1. IASBO 59TH ANNUAL CONFERENCE TAX CAP 101: RECENT DEVELOPMENTS IN SCHOOL FINANCE UNDER PTELL
Wednesday, May 19, 2010 Presented by:
Broadway B John M. Izzo
Pheasant Run Resort Sraga Hauser, LLC
St. Charles, Illinois Governors Highway, Suite 10
Flossmoor, Illinois 60422
(708)

2. Copyright 2010 Sraga Hauser
OVERVIEW
WORKING CASH FUND TRANSFERS
“NEW RATE” REQUIRING REFERENDUM
INTEREST DESIGNATION AND TRANSFERS
EXCESS FUND ACCUMULATIONS
EVOLVING USE OF TORT IMMUNITY FUND
Copyright 2010 Sraga Hauser

3. WORKING CASH FUND ABATEMENTS
TRADITIONAL MECHANISM FOR BOOSTING OPERATING FUNDS: ABOLISH OR ABATE WORKING CASH FUND
ISSUE: TO WHICH FUND MAY MONEYS BE TRANSFERRED?
School Code only says Educational Fund in case of abolishment
Section 17-2A amendment designed to endorse practice of abating to other funds
Appellate Court Decision (GIS Venture v. Novak):
May only transfer to Ed Fund
Improper transfer may not result in tax refund
RECOMMENDED ALTERNATIVE:
Abate to Educational Fund
Do Section 17-2A hearing to transfer elsewhere (within limits)
BIGGER ISSUE UNCLEAR:
Can GIS Venture opinion be used to generally attack use of Working Cash Fund to boost operating funds?
NEW LEGISLATION: HB 6041
Passed both houses, awaiting action by Governor
Allows abatements to any fund for any purpose
Copyright 2010 Sraga Hauser

4. “NEW RATE” REQUIRING REFERENDUM
OBSCURE PROVISION OF PTELL (35 ILCS 200/18-190):
Before imposing a “new rate,” a tax capped district must have levy approved by referendum
Restriction applies regardless of limiting rate (“tax cap”)
LONG-TIME INTERPRETATION:
Levy not a “new rate” unless added to law after PTELL
So no current school district levy considered “new rate”
SUPREME COURT DECISION (Acme Markets v. Callanan):
“New Rate” is any levy not pre-approved by referendum
Prior use of levy without referendum after PTELL does not cure
Presumably, a levy actually used before PTELL not “new rate”
RECOMMENDATION:
If district has never used levy (e.g. facility leasing, life safety), do not try now
Use general operating funds for those particular purposes
Copyright 2010 Sraga Hauser

5. INTEREST DESIGNATION AND TRANSFERS
INTEREST TRANSFER AUTHORITY
Working Cash Fund (105 ILCS 5/20-5)
School Code: all funds except Tort, IMRF, Life Safety, and Capital Improvements or unless “earmarked” (105 ILCS 5/ )
Debt Reform Act: all funds except Tort and IMRF or unless “earmarked” (30 ILCS 350/9)
NEW RULE (Section (a)(4)):
Interest becomes principal as of June 30 unless otherwise provided by (1) statute or (2) board resolution adopted prior to June 30
RECENT COURT DECISION (100 Lake, LLC v. Novak, DuPage County):
District’s annual budget is an “earmark” restricting ability to transfer
RECOMMENDATIONS:
(1) Every Year, Pass One or Both of these Resolutions
Designation of Interest
Transfer of Interest
(2) Anticipate interest transfers in annual budget, or amend budget before transfer
Copyright 2010 Sraga Hauser

6. EXCESS FUND ACCUMULATIONS
TAX OBJECTION THEORY: DISTRICT MAY NOT LEVY MORE THAN IT NEEDS ON ANNUAL BASIS
AS APPLIED: COURTS SUSTAIN OBJECTION TO WHOLE LEVY IF FUND BALANCE EXCEEDS NEEDS BASED ON COURT-DEVISED FORMULA
FORMULA:
WHERE “FUNDS AVAILABLE” EXCESSIVELY EXCEED “EXPECTED EXPENDITURES”
(LAST YEAR END BALANCE (USUALLY, AVERAGE OF LAST
PLUS TAXES YET TO BE YEARS ANNUAL EXPENSES)
COLLECTED)
IF FACTOR IS 3.0 OR GREATER: OBJECTION SUSTAINED
IF FACTOR IS LESS THAN 2.0: OBJECTION OVERRULED
IF FACTOR BETWEEN 2.0 AND 3.0: RESULTS VARY
STRATEGIES TO AVOID
FUND TRANSFERS
RE-DISTRIBUTE STATE AID
SPEND DOWN BALANCES
DO NOT LEVY IN FUND AND USE OTHER FUNDS
Copyright 2010 Sraga Hauser

7. EVOLVING USE OF TORT IMMUNITY FUND
BEFORE CAP: MAXIMIZE TORT LEVY TO FREE UP OPERATING FUND RATES
FIRST UNDER CAP: USE TORT LEVY TO MAXIMIZE AGGREGATE TAX LEVY UNDER CAP
NOW, AFTER EDUCATIONAL FUND RATE MAXIMIZATION AND ADVERSE COURT RULINGS:
MINIMIZE USE OF TORT FUND
Copyright 2010 Sraga Hauser