December 2, 2022
In May, 2022, the Illinois General Assembly approved Public Act 102-0740 (“Act”), which dramatically alters aspects of the State’s foreign fire insurance license fee program and limits the role of municipalities in managing those fees. Notably, the Act, which takes effect January 1, 2023, significantly broadens the authority and establishes the independence of foreign fire insurance boards (“FFI Boards”) from their host municipalities. The Act virtually eliminates any municipal role in the imposition, collection, and expenditure of foreign fire insurance fees.
While these changes may at first appear undesirable from the perspective of municipal leaders, the reality may be more nuanced. Because the Act clarifies the relationship between a municipality and its associated FFI Board, municipalities may very well benefit from the new law.
This Alert summarizes the Act and reviews the tools municipalities still have at their disposal to manage their relationship with the FFI Boards and the ownership and use of FFI Board-made purchases using foreign fire insurance license fees.
The most significant provision of the Act declares that regulation of the FFI Boards and the license fees “are the exclusive powers and functions of the State.” See 65 ILCS 5/11-10-1(c). Municipalities “may not regulate a foreign fire insurance board”. Id. The Act explicitly preempts home rule authority.
Having eliminated the regulatory power of both home rule and non-home rule municipalities, the Act further reduces the role of municipalities regarding the foreign fire insurance fees. For example:
- Municipalities no longer may determine the rate of the license fee by ordinance. Instead, the Act sets a fixed statewide license fee of two percent.
- Any dispute between a municipality’s fire chief and the remaining members of the FFI Board, concerning whether an expenditure is for an authorized purpose under the Act, must be resolved through binding arbitration pursuant to a written arbitration agreement established by the FFI Board. This is the exclusive remedy available for resolving these disputes.
- FFI Boards no longer are required to post bonds with municipalities.
The Act’s remaining amendments empower the FFI Boards to function as independent entities separate from their host municipalities, by authorizing the FFI Boards to:
- Sue to recover unpaid license fees and concerning violations of the Act;
- Audit foreign fire insurance companies regarding compliance with the Act;
- Contract for services including audit and legal services for the FFI Boards, in addition to those required for the maintenance, use, and benefit of the fire department;
- Establish, manage, and maintain bank accounts for holding and spending all funds paid to the FFI Boards; and
- Have the exclusive authority to collect license fees. FFI Boards may, however, choose to appoint an authorized agent to collect these fees for them.
Historically, because the FFI Boards are comprised of members of the municipal fire department and are charged with spending the foreign fire insurance fees for the benefit of the department, municipalities and their associated FFI Boards often have complicated relationships. FFI Boards often operate under the umbrella of the municipal authority and structure. Some FFI Boards have bank accounts that are held in trust by their host municipality. Some municipal employees handle FFI Board finances or serve as staff liaisons and manage minutes and other Open Meetings Act and Freedom of Information Act compliance activities. Due to this integrated relationship, municipalities often require their associated FFI Boards to comply with their purchasing policies and have adopted municipal code provisions to regulate how FFI Board purchases are approved and how disputes are resolved.
Given these complex relationships, municipal officials may read the Act and its amendments and focus on what they have lost in terms of authority and oversight. On its face, the Act does appear to strip away municipal authority to manage the relationship with the FFI Boards and their purchases. However, by clarifying roles and disentangling the relationship between the FFI Boards and their host municipalities, the Act may actually be a benefit to municipal government.
For instance, municipalities still retain the authority to manage their fire departments. While the FFI Board may purchase items for the department, municipalities are under no obligation to accept and use these items. While disputes over whether a purchase is authorized under the Act must be resolved through the mandatory arbitration process, there is no dispute over whether municipalities retain the authority to decide what equipment or other items purchased by the FFI Board will be incorporated into, and used by, the department. Municipalities clearly retain this authority.
Further, now that municipalities and FFI Boards are clearly defined as separate entities, municipalities are no longer explicitly or implicitly obligated to assist the FFI Boards with administrative services such as holding bank accounts in trust, providing staff liaisons, or managing record retention, OMA, and FOIA compliance. Municipalities may decide for themselves what services they will provide, if any, to the FFI Boards. Some municipalities may choose to separate more fully from the FFI Boards. By taking this route, a municipality could free up staff time, remove any municipal responsibility over an FFI Board’s purchasing practices and decisions, and, eliminate the need to include the FFI Board and its finances in the municipal audit.
Of course, there are also reasons why some municipalities may decide to continue to assist their FFI Boards. In providing this assistance, the Act provides a firm basis for a municipality to condition the continuation of such services on the FFI Board entering into a written intergovernmental agreement. An intergovernmental agreement between the parties may include terms related to the FFI Board’s bank account, use of municipal staff and other resources, required purchasing procedures, acceptance and use of FFI Board purchases, and audit responsibilities. Importantly, the municipality may seek payment from the FFI Board for the value of these services.
Regardless of whether a municipality and its FFI Board enter into a written agreement, we recommend each municipality adopt a written policy setting forth the terms under which the municipality will accept and take ownership over, and liability for, purchases made by the FFI Board. Including FFI Board input in the development of this policy can educate the FFI Board regarding the municipality’s needs and goals for the department and ensure both parties are working together toward the common goal of a well-outfitted and supplied fire department.
We recommend each municipality with a fire department: (i) review its code to determine whether any amendments are necessary to comply with the Act; and (ii) evaluate its current relationship with, and the services it is providing to, its FFI Board, and determine the extent to which the municipality desires to change the status quo. Each municipality should then meet with its FFI Board to discuss potential changes to the relationship. If the municipality plans to continue to perform some administrative services for the FFI Board, we recommend that the municipality and the FFI Board set forth the nature and extent of those services and other elements of the relationship in a written agreement. Finally, we recommend that each municipality adopt a simple written policy for how it will handle FFI Board purchases.
Please reach out Brooke Lenneman at brooke.lenneman@elrodfriedman.com or to any Elrod Friedman attorney with questions or for assistance regarding any of these action items.