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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