In 1400 Wolf Road, LLC v. Pappas, an Illinois appellate court rejected arguments by taxpayers claiming that a school district’s issuance of working cash fund bonds was illegal because the school district could not levy a tax for working cash fund bonds and then transfer those funds to the capital improvement fund for school building improvements.
In 2007, the school board adopted a resolution declaring its intent to issue working cash fund bonds and published notice of a public hearing in the local newspaper. The subsequent resolution issuing the working cash fund bonds stated that the expected purpose of the bonds would be for the improvement and repair of existing school buildings. Following the issuance of working cash fund bonds, the board transferred the bond amount from the working cash fund into the school district’s capital improvement fund.
Following the transfer to the capital improvement fund, various taxpayers filed a complaint claiming that the school district’s resolutions and notices issuing the bonds were deficient because they did not reveal the school district’s intent to transfer the funds to capital improvements for the improvement of school buildings. The taxpayers alleged that the school district’s actions misled taxpayers about the true purpose of the bond issuance.
In its decision, the court noted that a 2017 decision by another Illinois appellate court, 1001 Ogden Partners v. Henry, 2017 IL App (2d) 160838, addressed nearly identical arguments and found in favor of the school district. Here, the court adopted the reasoning of the 2017 decision and found that the school district did not violate any state statutes when it issued the working cash fund bonds and transferred the funds to the capital improvement fund for school building improvements. The court also noted that the school district complied with all notice requirements for the issuance of bonds and that the school district’s stated purpose of “corporate purposes” was sufficient for the bond notice.
As a practical matter, this case solidifies a school district’s ability to transfer funds from the working cash fund into other funds, including capital improvement. The court also provided guidance to indicate that reference to “corporate purposes” in the notices for the issuance of working cash fund bonds will be sufficient, even when the intention of the funds may be for improvements to existing school buildings. This is not to say that school districts may simply use working cash fund bonds for major school projects, but improvements and repairs may be accomplished through the use and transfer of working cash fund bonds, if needed. Finally, the process for the issuance and transfer of funds in this case is further clarified as permissible now that two separate Illinois appellate courts have ruled in favor of the school districts.
For questions about this decision and the use of working cash fund bonds, contact Steve Richart, Kerry Pipal, or any attorney in our Board Governance/Corporate practice group.
Source: 1400 Wolf Road, LLC v. Pappas, 2020 IL App (1st) 192030-U
