THOMAS W. KELTY, Chief Counsel,
Illinois Municipal League

"BALANCING THE BOOKS"

In an odd sense, the objectives of municipal units of government are in some respects similar to those of private businesses. Private business seeks to make a profit for its owners and to maintain a financial stability and solvency permit growth and expansion. Although profits and dividends are seldom, if ever, paid to taxpayers of units of local government, taxpayers expect profits in the form of better and expanded municipal services, an enhanced quality of life and taxation at the lowest possible rates. Like private business, units of local government seek financial solvency and stability which permits them to conduct their operations with minimum borrowings and with the maximization of use of their own resources. However, those goals are not always achievable by units of local government. Voters correct dissatisfaction with the quality of life and the level and quality of services provided by units of local government at the ballot box. However, little attention has been paid to assisting units of local government in the correction of financial difficulties they encounter as a result of unforeseen events or financial management practices.

Private business and all units of government have recourse to the bankruptcy courts. However, measures that could be taken to avoid such a circumstance for a unit of government prior to filing of a bankruptcy is an attractive alternative. The General Assembly has recognized that units of local government may need assistance to avoid financial difficulties and the potential financial disaster of the filing of a bankruptcy action by adopting the "Local Government Financial Planning and Supervision Act" (the "Act").

The purpose of this Act is distinctly stated by the legislature:

"to assure fiscal integrity of all units of local government so that they may provide for the health, safety and welfare of their citizens, pay when due principal and interest on their debt obligations and meet financial obligations to their employees, vendors and suppliers."

The Act provides a mechanism by which a unit of local government may obtain the assistance of a commission appointed specifically for that unit of local government to assist it in resolving its financial difficulties. The process under the Act begins with a declaration of a "fiscal emergency" as defined by the Act. Five conditions can result in the finding that a fiscal emergency exists. Default in a payment of principal and interest on any debt obligation for more than 90 days, failure to make payment of over twenty percent of the payroll to employees (under certain circumstances), the failure of anticipated revenues to match anticipated expenditures, use of capital funds to pay operating expenses, and any other condition which in the judgment of the governing body of the unit of local government is likely to result in a temporary or permanent failure by the unit of local government to meet its financial obligations are the articulated conditions in the Act which create a fiscal emergency.

However, the existence of a fiscal emergency does not immediately result in intervention into the municipal affairs by the Act. In order to trigger the processes for assistance under the Act, a two-thirds vote of the governing body of the unit of local government must either determine that a fiscal emergency is impending or has occurred within fifteen days of the vote.

This vote of the unit of local government to declare a fiscal emergency allows a petition to the Comptroller for the creation of a financial planning and supervision commission as established and defined by the Act. Such a commission is to consist of nine members: the Governor, the Comptroller, the State Treasurer, the Director of the Bureau of the Budget, the Director of the Department of Commerce and Community Affairs, the

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presiding officer of the unit of local government and three members nominated by the governing body of the unit of local government and appointed by the Comptroller. The governing body submits the names of five persons meeting the qualifications set forth in the Act to the Comptroller for his consideration. The Comptroller may appoint from this list or request its governing body to submit additional nominees. All of the officials appointed to the commission are to serve for its life without compensation and are required to make certain disclosures pertaining to any interest that they may have in the sales of any goods, property or services to the unit of local government with respect to which the commission is established.

The operational purpose of the commission is actually fairly simple. The commission with the assistance of a financial advisor, which it may retain pursuant to the provisions of the Act, is to prepare a detailed financial plan for the unit of local government to eliminate the fiscal emergency. Section 8 of the Act sets forth detailed information on the minimum contents of the financial plan and the goals that are to be sought by the operation of that plan. The general purpose of all of the goals of the plan are to correct the conditions which created the fiscal emergency and to provide financial controls which will prohibit the occurrence of such a fiscal emergency in the community again.

The Act causes certain actions and confers upon the commission substantial powers to assist the unit of local government in the regulation and control of its financial affairs. First, generally, the Act provides that

"no State agency, board, commission or department, no subdivision of the State, no unit of local government, may enforce any judgment or lien against, or take any other action to collect a delinquent indebtedness from, a unit of local government covered by this Act during the period from when a commission is duly constituted . . . until it is dissolved . . ."

This broad power to forestall the enforcement of judgments or liens by other units of government can substantially alleviate the pressure on municipal finances to permit a resolution of financial difficulties encountered by a unit of local government. This forestalling of punitive action by other units of government against the financially crippled municipality effectively buys time in which the commission can work to develop the financial plan which forms the basis for resolution of the fiscal emergency.

The powers conferred upon the commission to review and intervene in the fiscal affairs of the unit of local government are unique. Generally, powers once assumed by an outside agency are seldom relinquished. Prior enactments of the legislature have assumed powers previously reserved to local unit of government and made them a part of the state bureaucracy. This Act is unique in that it exercises the power to resolve the difficulty encountered by the unit of government then relinquishes that power back to the municipality to go forward in the operation of its affairs as a stronger fiscal sound unit of government. The streamlined procedures of the Act, coupled with the brief time frames in which the commission in required to act, minimize the amount of time that municipal fiscal affairs are under the supervision and control of the commission. The result of these features is to correct the problem without usurping the authority of the local officials. In this regard, the Act operates as a helping hand as opposed to a big brother.

Hopefully, few units of local government in Illinois will find the need to declare'a fiscal emergency. However, for those units which encounter difficulties, this Act can provide a safe harbor and substantial assistance in the resolution of fiscal difficulties. Certainly, any municipality which encounters overwhelming financial problems will welcome this assistance.

CHICAGO HEIGHTS HOUSING SUIT SETTLED

In the January 17th edition of the Chicago Tribune, it was reported that the Chicago Heights Fair Housing Act Suit filed by the U.S. Justice Department against the City of Chicago Heights has been settled.

This action was brought by the U.S. Department of Justice and accused the City of Chicago Heights of discriminating against the mentally handicapped by denying a special use permit for a fifteen-bed group home in a residential neighborhood. At the time of the application for the special use permit, nearby residents expressed their opposition to the location of the home in the neighborhood. The Fair Housing Act prohibits discrimination against people with mental or physical disabilities. These categories of disabilities were added by 1988 amendments to the Fair Housing Act.

The settlement of the action was based on three principal concessions by the City of Chicago Heights. First, the City will issue the special use permit for location of the home at its originally intended site. Second, the City will pay $30,000 to the developer of the group home to reimburse for delays associated with the project related to issuance of the special use permit by the City of Chicago Heights, And, finally, $15,000 will be placed in an escrow account for the future tenants of the home. At the time that handicapped individuals are accepted into the fifteen-bed home, they will each be given $1,000 from the account. In addition to these sanctions, Chicago Heights will notify the Justice Department if it receives any other applications for group home permits during the next five years.

The filing of this unprecedented action by U.S. Justice Department and its settlement illustrates the potential for grave difficulties that municipalities face in the consideration of applications for special use permits to construct homes for the handicapped. Consideration of these matters must be careful, deliberate and objective. Although Chicago Heights admitted no liability for any discrimination in the settlement, it is clear that the potential for lengthy, protracted, expensive litigation against the municipality operates as a substantial club that the Justice Department can use against a municipality in the threatening or filing of such an action.

Later editions of this column will comment more extensively on this developing area of law. •

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