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Proviso Probe

Saturday, August 05, 2006

PO-PO, Harvey sued by police pension board [M]

Chicago Tribune (Tom Rybarczyk):
Harvey City Hall failed to pay more than $800,000 owed to the Police Department's pension fund, mostly during Mayor Eric Kellogg's tenure as mayor, according to a lawsuit filed by the pension board this week.

Remember; Maywood's police pension fund has irregularities too.


  • In 2000, the board of trustees of the Maywood Firefighters' Pension Board and Police Pension Board filed separate actions against the Village in the Chancery Division of the County Department of the Circuit Court of Cook County, Illinois.

    In the lawsuits the Pension Boards allege that the Village failed to levy sufficient statutorily required taxes for the benefit of the Firefighters' Pension Fund and Police Pension Fund and failed to forward the tax revenues which were received to the fund on a timely basis.

    The Pension Boards were seeking a judgment that the Village has violated certain provisions of Illinois law governing the levying of taxes for the benefit of the respective funds and transfer of revenues to such funds, an accounting to determine contributions owed by the Village to the respective funds, a money judgment for the amount allegedly owed, pre-judgment interest and other relief.

    The Village contends that even though there was arguably an "underfunding" for those three years, under GASB 34 (Government Accounting Standards Board), it is only required to fully fund its pension obligations by 2033 (or such later date as prescribed in the law).

    Therefore, the Village alleged that there was no liability for "underfunding" in years 1999, 2000 and 2001 because the Village merely needs to levy enough to fund the pensions funds on a going forward basis so that the Village meets its fully funded obligation in 2033.

    Accordingly, the Village argued that there was no "liability" for which the Village was liab1e.

    Both of the cases were in the discovery stage of litigation. If the Village was unsuccessful in defending the litigation, it could have been ordered to pay a judgment in the amount of the underfunded liability, if any, (which could have been in excess of $500,000 per year of underfunding for each fund).

    On December 5, 2000, the Village filed a complaint against Unison Consulting Group, Inc. ("Unison"), and its parent company, Unison Maximus, Inc. On May 3,2001, the Village amended the complaint to include Hill, Taylor & Company, LLC as a defendant.

    On July 16, 2001, the Village added a third defendant, Sharon Gist Gilliam, who was the Village's former Treasurer and a Unison partner.

    The parties, back then, were engaged in the discovery process. No trial date had been set as of that date.

    In the Third Amended Complaint (the "Complaint") filed on May 31, 2002, the Village alleges that Unison, which the Village engaged in 1996 to perform the duties of the Village's finance department, materially breached the terms of its contract with the Village and engaged in a pattern of tortious conduct which included a breach of fiduciary duty, fraud and negligent misrepresentation.

    Specifically, the Village alleged, among other things, that Unison misrepresented its ability to perform under the contract, failed to perform under the contract, placed an unqualified person in the position of Finance Director of the Village and made false representations to the Village's Board of Trustees concerning the financial health of the Village.

    The Complaint also alleged that Ms. Gilliam breached her fiduciary duties to the Village by failing to perform any services for the Village and failing to oversee the operations of the Finance Department, which was staffed and being run by Unison.

    The Complaint further alleged that Hill, Taylor & Company, as the auditor of the Village's financial statements for the years 1995 to 1998, negligently breached its duty to use care in the performance of its services and negligently misrepresented the Village's liquidity.

    In particular, the Village alleged that Hill, Taylor & Company knew or should have known that the cash and liquidity practices of the Village were significant and material to the financial solvency of the Village, and that it had a duty to advise the Village immediate1y if its solvency was in doubt or otherwise threatened.

    The Village was seeking, among other relief, compensatory and punitive damages and restitution of amounts paid to both Unison and Hill, Tay10r & Company by the Village.

    While the Village believed its claims were meritorious, there was no assurances that the Village would recover any damages or receive any other relief as a result of the suit.

    By Anonymous So what was the outcome of all this stuff?, at 8:16 AM, August 06, 2006  

  • In September 2002, the Village of Maywood filed a purported expert report with the court that estimated the Village's damages to be approximately
    $47 million.

    Unison believed that the report was deeply flawed and the Village's claims were without merit.

    "Unison intends to defend the action
    vigorously. Unison tendered the claim to the Company's insurance carrier. Although there is no assurance of a favorable outcome, the Company does not believe that this action will have a material adverse effect on its financial condition or results of operations, and the Company has not accrued for any loss related to this action."

    By Anonymous That wasn't all.., at 9:58 AM, August 06, 2006  

  • I hope the mayor of Maywood would comment on the investigation into what happened to the maywood police pension plan. I heard gene Moore's anmed in the investigation.

    By Anonymous we need to know, at 12:56 PM, August 06, 2006  

  • Local politicians, as pointed out in the follwoing article, have been shortchanging their public pension funds on an ongoing basis for years. So I really wonder, what’s the deal as concerns the Village of Maywood?

    Featured in today’s NYTimes is an article by a Ms. Williamswalsh about a San Diego, Ca. whistle-blower who, in 2003, forced the City to reveal that it had been shortchanging its city workers’ pension fund for years. What came in the aftermath was a wave of lawsuits, investigations and eventually criminal indictments.

    Now, with the city’s books in shambles, San Diego remains barred from raising money by selling bonds. Cut off from a vital source of cash, it has fallen behind on its maintenance of streets, storm drains and public buildings. Potholes are proliferating and beaches are closed because of sewage spills.

    And while retirees are still being paid, a portion of their benefits could be in doubt as the result of continuing legal challenges. San Diego is caught in a huge mess and must figure out how just how to close what is a $1.4 billion shortfall in its pension fund.

    According to the article, Illinois and several other states and local governments across the nation have engaged in similar maneuvers with their pension funds as did San Diego, “but there’s been no crippling scandals — at least not yet”.

    “It is hard to know the extent of the problems, because there is no central regulator to gather data on public plans. Nor is the accounting for government pension plans uniform, so comparing one with another can be unreliable. But by one estimate, state and local governments owe their current and future retirees roughly $375 billion more than they have committed to their pension funds. And that may well understate the gap:

    Barclays Global Investments has calculated that if America’s state pension plans were required to use the same methods as corporations, the total value of the benefits they have promised would grow 22 percent, to $2.5 trillion. Only $1.7 trillion has been set aside to pay those benefits.”

    What’s revealed in this fiasco is a consistent pattern of neglect for which the public and its public-service workforce remain essentially clueless as to what’s actually going on.

    Officials in Trenton, New Jersey,for example, have been shortchanging their pension funds for years, much as San Diego did.

    “From 1998 to 2005, the state overrode its actuary’s instructions to put a total of $652 million into the fund for state employees. Instead, it provided a little less than $1 million. Funds for judges, teachers, police officers and other workers got less, too.

    To make up the missing money, New Jersey officials tried an approach similar to one used in San Diego. They said they would capture the “excess” gains they expected the pension funds’ investments to make and use them as contributions.” --- Sound familiar?

    “It was a doomed approach, leaving New Jersey to struggle with a total pension shortfall that has ballooned to $18 billion. Its actuary has recommended a contribution of $1.8 billion for the coming year, but the state has found only $1.1 billion, so it will fall even farther behind.”

    Illinois, says the article, “has tried to make its municipal pension plan cheaper by stretching its funding schedule over 40 years , which is considerably longer than the 30 years that governmental accounting and actuarial standards permit, and more than five times what companies will get under a pension bill that has just passed Congress.”

    Illinois is stretching its pension contributions over 50 years. At that rate, many of its retirees will have died by the time the state finishes tapping taxpayers for their benefits.

    “Illinois officials say the state’s 50-year schedule is actually an improvement; before adopting it in 1995, the state had no funding schedule at all.”

    I agree with the article’s identification of a key flaw in the whole process. Namely: “The lack of a...response to what would seem to be a nationwide problem (that) underscores a peculiarity of the public pension world: like banks and insurance companies, the pension plans are large and complex financial institutions, but they face no comparable systems of checks and balances...

    “There’s no oversight; there’s no requirements; there’s no enforcement,” said Lance Weiss, an actuary with Deloitte Consulting in Chicago who advised Illinois on its pension problems. “You’re kind of working off the good will of these public entities.”

    As recent as July of this year, a couple of US Senators did approach the Government Accountability Office, calling for an investigation of the financial condition of the nation’s public pension plans.

    “Public plans are not governed by the federal pension law, the Employee Retirement Income Security Act, that companies must follow. They’re not even covered by the Pension Benefit Guaranty Corporation (PBC).

    “Instead, they are governed by boards that often include municipal labor leaders, whose duty to represent their workers’ interests can easily conflict with their fiduciary duty to represent the plan itself. And even the most exemplary pension boards can be overruled, in many cases, by politicians whose priorities may be incompatible with sound financial management.”

    This means that, should such funds come up short, the only alternative is for them resort to the taxpayers.

    Again, the problem is that, “When the state runs into financial trouble, pension contributions are something that they can defer without, quote-unquote, hurting anybody,” said David Driscoll, an actuary with Buck Consultants.

    But “In fact, they are hurting people, and the people they are hurting are the taxpayers, who, whether they realize it or not, are going into a form of debt,” Mr. Driscoll added. “Those pension obligations don’t get cheaper over time. They get more expensive.’’

    Eventually the cost gets too big to ignore.

    Taxpayers have no such help as in the case where oversight authorities monitor the operations of corporate pension plans. The accounting standards of many municipal plans entail a great deal of flexibility, a process that - as far back as 1994 - was denounced by a former head of Governmental Accounting Standards Board. Speaking on the subject of some revised plan rules, this former offical detailed in a 10-page dissent, how the act “fails to meet the test of fiscal responsibility” because it permitted “an extraordinary number of accounting options” and some governments were bound to choose the weakest one.

    “San Diego violated the rules for a number of years, using accounting techniques that hid both its failure to put enough money behind its pension promises and the debt to its workers that was growing every year as a result.”

    So what’s up with Maywood?

    In the case of San Diego, the City had issued reassuring financial statements “because its charter bars it from issuing public pronouncements on individual cities”.

    “San Diego might have gone on unchallenged indefinitely if not for the decision of one of its pension trustees...to blow the whistle, eventually forcing the city to correct the financial disclosures it had made in connection with an impending bond sale. Only then was it possible to see in one place what had been going on with the pension fund. And only then did the S.E.C. get involved”.

    What’s the current state of oversight? And, by implication, what are the risks?

    “The Office of Municipal Securities is down to a staff of two and is no longer independent. The wave of enforcement actions against cities has slowed to a trickle. The S.E.C. investigators who went to work in San Diego after the pension scandal erupted have never said what they found.”

    The S.E.C. has, in essence, “shifted its gaze away from municipal finance” and leaving in its wake what one former regulator described as “a regulatory hole.”

    “If the agency (S.E.C.) were equipped to monitor state and local governments the way it monitors corporate disclosures...it could provide an early warning of financial conditions threatening the solvency of any number of communities.”

    I sure wish that the Village could address some of these concerns as highlighted from the above article. I'd be satisfied if either the Mayor or the folk on his finance staff would come forward and offer some commentary on this issue.

    Assuming the worse, sooner or later, there will come a day of reckoning. By then, my fears are that it will be too late.

    By Anonymous John Q. Public, at 8:56 AM, August 08, 2006  

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