School Board Motion to Dismiss Upheld Over Use of Working Cash Fund

By April 23, 2014 News No Comments

In Lutkauskas v. Rickter, the Illinois’ Appellate Court ruled that taxpayer plaintiffs have no right under the Illinois School Code to file a complaint for civil penalties for a school board transferring working cash funds without a board resolution if the plaintiffs fail to show that the money was transferred for anything other than legitimate school expenses.

In this case, the school board utilized funds out of the working cash fund to make up short falls in the district’s budget due to deficit spending. Section 20-5 of the Illinois School Code allows school boards to create a working cash fund to provide a reserve upon which school districts may draw in anticipation of tax collections. Here, the school board transferred money out of the working cash fund, without a resolution, to other school district funds. Through a resolution, the board decided to partially lower the total amount of the fund and leave a small remainder in the fund. This allowed the school board to not refund the amount of money spent from the working cash fund in the next budget year. Because of these actions by the school board, plaintiff taxpayers initiated a lawsuit for criminal and civil penalties under Section 20-6 of the School Code.

The school board moved for a dismissal of the lawsuit and the Illinois Court of Appeals granted the motion for two reasons: 1) plaintiff taxpayers do not have standing to bring criminal charges such as forfeiture of office and fines and 2) plaintiff taxpayers did not allege that the money spent from the working cash fund was spent on anything other than legitimate school expenses.

The plaintiffs claimed that the school board members were “guilty of a business offense” for utilizing the working cash fund without passing a resolution for the use of the fund. In considering the plaintiff’s claims, the Illinois’ Appellate Court found that the phrase “guilty of a business offense” in Section 20-6 of the Illinois School Code refers to a criminal offense, which only the State of Illinois can impose upon the school district. The Appellate Court also found that the plaintiffs did not cite to any legal authority on how the provisions of Section 20-6 could be enforced in a civil action.

Furthermore, the Appellate Court found that the damages requested by the plaintiffs, the amount of money taken out of the working cash fund and placed into other school funds, would result in a windfall for the district. The plaintiffs were seeking civil damages under Section 20-6, which allows private taxpayers to recover any sum of money unlawfully diverted from the working cash fund or otherwise used.

The district argued that it would essentially be reimbursed for the funds that it had lawfully spent for school purposes if the plaintiffs won. The Court agreed. The Court concluded that the plaintiffs cannot recover money from the district if they cannot show that the funds were not put toward some improper purpose forbidden by the School Code.

The Court disagreed that the school board’s decision to abate the working cash fund violated the School Code. The Court found that abating or lowering the amount in the working cash fund amounted to a permanent transfer which was permissible under Article 20 of the Illinois School Code, which allows working cash funds to be permanently transferred. The Court found that since plaintiffs cannot demonstrate that the district incurred any loss of funds from the abatement, there are no actual damages.

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