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July 28, 1994


McMORROW, Heiple, Nickels

The opinion of the court was delivered by: Mcmorrow

JUSTICE McMORROW delivered the opinion of the court:

Appellant, Charles Marotta, paid his 1983 real estate taxes under protest and filed objections to the levies of several units of local government. This appeal involves certain objections Marotta made to the 1983 levies of the Metropolitan Water Reclamation District of Greater Chicago (District). Following a hearing, on stipulated facts, the circuit court dismissed Marotta's objections. The appellate court affirmed in part and reversed in part, with one Justice Dissenting. (241 Ill. App. 3d 753.) Marotta filed a petition for leave to appeal to this court, which we granted (134 Ill. 2d R. 315).

The tax challenges in this case must be examined in the context of the District's annual budgeting and appropriations procedures, which are set forth in section 5.7 of the Metropolitan Water Reclamation District Act (Ill. Rev. Stat. 1991, ch. 42, par. 324q). As a unit of local government, the District is authorized by statute to levy taxes on the real estate located within its boundaries. (See Ill. Rev. Stat. 1991, ch. 42, par. 332.) The District's budget consists of several funds, which are treated as distinct financial entities within the budget. (Ill. Rev. Stat. 1991, ch. 42, pars. 324l, 324m.) The budget is to present a complete financial plan for the budget year, and for each fund the District is to estimate the total expenditures and the anticipated amount of monies that will be available during that year to meet such expenditures. (Ill. Rev. Stat. 1991, ch. 42, par. 324m.) When expenses exceed assets, the difference may be made up in all or part by the property tax.

By law, the District must adopt the appropriation and levy ordinances as part of the budget and at the same time the budget is adopted. (Ill. Rev. Stat. 1991, ch. 42, par. 324q.) Before the board of trustees takes final action on the proposed budget, the budget is made available for public inspection and, following published notice, the board must hold at least one public hearing (Ill. Rev. Stat. 1991, ch. 42, par. 324p). After the board's adoption of the appropriation ordinance for the budget year, no further or different appropriation may be made by the board, with very limited exceptions. (See Ill. Rev. Stat. 1991, ch. 42, par. 324q.) Upon final approval of the budget and ordinances, the District files a certificate of levy with the county clerk, pursuant to the appropriation ordinance. The clerk is then required, by operation of section 162 of the Revenue Act of 1939, to extend the District's levy in accordance with the certificate. The clerk must determine the tax rate that will produce the amounts of taxes certified to the clerk by the various taxing districts. Ill. Rev. Stat. 1991, ch. 120, par. 643.

In the case at bar, the District's 1983 budget provided for a combined total in excess of $476 million, for all of the funds that made up the budget. Of that amount, $148.7 million was appropriated for the corporate fund. We address, in order, each of Marotta's four objections to the corporate fund levy.

I. Objection to Levy of $6.3 Million for "Unnecessary Expenses or "Failed Purposes"

Marotta challenges the validity of two line items in the corporate fund budget for which monies were appropriated but not spent: (1) estimated expenses in the amount of $3.8 million, representing interest payments on tax anticipation notes to be issued by the District in 1983; and (2) estimated expenses for chlorination of effluents in the water. Following the passage of the 1983 budget and the corresponding appropriation and levy ordinances, two events occurred that obviated the District's need for the above two items of appropriation.

First, on February 2, 1983, Public Act 82-1046 took effect. (Ill. Rev. Stat. 1991, ch. 42, par. 328(b), as amended by Pub. Act 82-1046.) This law authorized the District to increase its corporate working cash fund through the issuance of long-term bonds. These bonds were issued in March 1983, which eliminated the need for the District to issue tax anticipation notes for the same purpose of increasing the working cash fund. As a result, the $3.8 million interest expense that the District had appropriated in the budget year 1983 was no longer needed.

Second, in July 1983, the Pollution Control Board granted the District a variance that allowed it to reduce the level of chlorination used for the treatment of water. This caused a corresponding reduction in costs of $2.5 million. See People v. Pollution Control Board (1983), 119 Ill. App. 3d 561.

The above two events resulted in a combined total "savings" of $6.3 million in expenses that had been appropriated and levied by ordinance as part of the 1983 budget. Because the actual extension of the 1983 levies for purposes of collection did not occur until June 1984, Marotta argues that the District should have abated the taxes at that time. According to Marotta, "taxing bodies cannot not legally levy money for purposes which are known * * * to be unneeded prior to the levy. Taxing bodies may easily avoid unnecessary levies through the abatement process." Marotta urges this court to hold that the corporate fund levy of the "unnecessary" $6.3 million resulted in either an illegal accumulation of taxpayers' money in the District's treasury or an illegal diversion of tax money to another fund or purpose.

The appellate court in the instant case disagreed with Marotta, holding that the District's estimation of expenditures must be left to the sound discretion of the taxing authority and should not be disturbed by a reviewing court unless there is a clear abuse of discretion. (241 Ill. App. 3d at 756, citing People ex rel. Brenza v. Gebbie (1955), 5 Ill. 2d 565.) The court also noted that a taxpayer's objection is not established "merely by a showing of a difference between the estimation and the result." 241 Ill. App. 3d at 756, citing People ex rel. Brenza v. Fleetwood (1952), 413 Ill. 530.

The Dissenting Justice stated that the majority misapprehended the issue by focusing on the District's original estimates of costs for the year 1983; Marotta's objection was to the collection of $6.3 million in tax anticipation interest and chlorination expenses that had been rendered "wholly unnecessary" by the events that followed the adoption of the budget. (Emphasis omitted.) 241 Ill. App. 3d at 762-63 (Scariano, J., Dissenting).

A. Standard of Review

Marotta initially raises a challenge to the abuse of discretion standard that the appellate court applied in considering the levy of $6.3 million for expenses based on chlorination costs and the interest on tax anticipation notes. Although acknowledging that the estimates of taxing bodies are subject to a discretionary standard, Marotta argues that where, as here, the levy is for an unnecessary expense, the levy is illegal as a matter of law. That being so, Marotta argues, the appellate court erred in deferring to the District's exercise of discretion.

In our view, Marotta's focus on the standard of review is misplaced. If the challenged levy is void, in the sense that the taxing body exceeded its lawful authority in making the levy, the courts may sustain the taxpayer's objection without resort to the abuse of discretion standard. This is so because the taxing body lacks discretion to impose an unlawful levy. See People ex rel. Reeves v. Bell (1923), 309 Ill. 387 (where the court held that a school district's levy of a tax for building purposes was illegal because no part of it was needed for that purpose in the ensuing year and no expenditure of the tax for building purposes was contemplated, except for possible future needs; therefore, the school district exceeded its legal authority in levying the particular tax).

We do not regard the District's appropriations and levies in this case as ultra vires. The District does not contend (and the appellate court did not imply) that the District had discretion to include illegal tax levies inthe appropriation and levy ordinances for the fiscal year 1983. Instead, the District defends its actions in the case at bar by arguing that its valid appropriations and levies for the 1983 tax year did not become void by the occurrence of events subsequent to the adoption of the budget and accompanying ordinances. Marotta does not argue that the District lacked power to appropriate and levy for its anticipated expenses in 1983, including the chlorination expenses and the interest payments on the tax anticipation notes. Therefore, we begin our analysis of the proper standard by considering the general principles set forth in numerous case decisions.

In reviewing a taxpayer's objections to governmental appropriations and levies, the courts play a limited, although significant, role. The law is settled that the taxing body retains broad discretion in estimating the amounts necessary to carry out its lawful objectives:

"Except for an arbitrary abuse of discretion the amount so determined will not be reviewed by the courts. * * * The budget law is designed to furnish the taxpayer with information as to the amount which is available and for which no current levy will be needed, as well as the amounts to be levied and expended. If an estimate were subject to fluctuation by the happening of subsequent events there would be little stability in a budget and the purpose of the act would be defeated. [Citation.]" People ex rel. Brenza v. Morrison Hotel Corp. (1954), 4 Ill. 2d 542, 545.

See also People v. Atchison, Topeka & Santa Fe Ry. Co. (1913), 261 Ill. 33, 37 (where the court stated, "It is against the policy of the law to raise taxes faster than they are likely to be needed, but our statutes have committed to the just and reasonable discretion of the county boards the question as to what is the proper amount of taxes to be raised for the current county expenses. The courts will only interfere to prevent a clear abuse of such discretionary powers").

That there is a discrepancy between the amount of money appropriated for tax purposes in a given year and the amount actually needed for that year is of limited significance. "It is not necessary for taxing authorities to wait until the money is actually needed for paying outstanding obligations before taxes may be levied, but they have the right to, and should, anticipate, as nearly as they can, the amount of moneys that should be raised to meet obligations when they become due * * * [citations]." Mathews v. City of Chicago (1930), 342 Ill. 120, 139-40. See also People ex rel. Schaefer v. New York, Chicago & St. Louis R.R. Co. (1933), 353 Ill. 518, 523-24 ("Courts will not interfere with the exercise of sound business judgment on the part of taxing authorities except to prevent abuse of discretion").

The above authorities state that abuse of discretion is the proper standard for courts to apply in reviewing the estimates that taxing bodies employ in passing their appropriation and levy ordinances as part of their budgets. We decline to depart from that standard in this case. We therefore reject Marotta's contention that the appellate court erred by reviewing the levies in issue under a standard of abuse of discretion.

B. Unnecessary Accumulation or Diversion of Funds

Having reaffirmed the proper standard of review, we next address the merits of Marotta's primary argument. He claims that case law supports his contention that the challenged $6.3 million in corporate fund levies are void per se. Marotta's contention is premised on case law which holds that taxing authorities may not levy taxes that result in either an unnecessary accumulation of taxes or an illegal diversion of taxes levied for one purpose to a different purpose or use. (E.g., People ex rel. Brenza v. Morrison Hotel Corp. (1954), 4 Ill. 2d 542, 547 (tax levy largely in excess of the amount needed for a ...

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