judgments will be a reoccurring expense. We have to assure our citizens that we’re going to be legally responsible with our obligations.”
The ordinance establishing the fund passed 6-0. Councilwoman Stacy Head was absent, but Councilwoman Susan Guidry said that both she and Head had long supported such a measure.
Under the law, cities and other governmental units in Louisiana cannot be forced to allocate money to pay legal judgments against them in state courts, though they remain on the hook for what they owe.
New Orleans is facing a new challenge to its longtime habit of letting unpaid bills pile up …
That situation played out dramatically a few years ago in a case involving $75 million in back pay the city owed to firefighters, a sum they hadn’t been able to collect for decades despite repeated judgments in their favor. Civil District Court Judge Kern Reese eventually signed an order that would have put Landrieu under weekend house arrest until the city paid up, though that was overturned by the 4th Circuit Court of Appeal.
The city and the firefighters eventually reached an agreement, and the money is slowly being paid.
While the firefighters suit was the largest case on the city’s books, tens of millions more are owed to plaintiffs in a variety of cases ranging from minor property damage to traffic fatalities in which the city was found to be at fault.
By creating a fund, the city is setting up a sustainable way to pay off all the judgments going forward, Councilman Jared Brossett said.
“The city expects citizens to pay their debts. We must pay ours as well,” Brossett said.
The creation of the fund comes as a new federal court case is seeking to force the city to pay what it owes. Lawyers for the family of Kimberly Crutchfield, who died in 2011 after crashing into a police car parked on Interstate 10, are asking the federal court to force the city to pay a judgment in that case.
Federal courts can force the city to pay up.
The suit also seeks to force the city to buy outside insurance, as opposed to paying judgments from its budget.
A similar case in 2003 was tossed out by the court.
At $2 million a year, plaintiffs may still face a long wait to get paid by New Orleans.
But while Guidry said there are some old cases where plaintiffs cannot be reached, other cases could see money more quickly.
She also suggested the city's creditors might have to agree to settle for less than the full amount of the judgment or settlement owed to them and to forgo interest for the time they have waited.
That has often been the case in the past when the city finally paid off some of its debts, such as by selling bonds.
As soon as those payments were made, new judgments began accumulating. The new fund is designed to remedy that pattern.