Long-Standing Practice Of Working Cash Transfers Validated By General Assembly

By: Ares G. Dalianis and Scott R. Metcalf

This past Monday, July 26, 2010, Governor Quinn signed into law HB6041, which concerns transfers from a school district’s Working Cash Fund to any operating fund of the district. Under this new law, now codified as P.A. 96-1277, so long as a school district adopts a resolution abating its Working Cash Fund and retains a balance in the fund of at least 0.05% of its EAV, money may be transferred from the district’s Working Cash Fund to any other fund determined to be in most need. The new law is retroactive in its application and validates prior year transfers.

This legislation was proposed and championed in response to the 2009 Second District Appellate Court decision in G.I.S. Ventures v. Novak. In that case (summarized in an April 9, 2009 FR Alert), a DuPage County school district issued bonds for its Working Cash Fund. The district then permanently transferred the bond proceeds to the Operations and Maintenance Fund to pay for construction projects. The objectors filed a tax rate objection claiming that the state legislature intended that only the Education Fund should receive permanent transfers from the Working Cash Fund and that the Education Fund tax rate should be reduced proportionately to compensate for the transfer. The Appellate Court essentially agreed with this position, which has led to protracted, ongoing litigation as the case has been remanded to the trial court for further proceedings.

It is important to note that P.A. 96-1277 does not change any of the existing limitations on tax rates or bond issuances. It simply codifies the long-held practice and understanding of Illinois school districts that after money is abated from the Working Cash Fund it can be transferred to the fund most in need. The provision of P.A. 96-1277 retroactively validating these transfers should help protect school districts from significant tax refund exposure and litigation costs.

It is important to note that this legislation may not bring an immediate end to the litigation involving Working Cash Fund transfers. For example, it will come as no surprise if the objectors elect to challenge the scope and constitutionality of P.A. 96-1277, including the retroactive validation of these transfers. It is also possible that the objectors may seek leave of court to amend their objections to focus on a different aspect of these transactions. Nonetheless, with these caveats in mind, this legislation is a significant victory for Illinois school districts.