An attempt by the pension fund for retired police officers to intercept and claim millions of dollars in revenue nominally belonging to the financially troubled city of Harvey is back on hold, at least for another week, after a Cook County judge granted a temporary restraining order requested by the fund supporting Harvey’s retired firefighters.
However, a group of investors holding city bonds will still be paid, after the Illinois Comptroller’s Office determined the special city sales tax created to fund those bonds should not be considered state funds, and cannot be withheld under a recently invoked state law.
On May 22, Cook County Circuit Judge Raymond Mitchell slapped on the restraining order to give the various parties involved in the court fight over Harvey’s tax revenues the chance to state their respective cases more fully in a hearing for a potential preliminary injunction.
A spokesman for Illinois Comptroller Susana Mendoza says the comptroller’s office is currently holding nearly $2.3 million in state tax funds that would otherwise be owed to the south suburban city, and which the city says it needs to pay for city services, including police and fire protection.
Illinois Comptroller Susanna Mendoza Coutesy of susanamendoza.com
However, the comptroller’s office has put the otherwise ordinary distribution on hold, as the city’s police and firefighter pension funds duke it out in court over who should be allowed to enforce a claim under Illinois state law to those funds.
In early April, Harvey had filed a petition in Cook County Circuit Court, asking the court to order Mendoza’s office to release its embargo on the state funds. Mendoza had diverted the funds to an escrow account after the Harvey police pension fund had moved to intercept the money, citing a state law requiring municipal governments, like the city of Harvey, to either fund its workers’ pensions, or forfeit its share of state money, including sales taxes, to the pension funds to pay benefits to its retirees.
In response, the city asserted the “withholding” was “unlawful” and would cause the city to “face catastrophic issues regarding safety, security and maintenance of adequate services” to the city’s residents.
In the weeks since, the city’s request has bounced through various courts. After Judge Mitchell initially refusing their request for relief, a state appeals court overturned the ruling, ordering the comptroller to pay the city the money. But that appellate order was then vacated by the Illinois state Supreme Court, without elaboration, and sent back to Judge Mitchell for further proceedings.
The case is being closely watched throughout the state and elsewhere, as published reports have indicated hundreds of other municipal governments in Illinois could face similar proceedings, should pension funds mount similar claims to their share of state tax revenue. Bondholders have also taken note of the proceedings, as such claims by pension funds could also leave them cut out of the municipal revenue they would otherwise be owed.
In Harvey's case, a group of bondholders, represented by the Amalgamated Bank of Chicago, as trustee, intervened in the litigation, filing a claim of their own against the comptroller’s office this spring, asking the court to rule their interests and claim to revenue raised by the city through a home rule sales tax imposed by the city to fund bonds sold to pay for an ill-fated hotel and convention center project.
However, on May 21, Mendoza’s office released $278,000 in Harvey home rule sales tax revenue to the bondholders to cover service on the debt, saying in a May 21 letter that the comptroller did not believe that particular revenue could be considered “state funds” under the state law invoked by the pension funds, and could not be withheld.
A lawyer representing the bondholders’ trustee did not reply to an inquiry from The Cook County Record.
However, the remaining revenue continues to be withheld from the city.
In response to the embargo, the city has already laid off dozens of workers, including police officers and firefighters.
However, in the May 21 letter, the comptroller’s office said the state law does not allow it to “consider hardships imposed on the City” from the request of retired workers to essentially divert to retired workers money a municipality may need to pay current workers and fund services for current residents and taxpayers.
According to the letter, the comptroller’s office is prepared to pay the full embargoed amount to the police pension fund, as the comptroller believes the law requires, as the protest period allowed to the city under the law has expired.
But that payment now remains on hold, as well, as the Harvey firefighters pension fund asked the court to block the payment to the police pension fund, as the firefighter pensioners believe they also have a claim to some of that money.
A lawyer representing the firefighters pension fund did not reply to an inquiry from The Cook County Record.
However, Mendoza’s spokesman said the comptroller has interpreted the law to require the full funds to go to the police pension fund, as they filed their claim to the money with the comptroller’s office before the firefighters’ pension fund.
“Ideally, we believe the best solution would be an agreement between the pension funds where they both get something,” said Mendoza spokesman Abdon Pallasch.
In all, Pallasch said the police pension fund has claimed it is owed $7 million from the city, while the firefighters have asserted claims of $12 million.
A lawyer representing the city of Harvey did not reply to questions from The Cook County Record.