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
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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
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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
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No. 1-15-2687
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).
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¶ 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.
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¶ 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
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No. 1-15-2687
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
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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.
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