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Harvey firefighters’ pension on ‘collision course’ with bankruptcy, appeals court says

In an unprecedented ruling, an appellate court declared the city of Harvey so severely neglected its firefighters’ pension fund that it was on the verge of insolvency — meaning there might not be any money for retirees or firefighters on the job there today.

The ruling comes as local firefighters complain of equipment in disrepair and manpower cuts. And it follows another embarrassing ruling in which a Cook County judge took away control of Harvey’s water finances from leaders of the scandal-plagued and debt-ridden south suburb.

In a scathing opinion filed earlier this month, the 1st District Appellate Court found that for nearly a decade, the city neglected to pay enough money to keep the pension fund solvent, leaving it in danger of running dry in as little as five years. Indeed, the court found that over that period, the city contributed only 17 percent of the amount needed to sustain the pension fund.

“Harvey has set up a collision course over a period of many years where the beneficiaries of their firefighters’ Pension Fund are being paid substantially out of the money that the firefighters have themselves contributed to the Pension Fund and the money the Pension Fund earns from investments…” the court wrote. “In essence, Harvey is robbing Peter to pay Paul, but what happens when Peter retires?”

It is the first time a court has declared a pension fund to be “on the verge of default or bankruptcy,” the ruling said, meaning that the fund now has the right to be funded under a little-known clause in the state constitution.

“The constitution only protects your right to receive the benefit,” said attorney Jeff Goodloe, who represents the fund. “It doesn’t control funding, except under the rare circumstance where a court determines that the pension fund is under imminent threat of default or bankruptcy.”

The opinion echoed many of the findings of a Tribune series, which outlined years of questionable deals that enriched the city’s former comptroller, illegal borrowing that led to federal sanctions and a hotel-redevelopment deal that left city taxpayers on the hook for tens of millions in borrowed money with nothing to show for it.

“Am I optimistic that it will bring about any change? It’s hard to be optimistic about the city of Harvey,” Goodloe said. “It’s the consummate example of government inefficiency.”

But Goodloe said the courts have given the fund tools to force the city to uphold its responsibilities to pensioners.

“The bottom line is that now that we have these court orders in place, it’s like the sword that hangs over (the city) and forces them to do what they’re supposed to do.”

The case stemmed from a lawsuit filed in 2010 by the city’s firefighter pension board asserting that since 2005 the city had failed to make the required contributions to the fund in violation of an earlier funding dispute settlement. In 2015, the trial court held the city liable for more than $15 million in damages, and issued an injunction requiring it to insert a pension fund line-item in its annual tax levy, prompting the appeal.

In a separate, concurring opinion, Justice Bertina Lampkin noted that as of May 2015 there were just 47 active members of the Fire Department, while the pension fund was supporting 67 retirees or beneficiaries.

“In 2014, the Pension Fund paid approximately $157,000 a month to the beneficiaries while contributions from the active firefighters were approximately only $25,000,” she wrote, noting the pension fund’s financial consultant found that between 2005 and 2013, the pension needed nearly $12 million in funding from the city but instead received just $1.4 million. Meanwhile, over that same time, the fund was required to pay nearly $14 million in benefits.

While the court noted other municipalities have severely underfunded pensions, it called Harvey the “perfect example.”

The appeals court ruling cited the “precarious” financial shape of the pension fund, “the constant declarations by Harvey that it has not contributed to (its) poor financial condition, and the continued lack of financial responsibility shown by Harvey over a significant period of time.”

Harvey spokesman Sean Howard said that over the past two years, the city has contributed more than $3.5 million to the fund from property tax revenue, but declined to speak further about the court’s action.

But Goodloe said Harvey continues to seek the removal of the injunction.

“Why are they fighting to remove the one thing that ensures they uphold their obligation to fund the pensions?” he said.

If the pension went bankrupt, the city would have to pay the benefits, Goodloe said, but “frankly, my clients are terrified, because they know if the money runs out, the city’s not going to pay. That’s it. It’s over.”

Some retirees also remain skeptical.

“I don’t see any revenue streams to support what they’ve got,” said Steve Ciecierski, 58, a 30-year department veteran who now lives in Las Vegas, after retiring as a captain. “They can’t pay their vendors. You think they’re going to worry about some retired firefighter that lives 1,200 miles away?”

“I don’t want to see anyone go to jail, but what am I going to do if my pension dries up?” said Ciecierski, who receives about $5,300 a month. “What are these guys who are working now going to do if their pension’s gone before they retire?”

The court ruling came a few days before the firefighters union filed suit asking a judge to force the city to abide by an arbitrator’s findings that the city owed firefighters more than $1 million in back pay after it reduced the number of employees per shift from 10 to seven in 2015.

Bill Canavan, a 28-year department veteran and president of Local 471 Harvey Firemen’s Association, said the staffing cuts were just another example of the city’s neglect.

“There have been times in the last couple of years when we’ve been down to one engine,” Canavan said. “We used to run four engines and a truck. The city either doesn’t have the money to fix it or they’re not prioritizing the engines to be fixed. We’re like a clown car, putting guys in one engine and then the rest in a pickup truck.”

Howard did not comment on the union’s lawsuit.

And last month, a Cook County judge ordered a receiver to take control of the city’s water fund after finding that Harvey repeatedly violated court orders and a consent decree to repay tens of millions for water purchased from the city of Chicago. Those funds, which should have been used to pay off the debt to Chicago, were instead diverted to other accounts and used to cover other expenses, including payroll, the judge found.

mwalberg@chicagotribune.com

jmahr@chicagotribune.com

Twitter @mattwalberg1

Twitter @joemahr