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Tuesday, January 10, 2017

Municipality Failed to Properly Fund Police and Firefighter Pensions



In a recent case, a court held that a Village failed to properly fund its police and firefighter pension funds in violation of the Illinois Pension Code. Village of North Riverside v. Boron. 

The Pension Code requires that municipalities contribute a certain amount to their police and firefighter pension funds every year.  Under the Pension Code and the corresponding regulations in the Illinois Administrative Code, a municipality must show “good and sufficient cause” for failing to properly fund its pensions with evidence of some unforeseeable delay or occurrence, an uncontrollable circumstance, or an Act of God.

The Illinois Department of Insurance found that the Village had failed to make the required annual contributions to its police pension fund from 2008-2012, and failed to make the required annual contributions to its firefighter pension fund from 2009-2012.  The Village admitted it failed to make the required contributions, but claimed the failure was caused by mitigating circumstances outside of the Village’s control.  The Illinois Department of Insurance subsequently called a hearing to allow the Village to show “good and sufficient cause” for its failure to properly fund its pensions. 

At the hearing, the Village claimed it was unable to meet its statutorily required funding obligations mainly due to the recession that began in 2008. The Village offered evidence that the Village’s property tax receipts decreased due to the economic downturn and successful property tax appeals. The Village also provided evidence that it lost its largest sales tax producer in 2012. The Village claimed that, as a non-home rule municipality subject to the Property Tax Extension Limitation Law (PTELL), the Village could not increase its property tax levy to cover its losses.  The Village issued bonds and debt certificates in an attempt to make up for the lost revenue, which apparently led to Village’s credit rating being downgraded.

However, evidence was also produced showing that the Village had made the full required contributions to the IMRF for other Village employees (non-public safety).  The evidence also showed the Village’s sales tax receipts had actually increased as a result of tax hikes in 2008 and 2012.  Additionally, the Village admitted it subsidized garbage collection and water services for its residents, unlike many other municipalities.  

At the conclusion of the hearing, the hearing officer determined the Village had not shown “good and sufficient cause” for its noncompliance, and ordered the Village to comply within 30 days. On appeal, the Village argued that (1) “good and sufficient cause” as used in the Illinois Pension Code and the Illinois Administrative Code is unconstitutionally vague because it provides the hearing officer with too much discretion; and (2) that the decision was otherwise arbitrary and erroneous. 


The appellate court rejected the Village's arguments and upheld the decision of the hearing officer.  The court noted that the regulations allowed the Village to present almost any reason for failing to comply, and yet the Village still failed to establish any good and sufficient cause for its noncompliance.  The court also found that the decision of the hearing officer was not erroneous or arbitrary, as the evidence showed that the Village made conscious decisions to prioritize its spending and allocate funds elsewhere in violation of the Pension Code.  The court specifically noted that the Village had used increased sales tax revenue to fill gaps in the Village’s normal revenue stream and that the Village continued to subsidize garbage and water services instead of funding its pensions.

Post Authored by Kurt Asprooth, Ancel Glink

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