COURT: Chicago fails to win TRO blocking comptroller, pension funds from intercepting state funds - Debtwire

COURT: Chicago fails to win TRO blocking comptroller, pension funds from intercepting state funds

06 June 2019 - 12:00 am

Cook County Circuit Court Judge Neil Cohen today denied the City of Chicago’s request for a temporary restraining order (TRO) to block state Comptroller Susana Mendoza from diverting state grant funds to the city’s pension funds.


The city’s lawsuit is tied to a relatively young Illinois law that allows the comptroller to intercept and divert state funds, in Chicago’s case state grant funds, to pension funds when the funds make a claim that the city has shorted its past contributions.


Among other factors, Cohen denied the city’s TRO request because he said withholding the USD 24m that the pension funds claim the city owes them in shortfalls in 2018 pension contributions would do less harm to the city than it would do the funds. “And by funds, I mean the annuitants, the people who worked for the city who did their bit and expected the funds to be there.”


During the contentious, three-hour hearing, Cohen also scolded the city for its past shortfalls in its pension contributions.


“I’m not putting my head in the sand about the city’s past conduct of kicking the can down the road,” Cohen told Deputy Corporation Counsel Weston Hanscom. “How can we trust the city that it will be fiscally responsible for the first time in years to pay its pensions?”


Chicago for years did not make its full pension payments, which led to anemic funding levels in its five pension funds, a USD 29bn unfunded liability, and a series of downgrades.


Contentious hearing


The case before Cohen began when Chicago sued Mendoza and the police, laborers, and municipal funds. The funds have requested Mendoza intercept a total of USD 24m. The city had requested the TRO to block Mendoza from distributing already-intercepted funds to the pension funds and from intercepting more state grant money.


At a 10 May hearing, Judge Cohen sent the city back to the drawing board to rewrite its TRO that he said was incorrect for technical reasons.


Cohen grilled all the attorneys during today’s hearing, especially Hanscom, saying his oral argument before the court for the TRO did not reflect the city’s argument in its filings.


The lawsuit centers on the process by which the intercept process works — or doesn’t work, according to the city — rather than on the claims themselves.


The city argues there is no independent arbitrator to determine whether an actual contribution shortfall has occurred, and also that Mendoza has always simply endorsed the funds’ claims and intercepted the claims, rather than properly reviewing each side.


Judge Cohen acknowledged the city’s argument that Mendoza acts simply as a “rubber stamp” for the funds, and that the process of certifying and establishing claims is “a joke.”


“That [allegation] distresses this court,” Cohen said. Mendoza’s attorney pointed out that Mendoza is “only” the state’s chief fiscal officer, and not meant to arbitrate between complex claims.


“I understand that she’s just the CFO, but the legislature expects her to do a real consideration per the rules,” Cohen said.


In denying the TRO, the judge noted that the city has not yet completed the full process to fight a claim, which includes a protest letter filed within 60 days of the intercept claim. The city’s protest letter is due by 10 June, a date that was driving in part the city’s urgency behind its TRO request.


In response to the city’s argument that it’s futile to appeal to Mendoza because she has always acted as a “rubber stamp” to the funds, the judge said, “We haven’t yet turned the system of justice into one of psychic phenomenon.”


The judge set a hearing for 13 June to discuss the next steps in the case.


The City of Harvey went through the court process last year over the same intercept law. In Chicago’s case, its four pension funds have all alleged the city has shorted them in the years 2016, 2017, and 2018.


Chicago is involved in a separate lawsuit in Cook County with its firefighter pension fund over the 2018 payments. That case, before Cook County Circuit Court Judge Sophia Hall, revolves around the interpretation of the pension code, and which party is responsible for shortfalls in property tax collections. A status hearing is set for 18 June in that case.


The city filed the suit in the Cook County Circuit Court, Chancery Division. It’s the City of Chicago vs. The Chicago Policemen’s Annuity and Benefit fund, the Municipal Employees Annuity and Benefit Fund, the Laborers’ Annuity and Benefit Fund, and the Office of the Comptroller of the State of Illinois, case no. 20-19-CH-05526.


by Caitlin Devitt in Chicago