In re Application of DuPage County Collector

No. 2--97--0063
_________________________________________________________________

IN THE

APPELLATE COURT OF ILLINOIS

SECOND DIVISION

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In re APPLICATION OF THE ) Appeal from the Circuit
DU PAGE COUNTY COLLECTOR, for ) Court of Du Page County.
the Year 1993 )
)
(John Lotus Novak, ) No. 94--TX--1
Applicant and Petitioner- ) 94--TX--1SUB15
Appellee, v. ATI Carriage )
House, Inc., and Centerpoint )
Properties, Inc., et al., ) Honorable
Objectors and Respondents- ) John W. Darrah,
Appellants). ) Judge, Presiding
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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1939 (35 ILCS 205/194(a)(1992)(repealed by P.A. 88--455, 32--20,
eff. Jan.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 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 (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 municipal code and the school code with
respect to a school district's power to levy taxes.
In Illinois, school districts are classified as being either
a "deficit basis" or "cash basis" district. Cf. People ex rel.
Manifold v. Wabash Ry. Co., 389 Ill. 403, 407 (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, 740 P.2d 606,
609 (Kan. 1987); Atlantic City v. Cynwyd Investments, 689 A.2d 712,
717 (N.J. 1997); c.f. 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:
"[Cash 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 unexpected 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.
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.
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 (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 (1940). The legislature originally included school
districts within the administrative bodies covered by the Illinois
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 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 Ry.
Co., 3 Ill. 2d 524 (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. 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.
The supreme court was faced with an analogous situation in
People ex rel. Prindable v. New York Central R.R. Co., 397 Ill. 50
(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. 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 before 1955. However, the only case that
is on point with the present case was released only a few months
ago in the Appellate Court, Third District. In People ex rel.
Weber v. Commonwealth Edison Co., 287 Ill. App. 3d 784 (1997), the
court reviewed whether the trial court erred in granting a motion
for summary judgment against a party asserting that a tax levy was
invalid because a cash basis school district had failed to adopt a
budget before making the levy. The reviewing court noted it would
review the district's action de novo and then, if the levy were
found to be void, review the levy on an abuse of discretion
standard to determine whether the taxing body exceeded its
authority. The Weber court held that (1) the validity of a levy is
determined at the time it is made; (2) the school district's budget
does not limit the amount of the levy; and (3) school districts are
permitted to retain cash at the end of the fiscal year. The Weber
court concluded that the objector, Commonwealth Edison, failed to
demonstrate that the school district either had exceeded its
authority or had abused its discretion. Weber, 287 Ill. App. 3d at
786-87.
Unfortunately, the Weber court did not have occasion to
address the issue that faces this court. Therefore, we do not find
the analysis of Weber persuasive.
The language of section 17--1 appears at first blush to be
fairly clear and unambiguous. Similar language is cited in
Stanfield as an exception to that case, but this dicta does not
actually address the issue in the present case. Stanfield, 3 Ill. 2d at 526. Collector makes a persuasive argument that this
language is capable of two interpretations. The objectors have
asserted that section 17--1 implies that a levy is for the fiscal
year in which the school district wishes to spend the tax levy.
Collector counters that another interpretation of the language
would be that a tax levy is for the fiscal year in which it is
made, regardless of when the school district intends to spend the
levy.
We determine that section 17--1 is susceptible to either
construction. Unfortunately, we can find nothing in the statute or
subsequent judicial interpretations that provides any guidance as
to which construction is proper. Therefore, we must examine the
application of each construction to resolve the ambiguity. See
Eckman v. Board of Trustees for Police Pension Fund, 143 Ill. App.
3d 757 (1986).
Collector cites to many examples of similar language referring
to the date in which an action occurred and not to some future
event. For example, legislation is identified by the year of
enactment and not when it becomes effective. A taxpayer reports
income in the year it is earned, not when it is spent. The 1996
presidential election was not referred to as the 1997 election even
though the president would not take office until that year. These
examples do not resolve the issue, but they do evince the common
understanding that could be applied to the phrase "for a fiscal
year."
Under objectors' construction, a levy passed in December 1993
would be for the 1993-94 fiscal year in deficit basis school
districts and for the 1994-95 fiscal year in cash basis school
districts. This is counterintuitive and not supported by the
statutory language. Under this logic, whenever a school district
is forced to go from cash basis to deficit basis, as was the case
in Stanfield, the tax levy would transform from for 1994-95 to for
1993-94. However, the validity of a levy is determined as of the
date of the levy, and its validity is not altered by subsequent
events. In re Application of Rosewell, 159 Ill. 2d 393, 401
(1994); People ex rel. Schlaeger v. Seibel, 388 Ill. 98, 107
(1944).
Under collector's construction, a tax levy made in December
1993 would be for 1993-94 regardless of whether the district is
deficit basis or cash basis. Since school districts are required
to file their tax levy by the last Tuesday in December (105 ILCS
5/17--11 (West 1996)), any levy filed after that time is
necessarily for the next fiscal year. Thus, a school district that
files a levy in March 1993 would be filing a levy for the 1993-94
fiscal year even though it was technically filed during the 1992-93
fiscal year. Collector asserts that the language from Stanfield
and section 17--1 would apply only to the situation just described
and not the present case.
We find collector's construction persuasive. A tax levy filed
during a fiscal year and before the December deadline is a tax levy
for that fiscal year, regardless of when the school district
intends to spend the levy. Section 17--1 and Stanfield both
require a school district to have adopted a budget prior to making
a tax levy if the beginning of the fiscal year is subsequent to the
making of the levy. However, this is only applicable when such a
levy is truly for a fiscal year because it is filed after the
deadline for the fiscal year in which it is filed and prior to the
beginning of the fiscal year in which it could be used. This
situation did not arise in the present case. Therefore, the tax
levy was filed after the school budget was adopted, and the
district complied with the principles of section 17 1 and
Stanfield.
Objectors argue that their interpretation of section 17--1 is
supported by recent legislation and judicial decisions.
Specifically, objectors cite to section 17--3.2 of the School Code
(105 ILCS 5/17--3.2 (West 1996)); People ex rel. Bonefeste v.
B.D.H. Rentals, 277 Ill. App. 3d 614 (1996); and In re Application
of Du Page County Collector, 118 Ill. App. 3d 139 (1983). However,
neither the statute nor the cases reveal a contrary legislative
intent or judicial interpretation. Section 17--3.2 grants a school
board the power to pass an additional or supplemental budget for a
fiscal year and to levy additional funds to meet its needs. Both
Bonefeste and Du Page County Collector hold that school districts
need not make separate ordinances under the Illinois Pension Code
(40 ILCS 5/1--101 et seq. (West 1996)) because the school budget
may act as an appropriation. It would require a dramatically
distorted interpretation of any of these authorities to find their
holdings contrary to Stanfield.
The second major issue on appeal is whether the appeal should
be dismissed because objectors sought only prospective application
of their position. In their brief in chief, objectors stated that
any ruling in their favor should be applied only prospectively,
apparently to avoid the "ruinous" effects of invalidating the tax
levy. Collector makes an intriguing argument that objectors' appeal
must be dismissed because its only remedy from a statutory tax
objection is a refund of "all or any part of the tax paid."
Therefore, collector argues, objectors' position would force this
court to deliver an advisory opinion. This is an attractive
argument, but one that we need not address because we have
determined that the trial court did not err in granting collector's
motion to dismiss.
The judgment of the circuit court of Du Page County is
affirmed.
Affirmed.
COLWELL, J., concurs.
JUSTICE McLAREN, dissenting:
The majority takes the clear and unambiguous language of
section 17--1 of the School Code (105 ILCS 5/17--1(West 1992)) and
contorts its meaning beyond reasonable recognition. Contrary to the
majority s assertion, the word for as used in section 17--1 is
clear and unambiguous. For is defined as a preparation
toward***or in view of***having a goal or object***[and] with the
purpose or object of. Webster s Third New International Dictionary
886 (1993). Thus, the only reasonable interpretation of section 17--
1 is that a school district must pass a budget before adopting a
levy if the levy s purpose or object is that of a later fiscal year.
Because section 17--1 can be reasonably interpreted only one way,
it is not ambiguous and we must give effect to its plain meaning.
See People v. Holloway, 177 Ill. 2d 1, 8 (1997).
In addition, the argument of the collector, which the majority
finds persuasive, has a glaring inconsistency. Relying on People
ex rel. Stanfield v. Pennsylvania R.R. Co., 3 Ill. 2d 524, 526
(1954), the majority states that a levy is for the year in which
it is made regardless of when the school district intends to spend
the money. The majority then effectively disregards an elementary
statement of law expressed by our supreme court that there is a
difference between cash and deficit basis procedures. Stanfield, 3 Ill. 2d at 526. In answering the question is the adoption of a
budget a condition precedent to a valid tax levy? , our supreme
court s answer is no, unless the district operates on a cash basis.
Stanfield, 3 Ill. 2d at 526. The court explains:
As regards school districts, however, this court has said
that in only one instance is it necessary that the budget and
appropriation ordinance be in force at the time of making the
levy, namely, 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.
Thus the court describes a cash basis procedure when enunciating the
exception to the rule. People ex rel. Manifold v. Wabash R.R. Co.,
389 Ill. 403, 407 (1945). The court went on to state that the
exception did not apply because the proceeds of the tax levy in
Stanfield were to be used in 1952, the levy was not made until
August 1952, and the fiscal year began in July 1952. Stanfield, 3 Ill. 2d at 525-26. However, the fact that the court held that the
exception did not apply does not change the fact that the court
recognized that there is a difference between cash and deficit
procedures and stated that cash basis schools MUST pass a budget
before levying a tax for the budget year. See Stanfield, 3 Ill. 2d
at 526.
The majority explains its disregard of the court s statement
of the law by erroneously labeling it as dicta. Dicta are
[o]pinions of a judge which do not embody the resolution or
determination of the specific case before the court. Black s Law
Dictionary 454 (6th ed. 1990). In determining whether the tax levy
at issue in Stanfield was valid, it was necessary for the court to
enunciate the relevant underlying principle of law and then discuss
its application to the facts of the case. The fact that the levy in
Stanfield was valid does not transform the underlying statement of
the law into dicta.
Further, even if the word for is ambiguous, the objectors
interpretation is buttressed by the absence of a savings clause. The
legislature included a savings clause for municipalities which fail
to adopt an annual budget before levying a tax. Ill. Rev. Stat.
1939, ch. 120, par. 365.4. The legislature then failed to include
such a savings clause for school districts.
I believe that Stanfield and the clear and unambiguous language
of section 17--1 are controlling in this case. The majority s
opinion distorts both the meaning of section 17--1 and our supreme
court s enunciation of the law contained in Stanfield. Although a
finding of invalidity may cause problems for the taxing body, we
must not avoid our duty to give effect to the clear and unambiguous
language of the statute at issue. In re B.C., 176 Ill. 2d 536, 542
(1997).
I respectfully dissent.