Agreement wins city of Harvey temporary respite in fight with pension funds, state over sales tax dollars

By Jonathan Bilyk | Jun 8, 2018

The city of Harvey has won a temporary reprieve, of sorts, after a Cook County judge signed off on an agreement, which, while still requiring the cash-strapped city to pay large chunks to pension funds for retired police and firefighters, still allows the city government to apparently access most of its share of Illinois state sales tax revenue.

On June 7, Cook County Judge Raymond Mitchell modified a temporary restraining order he entered last month concerning the distribution of the city's 1 percent share of sales tax revenue from the state. The city’s share, which it has claimed it needs to pay the day-to-day expenses of funding city services, including police and fire protection, has been held in escrow by the office of Illinois Comptroller Susana Mendoza, under a state law requiring the comptroller to intercept and hold any state tax revenue going to a municipality, if one of the municipality’s pension funds reports the local government has failed to fund its pensions at the levels set by law.

The matter landed in court in early April, after Harvey sued the comptroller’s office over the embargo of millions of dollars in state funds which would ordinarily have been distributed to the city.

In the first action of its kind in Illinois, Mendoza’s office had embargoed the money, saying they acted at the request of the Harvey police pension fund, which had cited state law and accused Harvey of underfunding its pensions.

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 late May, the comptroller released about $278,000 to the city to pay a group of bondholders, represented by the Amalgamated Bank of Chicago. In that instance, the comptroller said those funds were generated by a special Harvey home rule sales tax, and did not qualify as state revenue under the law. So, she said, she could not lawfully withhold that money.

However, in the weeks since, settlement talks continued.

Earlier this week, Harvey attorney Bob Fioretti, of the firm of Roth Fioretti, of Chicago, told the Cook County Record the city hoped to resolve the current dispute under settlement, as it needs the money now, and could not afford to await a judgment, even if such a judgment could address or resolve the underlying legal questions and seeming conflicts.

However, a full settlement has proven elusive, to this point.

Under the order entered June 7, the judge allowed Harvey’s police pension fund to receive 25 percent of the funds embargoed from the city’s 1 percent share of sales taxes collected within the city. The firefighter pension fund would receive 10 percent of the embargoed sales tax dollars.

The Illinois Municipal Retirement Fund, which represents other, non-police and non-firefighter retirees, would also received a distribution from the funds. That amount was not specified in the order.

The city would receive the rest, according to the order.

The litigation remains pending, as the judge ordered a hearing, which had been scheduled for Friday to deal with the questions of how to distribute the embargoed funds, to instead serve as a pre-trial conference.

Ann Maher contributed to this report.

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Circuit Court of Cook County City of Harvey Illinois State Comptroller

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