Village of North Riverside v. Boron

2016 IL App (1st) 152687, 69 N.E.3d 881

• Court: Appellate Court of Illinois
• Decided: December 19, 2016
• Docket: 1-15-2687
• Status: Unpublished

Opinion

2016 IL App (1st) 152687 No. 1-15-2687

FIRST DIVISION

December 19, 2016

IN THE

APPELLATE COURT OF ILLINOIS

FIRST JUDICIAL DISTRICT

THE VILLAGE OF NORTH RIVERSIDE, ) Appeal from the Circuit Court of ) Cook County. Plaintiff-Appellant, ) ) v. ) ) ANDREW BORON, in His Official Capacity as ) No. 14 CH 17951 Director of Insurance, and THE ILLINOIS ) DEPARTMENT OF INSURANCE, ) ) Honorable Sophia H. Hall Defendants-Appellees. ) Judge Presiding

JUSTICE SIMON delivered the judgment of the court, with opinion. Presiding Justice Connors and Justice Mikva concurred in the judgment and opinion.

OPINION

¶1 This case concerns the Village of North Riverside’s failure to meet its statutory

contribution obligations to its police and firefighter pension funds. At an administrative hearing,

the Village argued that its noncompliance should be excused because it had good and sufficient

cause for failing to meet its obligations. The administrative hearing officer rejected the Village’s

arguments, and the hearing officer’s recommendation was accepted by the Director of the Public

Pension Division. The Village sought administrative review in the circuit court which affirmed

the decision. The Village now seeks review here, and we confirm the administrative ruling and

affirm the circuit court's decision. No. 1-15-2687

¶2 BACKGROUND

¶3 The Illinois Pension Code (40 ILCS 5/1-101 et seq. (West 2012)) requires municipalities

to contribute to the police and firefighter pension funds. See 40 ILCS 5/3-125 (West 2012)

(police); 40 ILCS 5/4-118 (West 2012) (firefighters). The municipalities are required to pay the

amount to cover the “normal cost” that remains after the employees’ contributions are factored

in. Id.

¶4 The General Assembly enacted legislation to create the Public Pension Division which is

charged with administering and enforcing the provisions of the Pension Code. 40 ILCS 5/1A-101

(West 2012). Whenever the Division determines that a government unit has failed to comply

with the law, the Director of the Division may hold a hearing where the government must show

cause for its noncompliance. 40 ILCS 5/1A-113(d)(3) (West 2012). If, at the conclusion of the

hearing, the Director determines that “good and sufficient cause” for noncompliance has not

been shown, the Director is entitled to order compliance and assess penalties. 40 ILCS 5/1A­

113(d)(4)-(5) (West 2012). The General Assembly mandated that the Director develop standards

and criteria to be used to administer the penalty provision set forth in section 1A-113. 40 ILCS

5/1A-113 (West 2012).

¶5 The Public Pension Division used its rulemaking authority by issuing certain regulations.

See 50 Ill. Adm. Code 4435.10 (1998). The relevant regulation in this case states that, at the

hearing, in determining whether the government has met its burden of showing “good and

sufficient cause” for noncompliance,

“the Director may consider, but is not limited to, the following:

1) Evidence that, due to no fault of the pension fund,

governmental unit or elected or appointed official of a

No. 1-15-2687

governmental unit, there was an unforeseeable or

unexpected delay or occurrence;

2) Evidence of an uncontrollable circumstance; and

3) Evidence pertaining to Acts of God.” 50 Ill. Adm.

Code 4435.80(c) (1998).

¶6 Defendant Illinois Department of Insurance determined that plaintiff Village of North

Riverside violated the Illinois Pension Code when it failed to make full, actuarially designated

annual contributions to its police pension fund from 2008 to 2012 and its firefighter pension fund

from 2009 to 2012. The Village acknowledged that it had not met its contribution obligations but

asserted that there were mitigating circumstances and that it intended to take remedial action in

the coming years. The Director of the Public Pension Division called a hearing to give the

Village an opportunity to show “good and sufficient cause” for its violations.

¶7 At the hearing, the Village offered evidence through its finance director, Sue Scarpiniti.

Scarpiniti testified that North Riverside is a village with a small residential community, but that

it has a relatively large commercial base. As a result, the Village has a larger police and

firefighter force than most communities of similar population. Scarpiniti explained that the

Village’s inability to meet its contribution obligations was a result of the recession occurring

around 2009. The Village lost funds in sales tax receipts, property tax receipts, and shared

revenue from the State during this period.

¶8 Scarpiniti testified that, in 2012, the Village lost its largest sales tax producer, a restaurant

supply company, to another suburb in Du Page County. That business alone accounted for 15%

of the Village’s annual sales tax collections, and sales tax collections account for 60% of the

Village’s total annual operating revenue. The Village also received less revenue from the State

which is derived from income taxes and other taxes and fees the State collects. Scarpiniti

testified that property tax receipts also decreased at this time because the assessed property

values decreased during the economic downturn. Many property owners were successful in

lowering their property taxes through appeals. The property tax revenue problem was

compounded, Scarpiniti stated, by the fact that the Village is a “non-home rule” community and

is bound by the Property Tax Extension Limitation Law (35 ILCS 200/18-185 (West 2012)).

That law caps the amount that a community can increase its property tax levy each year, so it

prohibited the Village from making any significant increases in property taxes to cover the

deficiencies it was experiencing.

¶9 The Village issued bonds in an attempt to attract new businesses, and it issued debt

certificates to refinance a loan. The Village sold additional debt certificates to make up for the

loss of the revenue resulting from the departed restaurant supply company. All of these issuances

negatively affected the Village’s credit rating and it received three successive downgrades from

2001 to 2014.

¶ 10 On the other hand, the hearing also revealed that from 2000 to 2011, there were actually

six years in which the Village did not make any contributions to the police or firefighter pension

funds. Scarpiniti acknowledged that the Village’s failure to contribute over the years would mean

it would need to contribute more in future years. Over the same period, however, the Village

made the full required contribution to the Illinois Municipal Retirement Fund covering its other

employees because that fund “had an enforcement provision.”

¶ 11 The evidence also showed that from 2000 to 2012, sales tax receipts actually increased as

a result of two sales tax hikes, from $4,797,654 in 2000 to $8,479,401 in 2012. Scarpiniti

testified that the Village subsidized garbage collection and water services for the residents even

though other municipalities were passing along the cost increases for those services to their

residents. Scarpiniti testified that whatever additional revenue streams the Village was able to

create over the relevant period were used to fill the voids in the Village’s normal revenue lost as

a result of the economic downturn.

¶ 12 The hearing officer issued a lengthy recommended order detailing his findings of fact and

conclusions of law. In it, he found that the Village’s proffered reasons for noncompliance did not

amount to good and sufficient cause for its failures to meet its pension contribution obligations.

The Director of the Public Pension Division adopted the findings of fact and conclusions of law

submitted by the hearing officer and ordered the Village to comply with its obligations and

submit evidence of that compliance within 30 days. The Village sought administrative review of

that decision in the circuit court, and following oral argument, the circuit court affirmed the

administrative decision. The Village now seeks review here.

¶ 13 ANALYSIS

¶ 14 There is some disparity in the parties’ arguments concerning what standard of review we

are supposed to apply, but it does not seem that their positions necessarily conflict. On appeal,

the Village argues that the regulation purporting to define what constitutes “good and sufficient

cause” (50 Ill. Adm. Code § 4435.80) is unconstitutional because it is too vague. So, on that

question of law, our review is de novo. American Federation of State, County, & Municipal

Employees (AFSCME), Council 31 v. State, 2015 IL App (1st) 133454, ¶ 11; People ex rel.

Madigan v. Illinois Commerce Comm’n, 231 Ill. 2d 370, 380 (2008). But its other argument—

that the Village actually did show good and sufficient cause—presents a mixed question of law

and fact and, therefore, we will only overturn the agency’s decision if it is clearly erroneous. City

of Belvidere v. Illinois State Labor Relations Board, 181 Ill. 2d 191, 205 (1998).

¶ 15 The Village argues that “good and sufficient cause” as it is used in the Illinois Pension

Code and derivatively in the pension subchapter of the Illinois Administrative Code is too vague,

and therefore, the regulation is unconstitutional. The Village contends that because the term is so

undefined, it gives the hearing officer too much discretion and allows the interpretation of the

regulation to vary wildly from case to case based on the “whims of different hearing officers who

are charged with enforcing the rule.” The constitutionality of the regulation has apparently never

been challenged.

¶ 16 The regulation states that the Director may consider: evidence of whether there was an

unforeseeable or unexpected delay or occurrence, an uncontrollable circumstance, or any

evidence pertaining to Acts of God. 50 Ill. Adm. Code 4435.80(c) (1998). The regulation also

states that the director is not limited to considering those factors and it leaves open ended what

other considerations might be relevant. See id. The Village contends that the rule grants the

Director unlimited discretion and is, thus, not appropriately tailored to the Illinois Administrative

Procedure Act’s directive that “standards shall be stated as precisely and clearly as practicable.”

5 ILCS 100/5-20 (West 2012).

¶ 17 Contrary to the Village’s position, the regulation provides sufficiently-tailored standards

from which the agency can render a decision as to whether the government has met its burden of

showing good and sufficient cause for failing to meet its contribution obligations. The regulation

sets out broad relevancy standards but, really, that should inure to the benefit of the government

units. If anything, the argument that the regulation is too vague should belong to defendants. The

regulation basically gave the Village a free rein to present any convincing reason that it was

unable to comply with its statutory obligations. Even with that wide latitude, the hearing officer

found that the Village was unable to show good cause.

¶ 18 There are innumerable reasons why a municipality might not be able to meet a financial

obligation at a given time. The agency cannot anticipate all of those reasons with much certainty.

But the regulation here gives guidance to a hearing officer about the type of circumstances to

look for to determine if a government unit’s failure to meet its obligations should be excused.

That the regulation has broad relevancy standards makes sense and explains why we defer to

agencies’ findings in cases like this because they are in a better position than the court to decide

these matters because of their expertise in the given field. Ikpoh v. Department of Professional

Regulation, 338 Ill. App. 3d 918, 924 (2003).

¶ 19 The Village does not complain that the hearing officer actually relied on irrelevant

evidence—evidence outside the scope of the regulation’s good cause criteria. And it is not as if

the hearing officer precluded the Village from presenting certain evidence that it suggests could

have led to a different outcome. The Village has not said what other theory it might have relied

upon to show good cause but could not because of the regulation. Especially in these

circumstances, the language of the regulation did not result in an arbitrary or discriminatory

result. In fact, even if we accepted the premise that the regulation is too vague, the Village could

not show any prejudice at all.

¶ 20 What transpired at the hearing also belies the Village’s position. Its strategy was to assert

that the economic downturn around 2009 was the cause of its inability to pay. That position fits

squarely within the unforeseeable occurrence or uncontrollable circumstance criteria that the

regulation calls for. A statute is not unconstitutionally vague if it is explicit enough to serve as a

guide to those who must comply with it. General Motors Corp. v. Illinois State Motor Vehicle

Review Board, 224 Ill. 2d 1, 24 (2007). The Village relied on its unexpected drop in sales tax,

property tax, and shared revenue from the State and on its deteriorating credit and financial

position to justify its failures to fund the pensions. That was a reasonable strategy to take under

the regulation and is exactly the type of “cause” the regulation calls for—the Village was just

simply unsuccessful in meeting its burden.

¶ 21 The Village also argues that the agency erred because it applied an overly restrictive and

incomplete standard to the evidence, resulting in an arbitrary and erroneous decision. However,

there is no indication that the hearing officer failed to consider certain evidence. In fact, the

hearing officer’s detailed recommended order has 102 specific findings of fact that touch on all

of the Village’s evidence. Again, the Village does not point to anything that should have been

considered but was affirmatively omitted from consideration, and this argument is really just a

corollary to its next challenge—whether “good and sufficient cause” was established.

¶ 22 Whether the Village met its evidentiary burden to show good and sufficient cause for

failing to meet its contribution obligations is a mixed question of law and fact. An administrative

agency’s decision is a question of mixed law and fact will be found to be clearly erroneous only

where a reviewing court is left, on the entire record, with a definite and firm conviction that a

mistake has been committed. Id. at 18. That is not the case here.

¶ 23 The Village presented evidence that its revenue receipts mirrored the recession. It lost

revenue in the form of sales tax, property tax, and shared revenue from the State. But the hearing

officer, and thereafter the Director by ratification, heard all the evidence and found that the

Village had simply made choices to allocate funds elsewhere in derogation of its statutory duties.

The evidence showed that there were ways in which the Village could have raised additional

funds. The hearing also revealed that the Village in fact not only missed payments late in the

decade as they were charged with doing, but in fact made no annual contribution six times

between 2000 and 2011 and made less than the full contribution in three of the other years. Most

of the violations were before the recession on which the Village based its whole case.

¶ 24 Also, Scarpiniti testified that the Village fully funded the Illinois Municipal Retirement

Fund covering its other employees because that fund had an enforcement provision. That

admission shows a conscious choice in the Village’s allocation of resources and acknowledges a

deliberate effort to allocate resources in places other than the police and firefighter pension

funds. Even when the Village raised the sales tax and realized an increase in sales tax revenue,

the money was not given to the pension funds but was instead directed to other areas hit by the

recession. Even when other similar municipalities were raising costs for garbage removal and

water services, the Village chose to subsidize those things rather than collect more money. The

Village, as all government units, has to make choices where to spend money. And here there was

evidence that the Village spent its money on discretionary endeavors it prioritized more than

contributing to the police and firefighter pensions. That is a violation of the Pension Code, and

the Director’s decision was not clearly erroneous.

¶ 25 CONCLUSION

¶ 26 Accordingly, we confirm the administrative ruling and affirm the decision of the circuit

court.

¶ 27 Affirmed.