The city of Chicago has filed suit against the Illinois state Comptroller’s office and pension boards for its police officers and other city workers, accusing the pension funds and the comptroller of wrongly intercepting state grant funds otherwise owed to the city because the pension funds say the city has shorted its pension contributions.

On May 1, lawyers for City Hall filed a complaint in Cook County Circuit Court, asking a judge to slap an injunction on the comptroller’s office and order the state release the money.

“… The Comptroller’s continued interception of these grant funds creates a significant threat that certain unallocated City funds intended for future risks and unanticipated shortfalls will be depleted and unavailable when needed,” the city asserted in its complaint. “This could lead to cuts in services and a reduction in personnel if there are not enough unallocated funds to respond to an emergency or other unexpected budget shortfall.”

The complaint centers on decisions made by the Office of Comptroller Susana Mendoza to intercept and hold grant money the city said it is due to receive from various state agencies.

The complaint does not specify how much money the city believes the comptroller’s office has intercepted to date.

According to the lawsuit, the comptroller’s actions followed notices of “final determination” submitted in March and April by three pension funds which manage retirement funds for Chicago city workers, including police officers. According to the complaint, city believes the pension funds have told the comptroller City Hall has shorted its contributions to the three pension funds by a total of about $23.1 million, which could trigger an embargo on state funds to the city.

Under state law, the comptroller is required to intercept and hold any payments being made by the state to a municipality, if one of the municipality’s pension funds reports the local government has failed to fund its pensions at the levels set by law.

Last year, the city of Harvey became the first Illinois municipal government to fall prey to the law, fighting in court for months over the comptroller’s acquiescence to the request of a Harvey public worker pension fund to intercept the money. In that instance, the litigation surrounded Harvey’s share of state sales tax money. That court fight eventually ended in a deal on how to divide the money.

In this instance, the city complaint said the “final determinations” by the pension funds are “false.”

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The city also asserts the comptroller has not given the city a hearing to dispute the pension funds’ determinations, which the city said is contrary to the comptroller office’s rules and regulations, and against state law.

“The Comptroller’s interception of the grant funds without a final determination following a hearing before an impartial tribunal as to the City’s obligation to pay the alleged debt is also a denial of due process,” the city said.

A spokesman for the comptroller confirmed the comptroller's office had intercepted the funds at the request of the pension funds.

Spokesman Abdon Pallasch said the comptroller's office acted based on their understanding of the law. He noted the law had been written specifically to only allow the comptroller to intercept grant funds payable to thr city, exempting the city of Chicago's share of state tax revenue.

Pallasch said the comptroller's office had been served the city's lawsuit and would respond in court.

He declined for now to estimate the value of the funds that had been intercepted, saying that was still being calculated.