by James M. Vasselli and Matthew T. Simo
Public bodies perform important tasks. They set and maintain budgets, manage finances, and perhaps most significantly, they levy taxes.
Spiderman taught us that with great power comes great responsibility. Since the power to tax is a great power, it commands great responsibility. Tax levies must be carefully crafted to bring in sufficient revenue to continue operations while not overburdening taxpayers. Too little means a locality can find itself having to cut corners, scale back projects, and limit operations. This will decrease the level of service the government is able to provide, and taxpayers will be justifiably angry. And yet, on the other hand, taxpayers will fume if their taxes are too high.
When push comes to shove, taxpayers can file tax objections. A common argument is that the local government has excessively accumulated funds. It is well settled in Illinois that unnecessary accumulations are against the policy of the law and illegal. Proving an excess accumulation can be accomplished by presenting evidence that the accumulation in a fund exceeds two to three times the average annual expenditures from the fund. At that point, a court would require the taxing body to explain why it needed to make the additional levy.
Thankfully, the Illinois Supreme Court has formulated a test that can aid local governments in avoiding excess accumulation problems. In Central Illinois Public Service Co. v. Miller, 42 Ill.2d 542, 543 (1969), the Illinois Supreme Court held that having funds available for general assistance purposes in an amount that was 2.84 times the three-year average expenditure and 3.24 times the prior year’s expenditure was an unlawful excess accumulation. The Miller court set a floor whereby a court would be compelled to declare a levy unlawful. Therefore, in cases like In re Application of the People ex rel. Anderson, 279 Ill. App. 3d 593, 596 (1996), the court did not find an unlawful excess accumulation where the tax levy was 1.8 times the average annual expenditures for three years and 1.6 times the previous year’s expenditure.
The appellate court recently spoke again on this topic. In 110 Larkin, LLC v. Weber, 2023 IL App (3d) 210606, the Third District Appellate Court examined a situation where the taxing body had one general fund that consisted of three sub-funds: (1) corporate, (2) capital replacement, and (3) capital development. The complaining taxpayers argued that the body’s nearly four-million dollar levy was a violation of the Miller principles. They argued the Miller analysis should be applied fund-by-fund basis. The taxing district replied by stating it was “well within its rights to levy for corporate purposes, building repairs and building improvements.” It asked the court to take all three funds together and apply that figure to the Miller test. The court agreed with the taxing body and stated, “the correct Miller calculation compares all the funds available (the funds on hand at the beginning of the fiscal year together with the funds due from the previous year’s levy) in all three sub-funds that make up the general fund to the average expenditures from all three sub-funds over the past three years.” The court thus upheld the levy.
Public bodies must be careful when determining how much to levy. They must vigilantly consider operating expenses from prior years and undertake their own Miller analysis to determine the multiplier that a court may apply. Public bodies should also set reasonable rates that provide sufficient revenue to cover their expenses. They should also monitor their operating funds. It is unintuitive to think that having too much money is a bad thing, but the risk of tax objections makes it best to conduct regular financial analyses and carefully consider the appropriate level of funds a public body should have in reserve. Finally, local governments should engage with taxpayers, community groups, and other third parties to ensure their rates are reasonable and justifiable.
Public bodies need to exercise discretion when considering their tax levies. They must be careful to tie each levy towards a specific corporate purpose and monitor operating funds. Not doing so may mean catching a tax objection. However, as illustrated in 110 Larkin, there are clear parameters that, if observed, can save a taxing body from liability.