Crystal Lake City Council votes to halt foreign fire insurance tax because of disagreements over appropriate spending

Council irked by requests for spending on coffee beans, duffel bags

CRYSTAL LAKE – A decades-old tax on out-of-state insurance companies that has helped benefit the Crystal Lake Fire Rescue Department no longer will be imposed after multiple requests from firefighters to spend the money on everything from health club memberships to coffee beans.

City Council members voted earlier this week to repeal the city’s foreign fire insurance tax and will use the remaining $150,000 in the Foreign Fire Insurance Tax Fund until it is depleted, according to city documents and fire officials.

The tax is imposed for the sole purpose of providing “maintenance, use and benefit” of the city’s fire rescue department, including buying and maintaining equipment for firefighting, training and conditioning, and covering training or certification fees authorized by the fire rescue chief, according to city code.

Funds from the tax also can cover other expenses that are both authorized by the Foreign Fire Insurance Tax Board and approved by the City Council.

However, Fire Rescue Chief Paul DeRaedt said the City Council and the trustees serving on the board – all of whom are members of the department – have disagreed on what expenses are deemed appropriate uses of the funds.

“The city and the board are just not aligned with the interpretation [of the statute],” DeRaedt said. “You try to reason what you think is best, and I think when you go back and look at the purchases this board has made in the last 10 years, those have been good purchases for the department.”

In the past few years, the board has sought City Council approval to use the funds for Fitbits, health club memberships, day care services for children and duffel bags, which the City Council said were more of “personal use” expenses, DeRaedt said.

Other expenses also included coffee beans, which Mayor Aaron Shepley said the city of Crystal Lake already provides for its departments.

“It was the belief of the Crystal Lake City Council that at this point in time, those funds were not being used for appropriate purposes,” Shepley said of Tuesday’s decision. “Therefore, in order to protect the best interest of the people of Crystal Lake, we zeroed it out until we can get to a point where we reach an agreement with the foreign fire insurance board where they will return to the good practices that were in place for decades as opposed to the current desire on the part of the board to use the funds for the personal benefit of firefighters.”

The fire insurance tax is levied on fire insurance companies that are based outside of Illinois, such as Ohio-based Progressive or California-based Farmers Insurance, requiring them to pay up to a 2 percent tax on all insurance policies with properties and companies within city limits.

In the simplest terms, if a Crystal Lake company paid an annual fire insurance premium to a company based outside of Illinois, the city then would require the insurance company to pay up to 2 percent of that premium.  

The Foreign Fire Insurance Tax Board, which is made up of six members from the department and the fire rescue chief, then creates a budget every January that outlines proposed expenses that will use funds generated by the tax.

DeRaedt said funds have helped buy physical fitness equipment – such as treadmills and elliptical machines – in all three of the city’s fire stations, and have re-outfitted one of the reserve fire engines with additional equipment, hoses and axes.

Purchases also have included hydraulic equipment for extrication and carbon monoxide monitors that alert firefighters to problems at the scene of a fire. In 2015, the funds also were used to buy a new firehouse alert system in all three of the city’s stations.

“We want to continue to be able to use these funds, because it is a benefit to our community,” DeRaedt said.

The tax will collect about $60,000 once more in the fall, at which point it no longer will collect money unless the city and board can reach a new agreement in the future.

“In years past, the board did a spectacular job of identifying appropriate expenditures,” Shepley said. “It was our determination that if this foreign fire insurance board was committed to moving forward in the direction we did not think was appropriate, then we would just zero out the tax … and see where we go from there.”

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