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02/26/98 APPLICATION DU PAGE COUNTY COLLECTOR FOR

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).


Appeal from the Circuit Court of Du Page County. No. 94--TX--1SUB15

The opinion of the court was delivered by: Honorable John W. Darrah, Judge, Presiding

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 Judgement (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an objection to the December 1993 levy pursuant to section 194(a) of the Revenue Act of 1939 (35 ILCS 205/194(a)(1992)(repealed by P.A. 88--455, §32--20, eff.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 "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 ...


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