Lawsuit looms over cost of Tri-County Health breakup

Out of all the political controversy the coronavirus has caused in Colorado, the pullout of Douglas County from the Tri-County Health Department — and the domino effect it had on Adams and Arapahoe counties — may be the action that ends up having the biggest consequences on some metro Denver governments.

The costs of Arapahoe and Adams counties pulling away from Tri-County Health could be in the millions. And the situation could get a whole lot more expensive — possibly for all three counties — depending on what a court has to say about an alleged $50 million fee Tri-County Health and the counties may owe to another government body if counties continue to pull out.

At issue is a payment that the health agency may eventually owe to the Colorado Public Employees’ Retirement Association, or PERA, which provides retirement and other benefits to employees of government agencies and public entities in Colorado.

Members of PERA include public school teachers, many university and college employees, judges, state troopers, and other types of public employees.

If Tri-County Health is “allowed to withdraw from PERA without paying the withdrawal liability, all PERA members and employers will be negatively impacted,” a complaint in a lawsuit filed by the retirement association said.

PERA filed the complaint in the lawsuit on Feb. 1 against Tri-County Health and Adams, Arapahoe, and Douglas counties.

Adams and Arapahoe are still members of Tri-County Health, but Douglas County has already formally exited Tri-County and formed its own health department.

Douglas County's leaders have long clashed with Tri-County Health during the coronavirus pandemic, announcing plans in July 2020 to begin the process of withdrawing from the health agency after its decision to require mask wearing in public.

Some of Adams County's leaders had felt frustration with Tri-County's policymaking, too, but Adams' message wasn't against mask orders. Arapahoe has appeared reluctant to cut ties with the health agency, with officials in that county maintaining they had no choice but to move toward going solo after Douglas withdrew and after Adams announced it would also pull out.

Although Douglas County formally broke away from Tri-County — opting to form its own board of health in charge of matters such as countywide public health orders — the county decided to continue to receive health services from Tri-County through 2022, approving an agreement on Sept. 28.

The other two counties are set to withdraw from Tri-County Health by the end of 2022, although the health agency appears not to regard that as a certainty, according to a document the health agency filed in the legal case.

“TCHD has not ceased operations and the finality of the county withdrawals remains in question,” Tri-County Health wrote, arguing the events that would trigger the health agency’s and the counties’ obligations to pay PERA’s withdrawal payment have not occurred.

PERA is a substitute for Social Security for most of its public employees, according to PERA’s website. Benefits are pre-funded, which means while a member is working, he or she is required to contribute a fixed percentage of their salary to the retirement trust funds. Employers also contribute a percentage of pay to the trust fund, the website says.

Under legislation enacted in 2018, parts of the PERA program — such as the employer contribution rates and member contribution rates — are adjusted automatically in certain circumstances, according to PERA’s complaint in the lawsuit.

That’s a situation Tri-County’s exit could trigger, PERA argued.

“Because of this automatic adjustment provision that now exists in the PERA statute, all employers and members in all divisions will potentially face increased contributions and reduced retirement benefits to pay for the funding shortfall caused by TCHD’s illegal withdrawal,” the retirement association’s complaint said.

Douglas agreement spotlighted

Adams, Arapahoe and Douglas counties argued in a March 14 court filing that they aren’t responsible for covering any money Tri-County Health may owe.

But PERA’s complaint points to an agreement Douglas County made that could call that argument into question.

According to the complaint, the following events led up to Douglas County’s agreement:

• In January 2021, Tri-County Health inquired with PERA concerning the effect of Douglas County’s planned withdrawal from Tri-County Health and the potential dissolution of the health agency.

• Some time later, PERA informed Tri-County that the “cost of the reserves requirement” would be determined by PERA’s actuary. An actuary is a person who analyzes statistics and uses them to calculate insurance risks and premiums.

• On Sept. 2, a Tri-County official contacted PERA asking who they could “engage ASAP to determine an estimate of the [cost] reserves requirement if Tri-County Health Department ceases to exist.” The Tri-County official stressed the actuarial report was needed as soon as possible because it was a factor for the counties’ commissioners to determine “if they will stay with TCHD or start their public health department.”

• PERA then arranged for its actuary, The Segal Company, to prepare an actuarial report estimating the Tri-County disaffiliation costs.

• On Sept. 7, Douglas County’s elected leaders, the board of commissioners, formalized their withdrawal from Tri-County.

• On Sept. 14, Douglas County appointed its public health agency board and formally established the Douglas County Health Department.

• On Sept. 24, PERA provided Tri-County with Segal’s actuarial report. The actuarial report calculated Tri-County’s initial withdrawal liability as $50,235,215, subject to final determination at the date of disaffiliation.

• On Sept. 28, the Douglas County commissioners and Tri-County entered into what’s called an intergovernmental agreement, or the IGA.

The IGA provided that Douglas County agreed to “pay for the services and costs associated with its withdrawal,” the complaint cited.

It added: “Most importantly, Douglas County agreed that if TCHD is dissolved in 2022 or 2023,  paying for its proportional share of any expenses incurred as a result of the dissolution ... Such costs may include … the payment of any debt or penalties imposed by Colorado PERA.’”

The complaint also argued that Adams and Arapahoe counties are “third-party beneficiaries of the IGA and thus similarly acknowledge the existence and enforceability of PERA’s termination provisions.”

The three counties, in their filing, pointed to “Article XI, Section I of the Colorado Constitution, which prohibits a county from being responsible for the debt of any ‘person, company or corporation, public or private,’” they argued.

The case was filed in Adams County District Court.

Murky path forward

Asked whether Tri-County Health would have to cut some funding to public health services that the health agency would otherwise be providing in 2022 if a court decides Tri-County owes PERA the $50 million, Tri-County declined to comment, citing the pending litigation.

The health agency also declined to comment on whether it has enough in savings to spare for the payment or whether Arapahoe, Adams and Douglas counties would be obligated to pay some portion of the $50 million from their own budgets.

For context, the total spending in Tri-County’s 2021 budget was roughly $55 million, according to the health agency’s budget document.

The health agency has argued in the legal case that there is uncertainty regarding counties’ decisions to pull out of Tri-County.

“On July 10, 2020, Douglas County gave written notice of its intent to withdraw from TCHD ... The (PERA) complaint omits the fact that Douglas County rescinded that notice on November 10, 2020, and stated that it would remain with TCHD through at least December 31, 2022,” the health agency wrote in a March 11 court filing. “On September 1, 2021, Douglas County stated an intent to rely on its rescinded July 10, 2020, notice of withdrawal, but that TCHD could continue to provide public health services in the future.”

The health agency continued: “The complaint also omits the fact that Arapahoe County filed a lawsuit challenging Douglas County’s withdrawal from TCHD due to Douglas County’s (alleged) failure to comply with the statutory requirement for one-year’s written notice.”

Tri-County calls into question whether the withdrawals from Tri-County by both Adams and Douglas counties are legally effective.

On Oct. 26, the Adams County Board of Commissioners adopted a resolution providing that Adams County would withdraw from Tri-County effective Dec. 31, 2022, Tri-County’s court filing cited.

“The resolution further provides that ‘staff shall give statutory notice of the withdrawal to the Tri-County Health Department …’” the health agency wrote. “The complaint does not allege, nor could it, that the statutory notice [one-year’s notice] was provided by Adams County to TCHD, because such notice has not in fact been given.”

The counties’ court filing appeared to touch on that topic, saying: “While each of the county defendants have given notice of their statutory one-year notice of intent to leave TCHD, the withdrawal of all of the county defendants has not occurred yet and TCHD currently remains operational and an affiliate member of PERA.”

Tri-County’s filing notes that Arapahoe County pointed to the possibility of Tri-County continuing to exist in a different form.

“On December 20, 2021, Arapahoe County gave TCHD a one-year notice of withdrawal, which notice also provides that ‘Arapahoe County is planning to work with TCHD and the other counties to explore the option of continuing TCHD as a public health service provider, but as a different form of legal entity, after December 31, 2022,’” the filing said.