The city of Harvey remained locked in a court fight with state officials and its own public worker pension funds over its ability to use sales tax dollars to pay its bills. But it likely is just one of dozens of cities and other governments across Illinois poised to land on the wrong side of a state law mandating pension fund payments.
“Harvey may be somewhat of an extreme case given all the factors, among which is its history of corruption,” Kass, assistant director for the Center for Municipal Finance at the University of Chicago Harris School of Public Policy, told the Cook County Record. “But I wouldn’t be surprised to see more pension funds across the state file similar paperwork with the comptroller’s office the same way Harvey has. There might not be a ton of Harveys, but many other places have the same issue of pension system underfunding.”
After the Harvey pension fund for retired police officers moved to intercept and lay claim to millions earmarked for the city, ultimately setting off a legal quagmire, Illinois Comptroller Susana Mendoza justified diverting the funds as requested by pointing to a 2011 enacted state law that requires her office to do just that when municipalities are accused of failing to make their obligated pension payments.
The case in Harvey is being closely monitored across the state and other parts of the country given the gravity and widespread nature of the problem. In addition, 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, as the Cook County Record previously reported.
However, in a related opinion letter, Mendoza allowed the city to pay a group of investors holding city bonds, as those particular bonds were funded from a special Harvey city sales tax, and that tax should not be considered state funds. Thus, those funds cannot be withheld and diverted to pensions.
Harvey city officials say the legal entanglement has deepened the city’s problems, recently forcing city officials to lay off dozens of government workers, among them as many as 40 police and fire department officials.
“A big part of this is so many of these pension funds have been so grossly underfunded for so long and that’s why you’re seeing so many of them experiencing the same troubles,” Kass added. “Look at North Chicago; they’re one of the other places pretty much in the same predicament. While the initial law may have required pension contributions, it lacked an enforcement mechanism.”
In all, Kass estimates that there are at least 53 other municipalities that have seen police and fire pension funds underfunded on par with the figures that have caused much of the destruction in Harvey. Across the state, police and fire pensions are reported to have only been funded on an average of just 60-67 percent over the last decade.
“Harvey may be the first, but it certainly won’t be the last where you see something like this happen,” Kass said. “And as far as the law goes, it’s clearly written about what can be intercepted by the comptroller’s office whenever the situation occurs.”
Kass said it remains to be seen what the controversy could truly come to mean for Harvey’s already frustrated taxpayers.
“In theory, you can raise taxes as high as you want, but that doesn’t mean the people can afford to pay them,” she said. “Harvey already has a high tax rate that’s only matched by its high delinquency rate. There’s a real need to evaluate the dynamics and demographics of these places and the question of whether or not they can handle much more of the same thing. Some places may already have a cap of their own, while for places like Harvey the solution may have to come from a higher level of government involvement.”
Kass said she’s heard some potentially good ideas offered concerning possible long-term solutions, but she she thinks what’s happening in Harvey is the wrong way to go in terms of handling things.
“Right now, Harvey is laying off police and firemen and I know that can never be a good idea,” she said. “Just firing people, especially essential people to making a society work, is not the answer anyone needs.”
Cook County Record
By Glenn Minnis | Jun 21, 2018