Illinois Appellate Court Reviews the Reach of the Property Tax Extension Limitation Law (PTELL)

By: Ares G. Dalianis and Scott R. Metcalf

What happens if a school district subject to PTELL annexes territory in a county that is not subject to PTELL?  The Illinois Appellate Court recently addressed this question in Board of Education of Auburn Community Unit School District No. 10 v. Department of Revenue.  The Court ruled that, although the statute does not cover this particular situation, PTELL applies to the property taxes extended in the county with the tax cap and not to the property taxes extended in the annexed territory.

In 1991, the Illinois General Assembly imposed the tax cap on Lake, McHenry, Kane, DuPage and Will Counties.  The tax cap was extended to Cook County in 1994.  The voters in all other counties in Illinois may adopt referenda imposing tax caps on their non-home rule governments.  To date, 33 of Illinois’ 102 counties have approved PTELL referenda, while nine counties have rejected the same.  The Illinois Department of Revenue has produced a map of PTELL counties that is available here.

Auburn School District No. 10 is located in Sangamon County, one of the counties that adopted PTELL.  In 2007, the Regional Board of Education of Sangamon County dissolved Divernon School District No. 13 and annexed a portion of Divernon’s territory to Auburn School District.  A small sliver of the territory annexed to Auburn School District is located across the county line in Montgomery County.  Montgomery County has not adopted PTELL.  Auburn School District then asked the Department of Revenue for an opinion on whether it was still subject to the tax cap because it needed to issue $9 million in bonds for HVAC and insulation improvements.  The Department of Revenue declined to issue a formal opinion, but informally responded that the District was still subject to PTELL.  Seeking a more definitive answer, Auburn School District filed suit against the Department of Revenue requesting a declaratory judgment that it was no longer subject to PTELL.  The trial court agreed that the District was no longer subject to tax caps, and the Department of Revenue appealed.

The Appellate Court recently reversed the lower court, ruling instead that the portion of Auburn School District in Sangamon County remained subject to tax caps and the portion in Montgomery County remained free from tax caps.  As an initial matter, the Court noted that the PTELL has no provision addressing the facts of this particular case.  And the Court did not see anything in the other sections of the statute to indicate that the legislature intended to free a school district from tax caps when it annexes territory in another county.  Instead, the court reasoned that PTELL imposes tax caps on agencies with a majority of their Equalized Assessed Value in a PTELL county.  Here, the vast majority of Auburn School District’s EAV was in a PTELL county.  Second, once the tax cap is adopted by referendum, the only way to remove it is through another referendum.  And in this case there had been no referendum to remove the tax cap from Sangamon County.

While Board of Education of Auburn Community Unit School District No. 10 addresses a narrow question of law, it is instructive in two important respects.  First, even where PTELL does not address a particular situation and the Illinois Department of Revenue has not issued any administrative rules, the Court is still likely to defer to the Department because the Department is the state agency charged with administering the statute.  Second, the Court is not likely to read any loopholes into the PTELL, as it sees the purpose of the statute as protecting taxpayers.