CHICAGO — Concern that future changes to Illinois’ pension payment intercept law could interfere with a settlement remains a sticking point in negotiations among the city of Harvey, its public safety pension funds, and revenue bondholders.
A global settlement that would allow Harvey and its police and firefighters’ pension funds to divide up the city’s share of revenues subject to state diversion to cover overdue contributions is “moving along,” firefighters’ fund lawyer Andrew Schwartz, of Schwartz & Kanyock LLC, told Cook County Circuit Court Judge Raymond Mitchell Wednesday.
“The parties have agreed in principle,” Harvey’s lawyer Bob Fioretti, of Fioretti Roth LLC, said at the hearing.
The city would keep 65% of the diverted revenue while the police fund would receive 25% and the firefighters' fund 10%. The city’s share of state sales pledged to holders of $6 million of city issued revenue bonds will continue to flow directly to the trustee, Amalgamated Bank of Chicago. It will likely remit much of the revenue to the city as home rule sales and other tax collections are expected to cover the roughly $650,000 annual debt service.
The settlement will require that the city stay up-to-date on contributions to a third fund, the statewide Illinois Municipal Retirement Fund which covers general employees, in order to prevent the IMRF from filing claims on overdue contributions that could interfere with the settlement’s terms.
Harvey was the first municipality stung by a 2011 public safety pension law that included a revenue intercept mechanism. The comptroller earlier this year put in place a diversion process and the police pension fund submitted a $7 million claim; the firefighters' fund followed with a $12 million claim. The city initially challenged the diversion through litigation but since has been focused on a settlement.
In reviewing the various articles of the pension code, the comptroller’s office recently concluded that the intercept rules extend to the IMRF. The well-funded statewide fund had been intercepting Harvey and other municipalities’ revenues under a provision that allows it — as a “state agency” — to garnish one revenue stream. The new intercept impacts a wider array of motor fuel, gambling, sales, income and property tax-related revenues.
Comptroller Susana Mendoza has already diverted $2.3 million from Harvey’s roughly $7 million of annual revenue that flows through the state. Harvey, without those funds, laid off public safety staff.
The parties recently agreed to an interim settlement that distributed those funds among the city, the public safety funds, and the bondholders with a provision that also called for IMRF to be paid any overdue amount. That figure turned out to be about $200.
A primary sticking point to a permanent settlement is how to address any future change in the 2011 statute although the various parties said they believe it can be resolved.
“We want the certainty of knowing the claim will be paid,” Schwartz said. “The comptroller wants to be only bound by what the law says” now or later.
“We are going to have to determine whether to bind ourselves to the agreement,” said Jason Kanter, of Illinois Attorney General Lisa Madigan’s office, which represents the comptroller, adding that the comptroller wants to enforce whatever law is in place.
If the comptroller’s office determines it can’t legally agree to uphold the revenue distribution plan should the statute change, the city could direct the Illinois Department of Revenue to send the revenues directly to the parties to the agreement. The various stakeholders said in court they were awaiting a decision on that front from the Revenue Department.
A bill that was active this year in the legislature would have pushed off enforcement until fiscal 2020 and then phased in a rise in the level of revenue that can be diverted over four years with 25% of the overdue amount intercepted in the first year rising to 100% by 2023.
“It’s unfair for the public safety of the people of Harvey to be put at stake because of a state law that requires much more than the municipality can handle,” Sen. Napoleon Harris III said in a statement on his proposed legislation. “I am going to continue working on this issue because I want to ensure that the people of Harvey aren’t being penalized for living in a poor community.”
The General Assembly’s session has ended without action but many following the issue believe that the widespread attention on the diversion mechanism will eventually lead to legislative modifications.