Court Sides with Illinois Taxpayers over Tort Tax

Published October 1, 2005

In a big victory for Illinois taxpayers, a state circuit court has ruled it is illegal to use tort tax funds for purposes other than those specifically stated by law.

On August 15 a circuit court judge in Stephenson County, in the northwest corner of the state, determined three local taxing districts illegally diverted tort tax money for purposes not allowed by law. An estimated $1 million in local tax funds used in 2000 may have to be refunded, at least in part, to the taxpayer plaintiffs.

The three districts were the Freeport school and park districts and Highland Community College. In a companion suit, the court found the Pearl City school district acted within the law and did not divert tort funds for illegal purposes.

The ruling came in connection with a tax objection lawsuit filed by Freeport attorney Robert Slattery on behalf of taxpayers in Stephenson County.

2,000 Taxpayers Joined Suit

“It’s the correct decision,” Slattery said. “I’ve had tremendous confidence since I filed the lawsuit. It was such a clear-cut abuse of the tort fund. Because of this decision, the taxing bodies may have to pay 15 to 20 percent of the more than $1 million that was illegally used to the estimated 2,000 taxpayers who joined the lawsuit.”

The decision by 15th District Circuit Judge Val Gunnarson found, “The [Illinois] General Assembly specifically did not intend that the Tort Immunity levy be used to pay expenses which are more properly charged to general funds.”

Gunnarson’s decision further stated, “Taxing districts have available to them levies for all of their usual functions, such as the maintenance of its buildings and grounds, transportation of students, and the payment of wages and salaries of personnel.”

Diversion Evades Tax Cap

State law requires that general fund tax increases be approved by a vote of local taxpayers, while the local tort fund is deemed a mandatory expenditure and outside of the state’s cap on property tax increases.

Slattery explained taxing districts are allowed to impose a tort fund tax, which is primarily to be used for purchasing insurance. The taxing districts in question levied the tort fund tax and then used that money to pay salaries of employees.

“In Illinois, it is illegal to levy a tax for one purpose and to then divert the funds and spend them for another purpose,” Slattery said.

More Legal Action

Slattery’s lawsuit covered the 2000 property tax levy, payable in 2001. Slattery said he has filed similar lawsuits covering 2001, 2002, and 2003, and likely will file a suit for 2004.

“However, these suits likely won’t move forward until the appeals process is finished in this initial case,” Slattery said.

“The decision looks pretty tight, but it will probably be appealed,” said Jeff Mays, president of the Illinois Business Roundtable, a group of Illinois chief executive officers. This spring, the group issued a report slamming what it deemed to be widespread abuse of the tort tax fund by public school districts.

Defense attorney John Murphy told the Freeport Journal Standard, “The decision was a ‘cautious, conservative ruling,’ which was not unexpected coming from this judge.” Murphy is planning an appeal for the Freeport school and park districts.

According to Slattery, the case may be appealed as far as the Illinois Supreme Court because of its significant statewide ramifications.

“School districts throughout the state are using the tort fund to balance their budgets because they can secretly, without voter approval, impose a virtually unlimited tax,” Slattery said. “This is a widespread practice throughout the State of Illinois. The Stephenson County cases are the first cases in the State of Illinois to successfully challenge the illegal use of the tort fund to pay salaries. [So far] the taxpayers [have] won the majority of the issues that were before the court.”

Although the court found the Pearl City school district properly used its tort fund, “That decision will be appealed by the tax objectors,” Slattery said.

John W. Skorburg ([email protected]) is a visiting lecturer in economics at the University of Illinois, Chicago and associate editor of Budget & Tax News.

For more information …

The court’s 44-page decision can be viewed online at Slattery’s Web site,