A Baltimore County police union is suing the county retirement system's board of trustees over a $25 million loan the county took from the pension fund to update recycling facilities in Cockeysville.
In a lawsuit filed last week in Circuit Court, the Baltimore County Fraternal Order of Police Lodge No. 4 claims the deal reflects a breach of duty, and the board did not get enough advice on the consequences of the loan or obtain adequate security.
"We have a responsibility to the people we represent, and quite frankly, all county employees should be concerned about this," said union President Cole Weston. "We have a responsibility when the administration feels they can use the employee pension system to fund capital projects."
The trustees approved the loan in July 2012 after a request from County Executive Kevin Kamenetz's administration.
The county wanted to use the funds to upgrade a transfer system and install a new, single-stream recycling system in Cockeysville. The loan had an interest rate of 7.875 percent and would be repaid within 15 years.
After the loan was approved, Kamenetz called the move prudent. In an interview this week, he said "every move we make is designed to protect our taxpayers and protect our employees and maintain our coveted triple AAA bond rating without tax increases."
"It's a shame that one particular union leader wants to be combative all of the time," Kamenetz said. "I'll stand behind the fiscal experts in New York who say that our moves are all fiscally prudent."
The county's $2.37 billion pension system covers about 9,150 active employees and more than 7,400 retirees.
The lawsuit — which seeks to stop the loan payments and recover the money that's already been transferred — says that when the board voted, there was no loan agreement or other document detailing terms of the transaction.
A few days after the approval, the trustees got a memo from NEPC LLC, a consultant to the retirement system, saying the type of investment approved was fiscally "reasonable and appropriate," and recommending that the board set up a line-item account for the investment and cash flow.
According to the lawsuit, the board did not solicit advice about how the loan would affect the retirement system's tax-exempt status. The union alleges the board didn't get adequate security for the loan as required by the Internal Revenue Service.
In October, the union wrote to board members raising concerns about the loan, the lawsuit says. The board approved a loan agreement and promissory note in December, according to the lawsuit.
The FOP also filed Public Information Act requests for information on the loan, Weston said.
The lawsuit names as defendants most members of the board: Chairman Joseph Zerhusen, a retired county police major, County Administrative Officer Fred Homan, county budget finance Director Keith Dorsey, who is also administrator of the retirement system; county human resources Director George Gay; Police Chief Jim Johnson; county public works Director Ed Adams; and Mike Day, the head of the county firefighters union.
David Rose, who was elected to the board after the loan was approved and is an FOP vice president, is not named as a defendant.
The board is legally represented by the county attorney, who was unable to comment because the county hadn't yet been served with the lawsuit, said Kamenetz's chief of staff, Don Mohler.
Construction of the transfer station is scheduled to be completed in May, county spokeswoman Ellen Kobler said. Equipment installation is set for October.