North Riverside draws scrutiny at state hearing over pensions

North Riverside's recent efforts to cure its pension-driven financial ills have little bearing on the question of whether the village violated state statutes by underfunding its police and fire pensions, a state Department of Insurance attorney said in a hearing Thursday.

The department summoned North Riverside officials to its Chicago office to explain why the village underfunded police and fire pensions by about $5 million from 2008 to 2012, paying nothing toward the funds in several of those years.

Village officials focused on the future in the hearing, presenting an unusual plan to save money by contracting with an outside company for firefighting services. A newly passed water rate increase will also help, officials said.

The village was one of at least six Illinois municipalities to receive letters from the Department of Insurance ordering the towns to pay more toward their pensions or face penalties. The letters include information about a new enforcement mechanism that will allow the state to force municipalities to pay more toward police and fire pensions starting in 2016.

Department of Insurance officials said the hearing was held to determine whether the village violated state laws by underfunding the pensions. State law gives leeway for underpayment if municipalities can show "good and sufficient cause" for the underpayments.

"It seems they are taking many steps to move forward, but they haven't explained why they didn't take those steps earlier," Department of Insurance attorney Amanda Kimble said in the hearing.

Kimble and the village argued their cases before a Department of Insurance hearing officer, who will make a recommendation to the department's director about whether the village violated state statutes by underpaying its pensions. A recommendation is at least several weeks away, the hearing officer said.

North Riverside projects a budget deficit of $1.9 million for the coming fiscal year, $1.8 million of which is due to its pension obligations, village officials have said. Officials have said privatizing the fire department would save the village about $745,000 per year by reducing benefit costs and moving employees into 401k retirement plans. The North Riverside Firefighters Union Local 2714 has threatened to sue if village officials go through with the privatization plan, saying the union's contractual agreements with the village would prevent privatization.

Village officials and firefighters union representatives both questioned the Department of Insurance's focus on past underpayments instead of solutions for the future.

"It's too bad a small municipality has to face a civil penalty instead of funding its pensions," said Burt Odelson, an attorney representing the village.

A 2013 letter from the department to the village noted the village paid nothing toward its fire pensions from 2009 to 2011 and paid only a fraction of what it should have in 2012, violating statutes requiring municipalities to meet payment schedules. The village underpaid its police pensions over the same period, the letter states.

Village officials have said they could not afford the pension payments because the economic recession reduced sales tax revenue, which makes up a large portion of the village's revenues.

Kimble noted the village managed to make payments to the Illinois Municipal Retirement Fund — the pension fund for non-uniformed employees — during the years it failed to pay toward the police and fire funds.

The Illinois Municipal Retirement Fund already contains an enforcement mechanism like the one that will available for police and fire pensions in 2016, North Riverside Finance Director Sue Scarpiniti said at the hearing. For that reason, the village made payments to the municipal fund, she said.

Kimble faulted that logic.

"When push comes to shove, it seems they could find the funds and just made choices as to who was receiving them," Kimble said.

Union officials also criticized the village for not making the required payments, but said the best solution for North Riverside residents is more likely to come from the negotiating table than from state enforcement actions.

J. Dale Berry, an attorney representing the union, said state-forced payments would hurt the residents of North Riverside by forcing dramatic spending reductions.

"It's good to keep their feet to the fire," Berry said of village officials. "But I don't want to throw them in the fire."

The union's latest contract with the village expired April 30. The two sides began a new round of negotiations June 24, union officials said.

wjventeicher@tribune.com

Twitter @wesventeicher