                           ILLINOIS OFFICIAL REPORTS
                                         Appellate Court




                           Barrett v. Henry, 2013 IL App (2d) 120829




Appellate Court            DIANNE BARRETT and JOSEPH BARRETT, Plaintiffs-Appellants, v.
Caption                    GWEN HENRY, County Treasurer and ex officio County Collector of
                           Du Page County, Illinois, Defendant-Appellee.–DIANNE BARRETT and
                           JOSEPH BARRETT, Plaintiffs-Appellants, v. GWEN HENRY, County
                           Treasurer and ex officio County Collector of Du Page County, Illinois,
                           Defendant-Appellee.



District & No.             Second District
                           Docket Nos. 2-12-0829, 2-12-0830 cons.


Filed                      April 17, 2013


Held                       Plaintiffs’ objections to a school district’s issuance of general obligations
(Note: This syllabus       bonds for working cash purposes were properly dismissed on the ground
constitutes no part of     that plaintiffs failed to substantiate their conclusion that the district’s
the opinion of the court   working cash fund was sufficient to finance operations without issuing
but has been prepared      the bonds.
by the Reporter of
Decisions for the
convenience of the
reader.)


Decision Under             Appeal from the Circuit Court of Du Page County, Nos. 10-TO-7, 11-TO-
Review                     12; the Hon. Paul M. Fullerton, Judge, presiding.



Judgment                   Affirmed.
Counsel on                 Dianne Barrett and Joseph Barrett, both of Clarendon Hills, appellants
Appeal                     pro se.

                           Robert B. Berlin, State’s Attorney, of Wheaton (Lisa Anne Hoffman,
                           Donna B. Pindel, and Edward R. Psenicka, Assistant State’s Attorneys,
                           of counsel), for appellee.


Panel                      JUSTICE HUDSON delivered the judgment of the court, with opinion.
                           Justices Zenoff and Schostok concurred in the judgment and opinion.




                                              OPINION

¶1          Dianne and Joseph Barrett filed tax objection complaints against Gwen Henry, the
        treasurer and ex officio county collector of Du Page County (Collector), seeking refunds for
        portions of their 2009 and 2010 property taxes that were collected to make payments on
        bonds issued by Hinsdale Township High School District Number 86 (District).1 The taxes
        in question were extended at a rate of $0.0373 per $100 of assessed property value in 2009
        and $0.0301 per $100 of assessed property value in 2010. The taxes added $80.35 and $61.35
        to the Barretts’ property tax bills for 2009 and 2010, respectively. In their tax objection
        complaints, the Barretts argued that the District abused its discretion in issuing the bonds.
        In each case, the Collector moved to dismiss pursuant to section 2-619(a)(9) of the Code of
        Civil Procedure (Code) (735 ILCS 5/2-619(a)(9) (West 2010)). The trial court granted the
        motions and the Barretts appealed. We consolidated the appeals and we now affirm.
¶2          According to the Barretts’ objections, the District issued general obligation bonds in
        December 2002 (Series 2002 Bonds), October 2005 (Series 2005 Bonds), and November
        2008 (Series 2008 Bonds). The final official statement for the Series 2002 Bonds indicated
        that they were issued for working cash purposes, including funding capital improvements to
        Hinsdale South High School and Hinsdale Central High School. The final official statement
        for the Series 2005 Bonds indicated that they were issued to increase the District’s working
        cash fund for capital projects and to refund a portion of the Series 2002 Bonds. The final
        official statement for the Series 2008 Bonds indicated that the proceeds would be used to
        increase the District’s working cash fund and that it was the intent of the District’s board of
        education to use the funds to alter, repair, equip, and improve school buildings and facilities.
        According to the objections, the District’s audited financial statements show that, in each of
        the fiscal years when the bonds were issued, the proceeds were deposited into the working


               1
                The Barretts filed a separate complaint for each tax year.

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     cash fund and the District made a permanent transfer of funds from the working cash fund.
     The receipts of bond proceeds and transfers from the fund were as follows:
             Fiscal Year         Bond Proceeds Transfers
             2002-2003           $ 13,030,000         $ 13,030,000
             2005-2006           $ 2,300,764          $ 3,267,416
             2008-2009           $ 3,980,000          $ 4,000,000
¶3       During the period from June 30, 2002, through June 30, 2009, the working cash fund had
     the following end-of-year balances:
             Fiscal Year              End-Of-Year Balance
             2001-2002                $4,564,831
             2002-2003                $5,364,941
             2003-2004                $8,303,747
             2004-2005                $7,752,850
             2005-2006                $7,106,552
             2006-2007                $6,713,691
             2007-2008                $7,022,189
             2008-2009                $7,279,499
¶4       As will be discussed at greater length below, a school district’s working cash fund is
     designed to enable the district to finance operations during the period before the property
     taxes levied for that purpose have been collected. This method of financing serves as an
     alternative to the issuance of tax anticipation warrants. The Barretts argued that, when a
     school district has accumulated a working cash fund sufficient to finance the district’s
     operations without the issuance of tax anticipation warrants, the district should not raise
     additional cash for the fund through the issuance of bonds. The Barretts thus contended that
     it was an abuse of discretion to issue the bonds, that the bonds were “illegal and void,” and
     that “no authority existed for the levy or extension of taxes for the retirement [of the bonds].”
¶5       As noted, this appeal is before us for review of the trial court’s rulings on motions to
     dismiss under section 2-619(a)(9) of the Code. Section 2-619 provides that, within the time
     for pleading, a defendant may move for involuntary dismissal of a claim on the basis of any
     of various enumerated defenses or, under subsection (a)(9), on the basis of “other affirmative
     matter avoiding the legal effect of or defeating the claim” (735 ILCS 5/2-619(a)(9) (West
     2010)). For purposes of section 2-619(a)(9), affirmative matter “is something in the nature
     of a defense which negates the cause of action completely or refutes crucial conclusions of
     law or conclusions of material fact contained in or inferred from the complaint.” Illinois
     Graphics Co. v. Nickum, 159 Ill. 2d 469, 486 (1994). Our review is de novo. King v. First
     Capital Financial Services Corp., 215 Ill. 2d 1, 12 (2005). In support of her motions to
     dismiss, the Collector submitted documentary evidence showing that the bonds were issued
     in compliance with the applicable statutory requirements of public notice, a public hearing,
     and the adoption of a resolution authorizing the issuance of the bonds. She argued that the
     documents “defeat the [Barretts’] claim that [the bonds] were illegal, void and without


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     authority.” She further disputed a critical conclusion of law in the Barretts’ objections: the
     conclusion that a school district may raise cash for its working cash fund only to the point
     at which the fund is sufficient to allow the district to operate without issuing tax anticipation
     warrants. Accordingly, the Collector argued that the issuance of the bonds was not an abuse
     of discretion.
¶6       There is no dispute that the District complied with the statutory procedures for issuance
     of the bonds. The sole question raised in this appeal is whether issuance of the bonds was an
     abuse of discretion. We conclude that it was not, and the Collector’s motions to dismiss were
     properly granted.
¶7       Article 20 of the School Code (105 ILCS 5/art. 20 (West 2002)) provides for the creation
     of working cash funds and governs the use of the funds. During the period when the bonds
     were issued, section 20-2 of the School Code provided, in pertinent part:
         “For the purpose of creating a working cash fund, the school board of any such district
         may incur an indebtedness and issue bonds as evidence thereof in an amount or amounts
         not exceeding in the aggregate 85% of the taxes permitted to be levied for educational
         purposes for the then current year to be determined by multiplying the maximum
         educational tax rate applicable to such school district by the last assessed valuation as
         determined at the time of the issue of said bonds plus 85% of the last known entitlement
         of such district to taxes as by law now or hereafter enacted or amended, imposed by the
         General Assembly of the State of Illinois to replace revenue lost by units of local
         government and school districts as a result of the abolition of ad valorem personal
         property taxes, pursuant to Article IX, Section 5, paragraph (c) of the Constitution of the
         State of Illinois. *** The school board shall before or at the time of issuing the bonds
         provide for the collection of a direct annual tax upon all the taxable property within the
         district sufficient to pay the principal thereof at maturity and to pay the interest thereon
         as it falls due ***.” 105 ILCS 5/20-2 (West 2002).2
¶8       Section 20-4 of the School Code provided, in pertinent part:
             “Moneys derived from the issuance of bonds *** shall be used only for the purposes
         and in the manner hereinafter provided. *** Moneys in the fund shall not be used by the
         school board in any manner other than to provide moneys with which to meet ordinary
         and necessary disbursements for salaries and other school purposes and may be
         transferred in whole or in part to the general funds or both [sic] of the school district and
         disbursed therefrom in anticipation of the collection of taxes lawfully levied for any or
         all purposes, or in anticipation of such taxes as by law now or hereafter enacted or
         amended are imposed by the General Assembly of the State of Illinois to replace revenue
         lost by units of local government and school districts as a result of the abolition of ad
         valorem personal property taxes ***. Moneys so transferred to any other fund shall be
         deemed to be transferred in anticipation of the collection of that part of the taxes so
         levied or to be received which is in excess of the amount thereof required to pay [certain


             2
             As an alternative to the issuance of bonds, a school district may levy taxes to raise working
     cash funds. See 105 ILCS 5/20-3 (West 2002).

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           other financial obligations].
                Upon receipt by the school district of any taxes in anticipation of the collection
           whereof moneys of the working cash fund have been so transferred for disbursement, the
           fund shall immediately be reimbursed therefrom until the full amount so transferred has
           been retransferred to the fund.” 105 ILCS 5/20-4 (West 2002).
¶9         When the bonds were issued, permanent transfers from a school district’s working cash
       fund to its educational fund were permissible. See G.I.S. Venture v. Novak, 388 Ill. App. 3d
       184 (2009). Such transfers were in the nature of an abatement of the working cash fund. Id.
       at 188-90. Section 20-10 of the School Code (105 ILCS 5/20-10 (West 2010)), which was
       added in 2010 (see Pub. Act 96-1277, § 5 (eff. July 26, 2010)), authorizes permanent
       transfers to “any fund or funds of the district most in need of the money” and validates such
       transfers that occurred before section 20-10 took effect.
¶ 10       The statutes at issue in this case are derived from section 134½ of “An Act to establish
       and maintain a system of free schools” (Ill. Rev. Stat. 1931, ch. 122, ¶ 157a). Commenting
       on that provision (and similar ones permitting cities and counties having certain populations
       to maintain working cash funds), our supreme court stated in Mathews v. City of Chicago,
       342 Ill. 120, 125 (1930), that “the working cash fund constitutes a revolving fund from which
       money may be transferred to other funds in anticipation of taxes to be collected for the
       purposes of such other funds, to be re-paid later out of the taxes levied for such other funds
       when collected, and a method is provided enabling the municipality to do business on a cash
       basis by transferring money from the working cash fund to other funds during the time
       between the levy of taxes for such other funds and the collection of the taxes so levied.” The
       Mathews court further explained:
           “Under our law for the levy and collection of taxes the levies are made at various dates,
           usually in the months from March to September, including both. The taxes are not
           extended until December or until January or February of the next year, and the collection
           cannot proceed until the extension is completed. Liabilities accrue against the
           municipalities after the levies are made which must be met from the levies whose
           collection will not begin for several months. *** The greater part of the tax levied is not
           paid until a year or more after the levy, and for this reason a deficit arises in the treasury
           of every municipal corporation, which must be provided for if its credit is to be
           maintained and its warrants to be paid and not hawked about to be sold at a discount.
           Accordingly the legislature, to meet this situation, passed a law in 1879 *** providing
           for the issue of tax warrants whenever there was no money in the treasury to meet the
           ordinary and necessary expenses of any municipal corporation ***. [Citation.] *** The
           raising of a fund by the sale of bonds to meet the deficit and the establishment from the
           proceeds of such sale of a revolving fund *** is not different in principle from the raising
           each successive year of a fund for the same purpose by borrowing money by means of
           anticipation warrants.” Id. at 136-37.
¶ 11       The Mathews court rejected a taxpayer’s constitutional argument that accumulation of
       moneys in the working cash fund was not a public purpose within the scope of a school
       district’s taxing power. The court concluded that it was not a proper objection that working


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       cash funds were “banking funds,” i.e. that “the money is never expended or used in the sense
       that it is permanently applied to any particular corporate use.” Id. at 138. The court reasoned
       as follows:
                 “The question of the establishment of a working cash fund plan as a means by which
           it should be made certain that the municipalities would be able to meet their ordinary
           expenses as they became due[,] either in lieu of or in connection with the use of tax
           anticipation warrants, is a question of sound business judgment. The legislature decided
           that the working cash fund plan should be adopted and the tax anticipation warrant plan
           should be continued. The working cash fund plan is within the principle announced by
           this court in the various decisions which have been cited. When it is in full operation
           there will be no occasion for the use of tax anticipation warrants, but until that time the
           municipalities will continue to use the tax anticipation warrant plan so far as it may be
           necessary.” (Emphasis added.) Id. at 140.
¶ 12       The taxpayers in Mathews also objected that the General Assembly had put no limit on
       the amount that might be accumulated in a working cash fund. The court rejected the
       argument:
           “The acts do not limit the amount of money which may be included in these working
           cash funds except by the limitation of the amount which may be levied annually to raise
           them, but the fund is in each case for the purpose of enabling such municipality ‘to have
           in its treasury at all times sufficient money to meet demands thereon for ordinary and
           necessary expenditures for corporate purposes.’ The amount that may be levied is left to
           the sound discretion and business judgment of the city council, the county board, or the
           board of education. It is impossible to establish by a fixed, unchanging rule the amount
           which may be necessary for the purposes indicated. A maximum tax rate is fixed as the
           limit beyond which the taxing body may not go, and such a rate is fixed in each one of
           these acts. If the maximum tax rate should turn out to produce a larger amount than is
           necessary for the purposes of the law, it is not to be presumed that the taxing authorities
           would levy such maximum rate or any rate higher than the exigencies of the situation
           demand. If, contrary to this presumption, such a levy should be made, the courts have the
           power to interfere and prevent a clear abuse by such authorities of their discretionary
           powers.” (Emphasis added.) Id. at 141.
¶ 13       Relying primarily on Mathews, the Barretts contend that “[t]he clear intent of Article 20
       of the School Code is that the district must first demonstrate that there has been a need for
       tax anticipation warrants in the most recent past or that there will be a continual need for tax
       anticipation warrants into the foreseeable future prior to 1) establishing a working cash fund
       and 2) increasing a working cash fund.” We disagree. The statutes place no such limitation
       on a school district’s authority to accumulate cash in its working cash fund. Nor can we
       extrapolate such a limitation from the Mathews court’s observation that, when a school
       district’s working cash fund is “in full operation,” it will no longer be necessary to issue tax
       anticipation warrants. The Mathews court never suggested, as the Barretts seem to believe,
       that once the working cash fund is “fully operational” no additional cash may be raised.
       Although at that point increasing the fund might not be strictly necessary, it hardly follows
       that doing so is strictly forbidden. Rather, as stated in Mathews, there must be a clear abuse

                                                 -6-
       of discretion before a court will interfere. That situation does not exist merely because a
       school district maintains a level of reserves in its working cash fund above what is necessary
       to cover temporary shortfalls in the district’s other funds prior to the collection of taxes for
       the fiscal year.
¶ 14       In Allegis Realty Investors v. Novak, 379 Ill. App. 3d 636, 638 (2008), we described the
       process devised by our supreme court for determining whether a taxing body has abused its
       discretion by accumulating too much money in its treasury:
               “Our supreme court set forth the proper method for analyzing excess accumulations
           of money in Central Illinois Public Service Co. v. Miller, 42 Ill. 2d 542 (1969). In Miller,
           the court determined the total funds available for the fiscal year by adding the fund
           balance at the beginning of the fiscal year to the taxes extended for the prior year. This
           total was then divided by the average annual expenditure from the fund for the previous
           three fiscal years. In Miller, the total funds available were 2.84 times the annual average
           expenditure for the past three fiscal years and 3.24 times the amount expended in the last
           previous fiscal year. The court then concluded that any further tax levy would result in
           an illegal excess accumulation. However, the Miller test is not one to be applied with
           mathematical precision [citation], and the term ‘accumulation’ has been equated with an
           amount that exceeds two to three times the foreseeable expenditures of the taxing body.
           [Citation.] Once such an accumulation is shown, the taxing body is to be given an
           opportunity to present evidence showing the need for an accumulation of such
           magnitude.”
¶ 15       This test allows maintenance of considerable reserves. From an analytical standpoint, it
       makes no difference that a portion of the reserves is maintained in a discrete fund. The Miller
       test described in Allegis Realty Investors is therefore applicable in this setting, the relevant
       question being whether, at the beginning of fiscal years when the bonds were issued, the
       balance of the district’s funds (including the working cash fund) plus taxes extended for the
       prior year were two to three times the average annual expenditures from the preceding three
       years. The Barretts have not alleged that this is the case and have thus failed to substantiate
       the conclusion that it was an abuse of discretion to issue the bonds. Accordingly, their
       objections were properly dismissed.
¶ 16       For the foregoing reasons, the judgment of the circuit court of Du Page County is
       affirmed.

¶ 17      Affirmed.




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