by Carolyn Welch Clifford (Spring 2017)

A little under a decade ago, the City of Harvey entered into a settlement agreement with its police pension fund, promising to pay more than $550,000 it had levied and collected in property taxes for the fund – but never remitted. Fast forward to January of 2017: what was once a half-million IOU is now a judgment of over $7 million, as determined by the Cook County Circuit Court and now confirmed by the First District Appellate Court in Board of Trustees of the Harvey Police Pension Fund v. City of Harvey, 2017 IL App (1st) 153095.

After years of failing to turn over taxes levied for its two pension funds, the Harvey Police Pension Fund sued the City of Harvey in 2006. The litigation led to a settlement agreement in 2008, in which the City agreed to pay the Fund $551,079.83 in back property taxes. More importantly, the City further agreed it would annually levy taxes to provide the required employer contribution to the Fund as provided under the Illinois Pension Code. The City, however, failed to live up to the terms of the agreement, and in December 2010, the Fund filed a motion to compel enforcement of the settlement agreement.

With the assistance of an actuary, a determination of the amount of property taxes the City should have collected and contributed to the Fund from 2006 through 2014 was calculated. Although the City argued it only owed the most current fiscal year’s contribution amount as calculated by the actuary, the circuit court agreed with the Fund, awarding it $7,334,181.88 in employer contributions, as well as attorney fees.

The City appealed the judgment to the appellate court, arguing that the circuit court did not have the authority to enforce the provision of back property taxes and challenging the method by which the damages were calculated. Specifically, the City contended that the circuit court’s award was based on statutory obligations not in effect on the date the settlement agreement was executed. However, the City had not raised this particular argument before the circuit court, and the appellate court determined that it was waived and would not be considered.

In short, the First District Appellate Court concluded the circuit court had jurisdiction to enforce the settlement agreement because the settlement agreement and original court order from the 2006 lawsuit provide the circuit court retained jurisdiction.

The sizable judgment in the case raises the inevitable question of how it will ever be collected, and it’s not the only large monetary judgment facing the City of Harvey.

The City’s Firefighters’ Pension Fund, who originally sued the City in 1993 and also entered into a settlement agreement with the City for payment of back property taxes of nearly $1 million in 1995, filed a second lawsuit against the City in 2010. In 2015, the Cook County Circuit Court issued a final judgment in that litigation, awarding the Harvey Firefighters’ Pension Fund over $12 million in back employer contributions, plus 6% interest that began to accrue on the final judgment date. This case was also appealed to the appellate court in 2016.

A review of the City’s last audit for the fiscal year ending April 30, 2016, indicates that while the City should have contributed over $1.2 million to the Police Pension Fund in 2016, the City actually contributed $110,219. Similarly, the actuarially determined contribution to the Firefighters’ Pension Fund in 2016 was $2.4 million, but the City contributed $398,566. As of fiscal year, ending April 30, 2016, the Police Pension Fund pays out over $1.5 million in benefits annually, while the Firefighters’ Pension Fund’s annual benefit payroll is over $2 million annually.

The City’s proposed levy for the fiscal year 2016-2017 would have provided for $1.16 million to the police pension and $2.64 million to the fire pension; however, sources at the Cook County’s Clerk’s office indicate the levy was never filed.

Until recently, the courts have blocked traditional pathways to pension funds seeking relief from underfunding, citing the lack of constitutional protection to guaranteed funding (see Board of Trustees of the Riverdale Police Pension Fund, 2014 IL App (1st) 130416). The Harvey case as well as another recent case, Village of North Riverside v. Boron, 2016 IL App (1st) 152687, indicate that Illinois appellate courts are willing to find other paths to enforce funding, including enforcement of contractual arrangements rooted in litigation seeking property taxes levied for pension purposes.

For villages, cities and fire protection districts, the primary takeaway should be that choosing to underfund – or failing to fund – their fire and police pensions will result in quickly skyrocketing debt, which is now more likely to turn into litigation and subsequent judgments against them. For fire and police pension funds who previously have been hesitant to pursue costly litigation, the Harvey case opens the possibility that funding litigation may be more favorable received by the courts then previously believed – even if the resulting judgments appear to be simply moral victories at this point.