Du Page County Collector for Year 1993, Application of

Decision Date25 February 1998
Docket NumberNo. 2-97-0063,2-97-0063
Citation691 N.E.2d 405,294 Ill.App.3d 868,229 Ill.Dec. 295
CourtUnited States Appellate Court of Illinois
Parties, 229 Ill.Dec. 295, 124 Ed. Law Rep. 660 In re Application of the DU PAGE COUNTY COLLECTOR, FOR the YEAR 1993 (John Lotus Novak, Applicant and Petitioner-Appellee, v. ATI Carriage House, Inc., and Centerpoint Properties, Inc., et al., Objectors and Respondents-Appellants).

James A. Geraghty, Lisle, for ATI Carriage House, Inc. and Centerpoint Properties, Inc.

Joseph E. Birkett, Du Page County State's Attorney, Margaret M. Healy, Anna B. Harkins, Assistant State's Attorneys, Wheaton, for Du Page County Collector.

Justice HUTCHINSON delivered the opinion of the court:

Objectors-respondents, ATI Carriage House, Inc., and Centerpoint Properties, Inc., et al. (objectors), appeal from the trial court's order dismissing their objection in favor of petitioner, John Lotus Novak, the Du Page County treasurer and ex officio collector of taxes for judgment (collector). We affirm.

The parties have stipulated to the facts relevant to this appeal. School District 10 operates within Du Page County. The district adopted its 1993 real estate tax levy on December 15, 1993. The district operates as a "cash basis" school district, meaning these funds would not be used during the fiscal year from July 1, 1993, to June 30, 1994, but would be set aside and used for the following fiscal year. The funds necessary for operating the school district during the 1993-94 fiscal year came from prior levies and other receipts. The 1993-94 budget was adopted on May 12, 1993, and the 1994-95 budget was adopted on May 11, 1994. Therefore, the district had not adopted its budget for the 1994-95 fiscal year when the levy was adopted on December 15, 1993.

On November 21, 1994, objectors filed an objection to the December 1993 levy pursuant to section 194(a) of the Revenue Act of 1939 (35 ILCS 205/194(a) (West 1992) (repealed by Pub.Act 88-455, § 32-20, eff. January 1, 1994, and now recodified at 35 ILCS 200/23-5 et seq. (West 1996))). Objectors alleged that the levy was void as being violative of section 17-1 of the School Code (105 ILCS 5/17-1 (West 1996)). This section states that a school district "shall" pass a budget before adopting a levy for a subsequent fiscal year. Collector filed a motion to dismiss the objection pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 1996)). The trial court granted collector's motion on December 16, 1996, and made a finding under Supreme Court Rule 304(a) (145 Ill.2d R. 304(a)). Objectors timely appealed.

Objectors raise numerous arguments on appeal, but the case essentially involves two issues: (1) whether the trial court erred in granting the motion to dismiss, and (2) whether this appeal should be dismissed because of objectors' request for prospective application. We note that objectors bear the burden of proving "the invalidity of the tax levy since the presumption is always that the taxes have been legally levied." People ex rel. Redfern v. Penn Central Co., 47 Ill.2d 412, 418, 266 N.E.2d 334 (1971). Before we begin a discussion of the issues in this case, however, it is important that we discuss a few key concepts and a general history of the interrelation between the Illinois Municipal Code (65 ILCS 5/1-1-1 et seq. (West 1996)) and the School Code (105 ILCS 5/1-1 et seq. (West 1996)) with respect to a school district's power to levy taxes.

In Illinois, a school district is classified as being either a "deficit basis" or "cash basis" district. Cf. People ex rel. Manifold v. Wabash Ry. Co., 389 Ill. 403, 407, 59 N.E.2d 795 (1945). The definitions of these terms, which have been used for both schools and municipalities, appear to be endemic to Illinois, as is the alleged significance of the classifications. Other states have used the term "cash basis" to signify that a municipality may not enter into any debt that is greater than its current cash reserves. See, e.g., Greenlee v. Board of County Commissioners, 241 Kan. 802, 807, 740 P.2d 606, 609 (1987); Atlantic City v. Cynwyd Investments, 148 N.J. 55, 65-66, 689 A.2d 712, 717 (1997); cf. Community Federal Savings & Loan Ass'n v. Director of Revenue, 752 S.W.2d 794, 796 (Mo.1988) (stating that "[g]overnment budgets are prepared on an annual cash basis"). However, "cash basis" has a unique meaning in Illinois:

"[C]ash basis * * * means that current expenses for a calendar year are paid from the proceeds of taxes of former years or other available funds. Many municipalities, by good management, or by obtaining money from other sources than taxes, have built up a cash surplus, or have unexpended funds from levies of former years, sufficient to pay cash as they go, without reliance upon the taxes to be levied for such calendar year. The taxes for such year, when collected, provide the cash fund for operating on a cash basis the expenses of the following year." Manifold, 389 Ill. at 407, 59 N.E.2d 795.

"Deficit basis" simply means that the school or municipality has insufficient cash reserves and is utilizing the levy from the current year to meet its expenses. Manifold, 389 Ill. at 407, 59 N.E.2d 795.

To appreciate the importance of this distinction, reviewing the background of the taxing powers contained in the School Code is important. School boards have no inherent powers to levy taxes. People ex rel. Leaf v. Orvis, 374 Ill. 536, 541, 30 N.E.2d 28 (1940). The power to levy taxes is granted by the legislature and that power is to be strictly construed. People ex rel. Smith v. Wabash Ry. Co., 374 Ill. 165, 172, 28 N.E.2d 119 (1940). The legislature originally included school districts within the administrative bodies covered by the Illinois Municipal Budget Law (Municipal Budget Law). See Ill.Rev.Stat.1939, ch. 120, par. 365.3. In 1951, school districts were removed from the Municipal Code, and taxing issues were addressed by subsequent revisions in the School Code. See Ill.Rev.Stat.1953, ch. 122, par. 17-1.

As part of this change, the legislature revised section 17-1 of the School Code to include budgeting procedures for school districts with under 500,000 inhabitants. The statute states, in part:

"The board of education of each school district under 500,000 inhabitants shall, within or before the first quarter of each fiscal year, adopt an annual budget which it deems necessary to defray all necessary expenses and liabilities of the district, and in such annual budget shall specify the objects and purposes of each item and amount needed for each object and purpose.

* * *

The board of education of each district shall fix a fiscal year therefor. If the beginning of the fiscal year of a district is subsequent to the time that the tax levy for such fiscal year shall be made, then such annual budget shall be adopted prior to the time such tax levy shall be made." 105 ILCS 5/17-1 (West 1996).

This language is largely identical to language contained in the Municipal Budget Law of 1939. However, the Municipal Budget Law has a significant savings clause:

"The failure by any governing body of any municipality to adopt an annual budget and appropriation ordinance, or to comply in any respect with the provisions of this Act, shall not affect the validity of any tax levy of any such municipality, otherwise in conformity with the law." Ill.Rev.Stat.1939, ch. 120, par. 365.4.

The absence of such a provision in the School Code becomes quite relevant in the present case.

Objectors assert that under section 17-1 a school district operating on a cash basis shall adopt a budget prior to passing a tax levy for the year in question. School districts operating on a deficit basis, however, may adopt the levy before the budget. Collector counters that the language of section 17-1 is ambiguous and a proper interpretation of the section would make it applicable only to school districts that pass a levy before the beginning of the fiscal year.

Our supreme court has had only one occasion to interpret section 17-1. In People ex rel. Stanfield v. Pennsylvania R.R. Co., 3 Ill.2d 524, 121 N.E.2d 748 (1954), the court interpreted the legislative intent behind the section. The school district in Stanfield had switched from cash basis to deficit basis during the course of a fiscal year, and the objector asserted that the district's tax levy was void for several reasons. The Stanfield court initially considered whether the adoption of a budget was a condition precedent to a valid tax levy. The court held that the adoption of a budget was not a condition precedent, except when "the beginning of the fiscal year is subsequent to the time of the tax levy for that year." Stanfield, 3 Ill.2d at 526, 121 N.E.2d 748. Next, the Stanfield court held that the budget did not limit the amount of the tax levy. The court noted that school districts are afforded wide latitude in determining their fiscal needs and concluded that "a school budget is not a part of the tax-levy process, but is designed ordinarily to furnish information to the public and limit the amount of actual expenditures." Stanfield, 3 Ill.2d at 529, 121 N.E.2d 748.

The supreme court was faced with an analogous situation in People ex rel. Prindable v. New York Central R.R. Co., 397 Ill. 50, 72 N.E.2d 821 (1947). In Prindable, the objector had claimed that the tax levies made by two municipalities were invalid because both were operating on a cash basis and had failed to adopt a budget before imposing the levy. The Prindable court found the tax levies to be valid but relied heavily upon the language of section 4 of the Municipal Budget Law discussed above (Ill.Rev.Stat.1939, ch. 120, par. 365.4). Prindable, 397 Ill. at 54, 72 N.E.2d 821. Because this section was not adopted in the 1951 revision of the School Code, Prindable does not offer much direct guidance in this area.

Most of the few cases that exist involving school budgets and tax levies were decided...

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