The Supreme Court recently heard oral argument in a case appealed by DuPage County tax objectors who are asking the Court to hold, contrary to 44-year-old precedent, that an Illinois school district's tax levy must be based on a previously adopted school budget. With Nowak v. ATI Carriage House, Inc. under advisement as the 1998 tax levy season draws nigh, this Bulletin Board describes the options for school districts which are debating whether precautionary steps should be taken to protect against future tax objections and possible refund liability in the event the Court rules in favor of objectors.
Some background helps in evaluating the options. Objectors' pending challenge attacks the 1993 aggregate levies of various DuPage County "cash basis" school districts, and argues that the districts could not validly adopt 1993 levies unless they had previously approved school budgets for FY 1994-95, the fiscal year in which the levy proceeds were to be expended. Objectors stake their claim on a badly worded sentence in the "Annual Budget" provisions of School Code 17-1, which states:
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. To date, the Supreme Court has not read 17-1 as establishing any linkage between school budgets and levies. Its last pronouncement on the subject stated that a school budget is not part of the tax levy process, but is designed "to furnish information to the public and limit the amount of actual expenditures". People ex rel. Stanfield v. Pennsylvania R.R. Co., 3 Ill.2d 524, 121 N.E.2d 748, 751 (1954).
Due to the potentially staggering tax refund liability involved, the objectors have tried to make their plea for altered law more palatable by suggesting that the Court could limit the effect of such a ruling to future levies. At September 24th oral arguments, attended by five members of the Court's seven members, the only two justices who asked questions seemed disposed toward objectors' viewpoint, but only if it were given prospective effect. "Prospective" application in this context ought to mean that any decision announcing a change in the settled law should be limited in its effect to levies adopted after 1998, given the time needed to comply with statutory budget adoption procedures. This was pointed out in the amicus brief of the IASB and IASA (prepared by Robbins, Schwartz) which supports the position of the DuPage County Collector. But despite the judges' comments, there is no assurance that an adverse ruling would be given only future effect.
Predicting an appeal's outcome based on oral argument colloquy is a little like reading tea leaves. Nonetheless, the tenor of the two justices' remarks gave observers pause, and has generated debate about whether districts should take steps to hedge against the possibility of an adverse ruling in adopting their 1998 levies. Here are the options and accompanying pros and cons as we see them, beginning with the most conservative approach:
1. Adopt a budget for FY 1999-2000 as soon as possible and before adopting the 1998 levy, taking care to have the 1999-2000 budget's expenditure side include amounts which provide fund-by-fund justification for the district's 1998 levies. Option 1 assumes pessimistically that the Court will rule in favor of objectors, and even more pessimistically that such an adverse ruling would be applied to 1998 levies. This vision of doom and gloom may be too dire. Unless the Court rules adversely within a few weeks (which would be unusual) and makes its decision applicable immediately (which would seem palpably unjust), the outcome of the ATI Carriage House appeal is not likely to affect 1998 levies. Moreover, if the Court decides the case in favor of objectors, the DuPage County Collector could move the Court to reconsider its ruling. Then the case would remain open (and the decision non-final) at least until the Court addressed the reconsideration request.
Districts which pursue Option 1 will almost certainly have to substantially amend their original FY 1999-2000 budget during 1999, after more accurate information bearing on FY 1999-2000 revenue and expenditures becomes available. Despite this, mass adoption of 1999-2000 school budgets in November and December 1998 by districts following ultra-cautious Option 1 might have the unintended consequence of seeming to demonstrate to the public (including justices, who read newspapers!) the objectors' pet theses that pre-levy budget adoption is perfectly feasible, and that school districts resist it because they don't want to be fiscally accountable.
2. Adopt the 1998 levy as soon as possible. The validity of a tax levy is evaluated according to the facts and law in force at the time the levy is made. Under this principle, 1998 school levies adopted before the date of any adverse decision the Supreme Court might issue should be ATI Carriage House-proof, because 17-1 is not currently understood as requiring that a cash basis district adopt an FY 1999-2000 budget before it can validly adopt its 1998 levy. The rub of Option 2 is that no one can guarantee just when the Court will rule.
3. Stay the course. Wait out the ATI Carriage House decision, adopting your 1998 tax levy and your FY 1999-2000 budget when and in the sequence you customarily do. The actual risk here may be relatively small for the reasons discussed under Option 1 -- but if it materializes, the tax refund consequences for districts which draw objections to their 1998 aggregate levies on a "look ma, no budget" theory could be serious.
In short, there is no right answer to the dilemma posed by the time frame on which the ATI case has become ripe for decision. Districts can only be advised to weigh the risks, practical and political ramifications associated with each option and decide whether their interests are best served by ultra-cautious Option 1, medium cautious Option 2, or "stay-the-course" Option 3.