FIFTH DIVISION

					JUNE 28, 2002

No. 1-00-2499

IN THE MATTER OF THE APPLICATION		)	APPEAL FROM THE

OF THE COUNTY COLLECTOR OF COOK		)	CIRCUIT COURT

COUNTY, ILLINOIS, FOR JUDGMENT AND		)	OF COOK COUNTY.

ORDER OF SALE AGAINST REAL ESTATE		)

RETURNED DELINQUENT FOR THE NON-		)

PAYMENT OF GENERAL TAXES FOR THE		)

YEAR 1989 AND FOR JUDGMENT FIXING		)

THE CORRECT AMOUNT OF ANY TAX			)

PAID UNDER PROTEST,					)

								)	HONORABLE

KEN OAK, et al., 						)	FRANCIS BARTH,

	Objectors.						)	JUDGE PRESIDING.

	PRESIDING JUSTICE CAMPBELL delivered the opinion of the court:

	Following a bench trial in the circuit court of Cook County, the trial court sustained 5 of 25

objections filed by various property taxpayers (Objectors) challenging the legality of certain 1989

property taxes levied by the City of Chicago (City).  The City appeals the final judgment of the trial

court as to those five objections.  The Objectors cross-appeal the pretrial dismissal of one of their

objections.  Given the nature of the objections involved in this appeal, this court will set forth the

facts disclosed as to each objection while addressing them sequentially.

	I.  Background

	The tax challenges in this case must be viewed in the context of the City's annual budgeting

and appropriations process.  The record discloses that in early December 1988, the City Council

approved an appropriations ordinance for the City totaling approximately $2.9 billion.  The 1989 appropriations ordinance describes anticipated revenues and expenditures for 30 separate funds. 

The Notes to the City's Combined Financial Statements for 1989, which is part of the City's 1989

Comprehensive Annual Financial Report (CAFR), state that the City's accounts are organized on

the basis of funds or account groups; each fund is a separate accounting entity.  

	The funds fall into three categories:  Governmental, Proprietary, and Fiduciary.  According to the 1989 CAFR, the Governmental funds include the General Fund, also known as the Corporate

Fund, which  is the City's general operating fund, and accounts for all financial resources except

those required to be accounted for in another fund.  The Governmental funds also include Special

Revenue Funds, which the 1989 CAFR states are "used to account for revenues from specific taxes

or other earmarked revenue sources which by law are designated to finance particular functions of

government."  These funds require "separate accounting because of legal or regulatory provisions

or administrative action."  The Special Revenue Funds include the Chicago Public Library Funds,

the Public Building Commission (PBC) Fund, and the City Relief Fund.

	On February 16, 1989, the City Council approved a levy ordinance in the amount of

$620,978,709 upon all property subject to taxation in the City.  The levy ordinance incorporated

the appropriations ordinance by reference.  The levy ordinance also provided that "[i]n no event

shall the amount levied for any purpose ***, exceed the amount appropriated for such purpose, as

set forth in the annual appropriations ordinance adopted for the City for the year 1989."

	That same day, the City Council also passed a note ordinance (Note Ordinance), authorizing

and directing the issuance of "City of Chicago General Obligation Tender Notes, Series 1989." 

Series 1989A was issued to finance the cash flow requirements of the City.  Series 1989B was

issued to provide $255,750,000 to pay amounts appropriated to specific named funds.

	First Deputy Budget Director Carlson identified the 1989 Revenue Estimates Book, as a

detailed look at the budget estimates made by the Department of Budget and Management.  The

1989 Revenue Estimates Book states in part that, in conformity with generally accepted accounting

principles, the tax levy is distributed to some operating funds through the sale of Daily Tender

Notes.  The Corporate Fund, two Library Funds, the Judgment Fund, and the City Relief Fund

receive proceeds from such sales.  Daily Tender Notes are sold in anticipation of the collection of

taxes in subsequent years, providing the City with operating funds while it awaits the collection of

the tax.  Between three and five percent of the levy is not collected; that "loss in collection" is

budgeted as an expense in a Note Redemption and Interest Fund 512.

	II. Public Aid Funds

	The City argues that the trial court erred in sustaining Objection 17, which claimed that the

City levied a tax for the City Relief Fund (Fund 660) exceeding the appropriation for that purpose. 

Generally, no tax can be levied for any purpose absent a legal appropriation for such purpose, and

the levy cannot exceed the amount of the appropriation.  People ex rel. Schlaeger v. Jarmuth, 398 Ill. 66, 71, 75 N.E.2d 367, 369 (1947); see 65 ILCS 5/8-3-1 (West 2000).  

	The City claims the trial court sustained the objection "on an entirely different basis that the

court interjected into the case sua sponte - - specifically, that the City's original appropriations ordinance for 1989 described the appropriations and levy for public aid purposes in an inadequate

manner."  Yet the City also states in its brief that it does "not doubt the circuit court's power to

inject this issue into the case ***."  Thus, the City cannot claim reversible error on this point.1  It is the judgment and not what else may have been said by the lower court that is on appeal to a court

of review; this court may affirm the judgment upon any ground appearing of record.  Material Service Corp. v. Department of Revenue, 98 Ill. 2d 382, 387, 457 N.E.2d 9, 12 (1983).

	The City Relief Fund is a Special Revenue Fund that provides general assistance to be

expended and administered by the Illinois Department of Public Aid as provided by tax levy.  The

Illinois Public Aid Code provides in relevant part that:

		"To qualify for State funds to supplement local funds for public aid

purposes, a local governmental unit shall, except as hereinafter

provided, levy within the time that such levy is authorized to be made

a tax of an amount which, when added to the unobligated balance

available for such purposes at the close of the fiscal year preceding

the fiscal year for which the tax is levied will equal .10% of the last

known total equalized value of all taxable property in the govern

mental unit."  Ill. Rev. Stat. 1987, ch. 23, § 12-21.13; see 305 ILCS

5/12-21.13 (West 2000).

The Illinois Municipal Code provides in part that:

		"Taxes levied by any municipality having a population of 500,000 or

more for general assistance for persons in need thereof as provided in The Illinois Public Aid Code, as now or hereafter amended, for each

fiscal year shall not exceed the rate of .10% upon the value of all

property therein as that property is equalized or assessed by the

Department of Revenue.  Nor shall the rate produce in excess of the

amount needed in that municipality for general assistance for persons

in need thereof.

			All money received from these taxes and moneys collected or

recovered by or in behalf of the municipality under The Illinois Public

Aid Code shall be used exclusively for the furnishing of general

assistance within the municipality; for the payment of administrative

costs thereof; and for the payment of warrants issued against and in

anticipation of the general assistance taxes, and accrued interest

thereon."  Ill. Rev. Stat. 1987, ch. 24, § 11-43-2; see 65 ILCS

5/11-43-2 (West 2000). 

The 1989 appropriations ordinance incorporated these requirements for Fund 660:

			"The aggregate amount to be appropriated hereunder shall

equal the maximum authorized tax rate required to qualify this fund

for additional money available for expenditures from State funds. 

The maximum authorized tax rate is .10 percent of the last known

total equalized value of all taxable property within the City."

The City's levy ordinance also provided that the amount levied for any purpose shall not exceed the

amount set forth for that purpose in the appropriations ordinance.

	The appropriations ordinance showed that Fund 660 had a total of $17,731,203

appropriable for charges and expenditures, of which $1,691,203 represented interest on the sale of

daily tender notes;2 the difference is $16,040,000.

	  The deposition testimony of James Welker, who began working for the City in 1965 and

held the position of Assistant Comptroller for the City from 1985 through 1998, was admitted into

evidence at trial.  Welker testified that a June 19, 1990, letter he sent to the Department of Public

Aid gave correct information regarding the 1989 levy.  Welker's June 19, 1990, letter to the Chief

of the Bureau of Internal Audits for the Illinois Department of Public Aid states that the correct

amount of the levy for 1989 was $18,997,720.  The City's 1987 CAFR states that the total

equalized assessed value of all taxable property in 1987 was $18,997,720,225.

	According to Welker, proceeds of debt, interest income and tax collections went into the

City Relief Fund.  Welker stated that "the levy is in the note fund," and exceeds the principal

pertaining to the repayment of the notes issued.  The 1989 appropriations ordinance shows that

$257,611,973 was appropriated to Fund 512 for payment of term notes, and $14,230,630 was

appropriated for loss in collection of taxes, bringing the fund total to $271,842,603.

	On November 29, 1989, the City Council approved a supplemental appropriations

ordinance, allocating an unanticipated $400,000 surplus in Fund 660 from the prior year to Fund

660, resulting in a total appropriable for charges and expenditures of $18,131,203.

	In sum, the record shows that the City Relief Fund was to be funded by the sale of daily

tender notes in an amount which is less than the levy stated by Welker in his June 1990 letter to the

State.  The City argues that the amount appropriated cannot be determined only from the entries for the City Relief Fund in the 1989 appropriations ordinance.  Rather, because "the levy is in the

note fund," the amount appropriated for city relief purposes (as opposed to for the City Relief Fund) must be determined by calculating that the $17,301,203 listed in the appropriation for Fund

660 is approximately 6.8829% of the $257,611,973 appropriated to Fund 512 for payment of term

notes.  The City then calculates that 6.8829% of the $14,230,630 appropriated for loss in collection

of taxes in Fund 512, $979,842, should be added to the base figure.  The City then adds the

$400,000 supplemental appropriation to Fund 660, to arrive at a total appropriation of $19,110,685

for city relief purposes.3  

	The Objectors bear the burden of establishing the invalidity of the levy.  People ex rel. Redfern v. Penn Central Co., 47 Ill. 2d 412, 418, 266 N.E.2d 334, 337 (1971).  However, if there were other compensating estimates by the City which offset the one objected to, so that the

Objectors were not harmed, it was the City's duty to prove that fact.  People ex rel. Schlaeger v. Bunge Bros. Coal Co., 392 Ill. 153, 161-62, 64 N.E.2d 365, 369 (1945).

	The fact that the City appropriated $17,301,203 to Fund 660 is not proof that it is the

correct figure from which to calculate a percentage of the appropriation for Fund 512.  The Note

Ordinance directed the issuance of Series 1989B notes for the purpose of the City Relief Fund in the maximum principal amount of $15,869,000, an amount less than the amount appropriated for

Fund 660, even after deducting the interest cost.  In this context, the trial court's comment that

there was "no way for the City to know that the aliquot or pro rata portion of the loss and cost of collection has been attributed to the City Relief Fund" speaks not only to whether the City properly

disclosed its appropriations and levies, but also to whether the City sustained its burden of proving

an offsetting estimate.

	The City argues that its failure to itemize Fund 512 in connection with Fund 660 is a mere

informality that could be remedied by amendment, because the substantial justice of the levy was

not affected.  See 35 ILCS 200/23-40 (West 2000).  The City has not identified where in the record

it made this argument in the trial court, resulting in waiver on appeal.  Moreover, without proof

that the amount listed for Fund 660 reflects the pro rata portion of Fund 512 dedicated to city relief, it is impossible to decide whether the substantial justice of the levy was affected.

	Thus, the City has failed to show that the trial court erred in sustaining Objection 17.

	III.  Estimate Objections

	The City next contests the trial court's rulings on two objections to the City's estimates in its

appropriations ordinance.  This court shall address each in turn.

	A

	  The trial court sustained Objection 14, which claimed that the City unlawfully under

estimated revenue for the Library Maintenance and Operation Fund (Fund 346).  Fund 346 had a

total of $45,152,451 appropriable for charges and expenditures.  The estimate for 1989 revenue

included:  (1) $35,163,451 from the sale of daily tender notes; (2) $1,000,000 in interest; and

(3) $260,000 in fine receipts.  Fund 346 also had a surplus of $8,729,000 at January 1, 1989.

	The City's CAFRs showed the actual revenue from interest, fines and miscellaneous sources

in Fund 346 for calendar years 1983-89 were as follows:

		Year		Interest		Fines		Misc.		Total

		1983		     953,586		253,692	119,679	1,326,957

		1984		  1,527,912		282,854	  67,085	1,877,851

		1985		  2,279,067		225,199	148,993	2,653,259

		1986		  3,519,240		128,982	332,268	3,980,490

		1987		  2,780,224		334,118	  86,139	3,200,606

		1988		  1,690,242		356,375	127,629	2,174,246

		1989		  3,051,444		372,291	103,649	3,527,384

According to Russell Carlson, the First Deputy Budget Director in the City's Office of Budget and

Management, his office used the CAFRs as part of the baseline for estimating available resources. 

When the 1989 budget was prepared, the 1988 CAFR would not have been available.

	Trial exhibits show that "miscellaneous receipts," had been estimated as follows:

		Year		Misc. Receipts		Fines		Total Estimate

		1983		200,000		275,000	475,000

		1984		300,000		200,000	500,000

		1985		300,000		200,000	500,000

		1986		350,000		233,000	583,000

		1987		350,000		234,000	584,000

		1988		600,000		260,000	860,000

Former City Budget Director David Schultz testified that interest was included in the estimates for

miscellaneous revenues in years 1983-88.  The exhibits show that Fund 346 had a surplus that

increased from $50,000 in 1983 to $7,279,426 in 1988.

	Daniel Schultz, CPA, the Chief Deputy Auditor for the State of Ohio and a former partner

and industry chairman of Coopers & Lybrand's national government and accounting practice,

testified as the Objectors' expert witness.  Daniel Schultz did not offer an opinion as to the amount

of interest income that should have been estimated for 1989, but opined that "as a rule of thumb,"

budget estimates of investment revenue should come within a range of 2% to 10% of the actual revenue figure.  Daniel Schultz stated that, from an auditing perspective, an estimate outside that

range would be considered a "material" difference, and would require an auditor to either perform

additional procedures or to request an adjustment of a particular number.  Daniel Schultz testified

that a number of factors would go into an estimate of investment income, including the historical

basis for the estimate.  Daniel Schultz opined that if investment income was historically under

estimated by 50%, it would be the result of either "a bad job of estimating" or "an intentional

understatement."

	Former City Budget Director David Schultz and City Assistant Comptroller Steven Lux

opined that the estimates of investment income for Fund 346 had been reasonable under the

circumstances, including 3 City financial crises dating back to 1979, deficits occurring as recently as

1986, and reductions in the City's credit rating.  David Schultz also noted that the budget at issue

was an election year budget, which would create additional pressure on the Budget Director to hold

the line on taxes while providing maximum expenditures.  David Schultz further testified that

approximately 75% of the revenues derived from the City's dozens of revenue sources are

uncontrollable by the City, as they depend on factors such as future economic conditions.

	On appeal, the City argues that the record shows only a discrepancy between the estimated

and actual revenue, which is insufficient to sustain an objection.  The Objectors respond that the

City's argument mischaracterizes the trial court's ruling as one involving an unnecessary accumu

lation and diversion of funds, instead of an "historical pattern of overstating expenditures or under

stating revenues."  The Objectors rely on several cases, primarily In re Application of  Rosewell (Marotta v. Metropolitan Water Dist.), 159 Ill. 2d 393, 639 N.E.2d 559 (1994).

	However, in Marotta, our supreme court rejected claims that the taxing body underesti mated its corporate fund surplus, stating that Marotta showed only a discrepancy between the

amount estimated and the amount actually available, given that the timing of the budget process

was such that exact figures for some parts of the budget were not available when the estimates

were made.  Marotta, 159 Ill. 2d at 414-5, 639 N.E.2d at 568-69.4

	The Objectors note that in Bunge Bros. Coal Co., our supreme court sustained an objection to the taxing body's alleged overestimate of tax anticipation warrant liabilities.  Bunge Bros. Coal Co., 392 Ill. at 160-62, 64 N.E.2d at 369.  However, the Bunge Bros. Coal Co. court sustained the objection because the actual figures or balances were known to the comptroller and it was the duty

of the city council before passing the appropriation ordinance to ascertain from the comptroller the

exact amount of outstanding tax anticipation warrants and the interest thereon.  Bunge Bros. Coal Co., 392 Ill. at 161, 64 N.E.2d at 369.  

	In this case, there is no showing that the City knew the amount of miscellaneous revenue or

investment income that Fund 346 would receive prior to passage of the 1989 appropriations

ordinance.  The Objectors' expert, Daniel Schultz, suggested that the City either did "a bad job of

estimating" or made "an intentional understatement," had no opinion as to the correct estimate for

interest income for 1989.  Moreover, the record shows that Fund 346 is funded by revenue from not only interest, but also fines and other miscellaneous sources.  The City's witnesses testified that

many of the City's revenue flows were volatile.  The Objectors have not argued that what Fund 346 will receive from fines or miscellaneous revenue sources is easily predicted.

	The transcript shows that the trial court sustained Objection 14 based on a pattern of

historical underestimation.  However, none of the testimony adduced on Objection 14 showed that

the City had certainty in regard to the estimate at issue prior to passage of the 1989 appropriations

ordinance.  Thus, Objection 14 cannot be otherwise sustained.  Therefore, the order of the trial

court is reversed on this point.

	B

	The City next argues that the trial court erred in sustaining Objection 20, which claimed that

the City overestimated the loss in collections for the Debt Service Funds and the PBC Fund. 

Objection 20 claimed that the City illegally added an amount equal to approximately 5.26% of the

total levy for various funds to account for losses in collection of the tax; the Objectors claimed that

any such amount in excess of 3% was illegal.  The 1989 appropriations ordinance refers to five

Debt Service Funds, numbered 509, 510, 512, 568 and 641.  The 1989 property tax levies for the

Debt Service Funds do not identify amounts allocated for loss in collection, but the 1989

appropriations ordinance lists such amounts.

	The first year loss in collection estimates for the Debt Service Funds in 1989 ranged

between 5.1% and 5.5%.  Former Assistant Comptroller Welker testified that for 1989, he was

responsible for the levy numbers and the first year loss in collection figures.  Welker testified, to the

best of his recollection, that the City had used a 5% first year loss in collection figure for these

funds since budget year 1970 through budget year 1998.

	Welker testified that, in determining first year loss in collection figures, he would examine

the CAFRs "going back a few years."  Welker did not consider interest earned by the Debt Service

Funds or other available funds not needed to meet specific upcoming debt obligations. Welker

would examine the figures for prior first year collections, but not second or third year collections,

explaining that only the first year collections from the current calendar year could be used for debt

service in the coming budgetary year.  According to Welker, subsequent year collections would

build up in the Debt Service Funds for eventual abatements, but no abatements were made for

1989.

	The 1986 and 1987 CAFRs showed the following collection rates:

					Percent of Total Tax Collections to Tax Levy

		Tax Year		'86 CAFR		'87 CAFR

		1983			97.3%			97.3%

		1984			97.1			97.3

		1985			96.1			97.4

		1986			-----			94.7

The 1987 CAFR also showed that the collection rate was only 81.7% in Tax Year 1978, but

increased to the mid-nineties thereafter, due to the elimination of personal property from assessed

values and the State's enactment of a personal property replacement tax.

	The 1985 CAFR showed that the Debt Service Funds had a beginning balance of

$25,522,000, revenues over expenditures of $5,107,000, an operating transfer out of $13,414,000

and an end of year balance of $17,215,000.  The 1986 CAFR showed that the Debt Service Funds

had revenues over expenditures of $11,703,000, an operating transfer out of $6,000,000 and an end

of year balance of $22,918,000.  The 1987 CAFR showed that the Debt Service Funds had

revenues over expenditures of $25,215,000, and an end of year balance of $48,133,000.  The 1988

CAFR showed that the Debt Service Funds had revenues over expenditures of $29,707,000, and an end of year balance of $77,840,000.  The 1989 CAFR showed that the Debt Service Funds had

revenues over expenditures of $27,339,000, an operating transfer out of $30,100,000 and an end of

year balance of $80,079,000.

	Daniel Schultz, the Objectors' expert, testified that interest income, net taxes receivable and

fund surpluses should be considered in calculating the loss in collection figure.  Former City Budget

Director David Schultz and municipal bond consultant Kevin McKenna testified that interest

income, net taxes receivable and fund surpluses should not be considered in calculating the loss in

collection figure.  David Schultz and McKenna testified that interest income and net taxes

receivable fluctuated annually and would not be considered a reliable source of security for debt

repayment.  David Schultz and McKenna also testified that the City's 5% figure for loss in

collection was reasonable under the circumstances.

	On appeal, the City states that the Illinois Municipal Code requires municipalities with a

population of 500,000 or more to budget for loss of collections.  See 65 ILCS 5/8-2-3 (West

2000).  Our supreme court has ruled that an estimate of loss in collections should consider prior

experience, existing economic conditions, and all other factors affecting the estimated loss in

collections for the fiscal year.  People ex rel. Schlaeger v. Jourdan Packing Co., 389 Ill. 163, 167, 58 N.E.2d 910, 912 (1945) (and cases cited therein).  Our supreme court also has ruled that there is

no fixed rule for determining loss in collections; the percentage to be allowed has rested in the

discretion of the taxing authorities.  People ex rel. Brenza v. Gebbie, 5 Ill. 2d 565, 589, 126 N.E.2d 657, 669 (1955).

	The trial court ruled that the City had failed to exercise sound business judgment by

mechanically applying a 5% figure in light of the increase in the overall collection rate and the accumulation of surplus funds, particularly in Bond Redemption and Interest Fund 510.  As the

discussion of Objection 14 shows, history is not universally applicable to estimate objections.  The

record shows that in estimating first year loss in collection figures, Welker examined the CAFRs

"going back a few years."  The CAFRs showed first year collection rates of 94.7% for 1986 and

96.1% for 1985, suggesting that a loss in collection estimate of approximately 5% was not an abuse

of discretion.

	As litigated, Objection 20 was also based on the City's failure to account for loss in

collections beyond the first year, interest to be earned by the funds over the course of a year, and

surpluses not needed to defray upcoming debt or lease obligations.  The CAFRs show that the

largest second year collection was for 1985, which showed a 1.3% increase from 1986 to 1987. 

Our supreme court has held larger discrepancies insufficient to sustain a tax objection.  Marotta, 159 Ill. 2d at 414-15, 639 N.E.2d at 568-69 (1.9% difference); People ex rel. Brenza v. Morrison Hotel Corp., 4 Ill. 2d 542, 546, 123 N.E.2d 488, 491 (1954) (1.5% difference).  

	As for the interest earned by the funds during the year and the accumulating surpluses in the

funds at issue, the Objectors have cited no authority or made any argument to support their

assertion that these amounts are factors affecting the estimated loss in collections for the fiscal year,

though such sums ultimately may affect the amount that the City decides to levy in the following

year.  See, e.g., People ex rel. Luers v. Chicago & A.R. Co., 324 Ill. 179, 185-86, 154 N.E. 893, 895 (1926).  The Objectors state in their brief that the 1989 appropriations ordinance contains no

entry for net taxes receivable for its Debt Service Funds or the PBC Fund.  However, the Objectors

did not make this claim in Objection 20.5  Rather, Objection 20 was directed against the estimated percentage for loss of collections, based on historical experience.  Unlike the overall amount of a

levy, the estimated percentage for loss in collections does not appear to be affected by amounts

already in the City's coffers or interest gained thereon, based on the record here.

	In sum, while the trial court was understandably concerned by testimony that the City had

used a 5% estimate for loss of collections for decades, the record shows that for 1989, the City had

relied on recent CAFRs and estimated a rate consistent with the rates shown therein.  The increases

in second year collections were insufficient to sustain a tax objection under case law.  The

Objectors cited no authority for the proposition that funds already collected or accumulating affect

estimated losses in collections.  Thus, the trial court erred in sustaining Objection 20.

	IV.  Public Building Commission Expense Claims

	The City argues that the trial court erred in sustaining objections to the levy for PBC-related

expenses.  This court shall address each in turn.

	A

	  The trial court sustained Objection 19, which claimed that the City improperly had surplus

funds from the PBC Fund (Fund 641) applied to purposes other than the payment of rent to the

PBC.  Fund 641 is a Special Revenue Fund that makes expenditures for rentals of space and long-

term lease obligations by the City as provided by tax levy.  A PBC is a municipal corporation

separate from any other municipal corporation or public agency.  See 50 ILCS 20/14 (West 2000). 

A PBC exists to construct, acquire, enlarge, improve, repair and replace public improvements,

buildings and facilities.  See 50 ILCS 20/4a (West 2000).  A PBC may sell bonds and execute

leases to fund its operations.  See 50 ILCS 20/14 (West 2000).  

	During the 1970s, in cooperation with the City, the PBC passed bond resolutions for the

issuance of six series of bonds to finance various PBC projects:  1971A, 1971B, 1975A, 1975B,

1978A and 1979A.  In connection with each bond series, the PBC entered into a long-term lease

with the City for particular facilities, requiring the City to pay rent to the PBC annually; each lease

attached a copy of the corresponding bond resolution as an exhibit and stated that the resolution

was made a part of the lease.  In connection with each lease, the City Council passed levy

ordinances to pay the annual rent, as required by statute; each ordinance attached a copy of the

corresponding lease as an exhibit and stated that the lease was made a part of the levy ordinance.

	The bond resolutions provide that, so long as the bonds remain outstanding, rent payments

would be deposited into a revenue fund.  Sums so deposited would be paid in varying amounts into

an administrative expense account, a sinking fund, a renewal replacement and improvement account

and a surplus account.  Amounts sufficient to pay the interest and principal on the bonds would be

credited to the sinking fund.  

	The bond resolutions also provide that after properly crediting the other funds, sums from

the revenue fund would be received by the surplus account.  The bond resolutions further provide a

hierarchy of priority for making payments out of the surplus account.  Each bond resolution states

that within a given period of time before the end of each fiscal year (which is not identical in each

resolution, but ranges from 30 to 45 days), remaining surplus funds shall be credited pro rata to the next annual rental payments due from the City.  The bond resolutions also provide for transfer of

sums between the funds, but state that no surplus funds shall be transferred, and the PBC Board

shall not authorize such transfers, within the period of time during which the surplus is to be

credited pro rata to the next annual rental payments.

	Section 5 of each lease requires the City to provide by ordinance the levy and collection of a

direct annual tax sufficient to pay rent under the lease.  Section 5 also states that "funds realized by

the City *** from such tax levies shall not be disbursed for any purpose other than the payment of

the rent reserved" in the lease.  Section 18 requires the City to pay rent without any deduction,

abatement or setoff, subject to section 8.3(6) of the accompanying bond resolution, which is the

provision for crediting surpluses against the future rent described above.  Section 21 states that the

lease is to inure to the benefit of the parties, their successors and assigns, and "the holders of any of

the Bonds of the Commission referred to herein, as their interests may appear."

	On November 15, 1988, the PBC passed Resolution No. 3626, which stated that the 6

series of bonds had anticipated surpluses.  Resolution No. 3626 also stated that the PBC had

undertaken a project for the City that had not been financed by the issuance of bonds for minor

renovations at various facilities totaling $1,951,121.  The resolution then stated that the PBC

intended, with the consent of the City, to transfer surplus funds from the Series 1971A, 1971B,

1975A, 1975B, 1978A and 1979A accounts to this project in the varying amounts.  The PBC

further stated its intention to transfer $2,813,964 from Series 1978A to pay the City's share of

operating, maintenance and repair costs for the Richard J. Daley Center.  

	In addition, Resolution No. 3626 stated that $368,640 in surplus would be credited against

the 1989 rent due under the lease ultimately financed by Series 1971B. $2,381,385 in surplus funds

was to be held in the surplus account for Series 1971A; $2,947,590 in surplus funds was to be held

in the surplus account for Series 1978A.  Resolution No. 3626 authorized the transfers of funds

"subject to the approval of the City ***."

	On February 1, 1989, the City Council passed an ordinance consenting to the fund transfers

as described in PBC Resolution No. 3626.

	In Objection 19, the Objectors challenged the transfer of sums representing PBC rental

credits to fund other projects, including maintenance charges for the Daley Center, in violation of

the leases and the PBC bond ordinances.  On appeal, the City argues that the PBC bond resolutions

are irrelevant because they are contracts between the PBC and bondholders, to which the City is

not a party.  However, sections 1, 5, 18 and 21 of each lease make the respective bond resolutions

a part of each lease, restrict the use and transfer of funds, and state that each lease inures to the

benefit of the bondholders.  The City's argument is not well-taken.

	The City argues that the PBC and the City amended the ordinances and leases or waived

their requirements by approving the transfers in a PBC resolution and a City ordinance.  Generally,

parties to a contract may amend or rescind their agreement, so long as there is no detriment to a

third party who has provided no consideration for the benefit received.  E.g., Olson v. Etheridge, 177 Ill. 2d 396, 410, 686 N.E.2d 563, 569 (1997).  In addition to the interest of the bondholders

noted above, courts will not enforce an agreement that induces a breach of official duty.  E.g., Bestor v. Wathen, 60 Ill. 138, 142-43 (1871).  A municipality cannot ignore valid procedures it imposes on itself.  In re Application of Kane County Collector, 132 Ill. 2d 64, 69-70, 547 N.E.2d 107, 109 (1989).  Furthermore, the PBC Act empowers the PBC's Board of Commissioners to

create such accounts as it may deem necessary for the sale of its bonds, but "[t]he monies in such

accounts shall be applied in the manner provided by the resolution, the trust agreement or other

contract with the bondholders."  See 50 ILCS 20/15 (West 2000).

	In this case, even assuming arguendo that the City was not bound by the PBC bond ordinances (contrary to Section 21 of each lease), the PBC was bound by them.  Each bond

resolution states that within a given period of time before the end of each fiscal year, remaining surplus funds shall be credited pro rata to the next annual rental payment due from the City.  Each bond resolution also provides that no surplus funds shall be transferred, and the PBC Board shall not authorize such transfers, within the period of time during which the surplus is to be credited pro rata to the next annual rental payment.

	PBC Resolution No. 3626 approved the transfer of surplus funds "subject to the approval of

the City" on November 18, 1988--46 days before the end of the year.  The conditional nature of the

approval is arguably not an authorization.  Moreover, the City Council did not pass an ordinance

consenting to the fund transfers until February 1, 1989--a date well outside the time periods when

the PBC is permitted to transfer the 1988 surplus for purposes other than rent under its own bond

resolutions.  Nor has the City shown that the transfers were made to accounts to which transfers

could be made under the bond resolutions.  The PBC had a legal duty to follow the procedures

imposed by statute and its own bond resolutions; this court will not put its stamp of approval on a

dereliction of that duty.6

	The City argues that the Objectors failed to show that they were harmed by the fund

transfers.  The City claims that authorizing the fund transfers did not increase City property taxes,

and that had the surpluses been applied to future rent payments, it would have been required to levy

an amount through some other appropriation to pay for the maintenance of the Daley Center and the other projects.  However, the City has cited nothing in the record showing that these other

charges would have necessarily been funded by property taxes.  Indeed, the fact that sums raised by

property taxes were spent on charges not otherwise financed by property taxes suggests that the

Objectors paid more property taxes that they would have paid absent the transfers.

	In sum, the City has failed to show that the trial court erred in sustaining Objection 19.

	B

	The trial court also sustained Objection 24, which claimed that the City had grossly

underestimated the surplus available for appropriation for 1989 applicable to the PBC Fund.  The

trial court applied Central Illinois Public Service Co. v. Miller, 42 Ill. 2d 542, 544, 248 N.E.2d 89, 90 (1969), which held a levy illegally excessive where the assets in the fund were two to three times

greater than the expenditures from the fund.  The City maintains that Miller "has no application here" and alternatively that the trial court miscalculated the "Miller ratio"of assets to expenditures.

	In its reply brief, citing Alpha Gamma Rho Alumni v. People ex rel. Boylan, 322 Ill. App. 3d 310, 750 N.E.2d 282 (2001), the City asserts that "under the home-rule provision of the Illinois

Constitution, a home-rule municipality's tax levy is not subject to challenge unless it violates a state

statute expressly limiting the home-rule power to tax."7  The City admits that its failure to assert this argument in its initial brief may result in waiver on appeal, but notes that Alpha Gamma Rho Alumni was decided approximately a month after the City filed its initial brief.  The City also notes that this court stated in that case that "[t]he issue of whether a home-rule unit's tax levy is subject

to judicial review for abuse of discretion is one of first impression."  Alpha Gamma Rho Alumni, 322 Ill. App. 3d at 315, 750 N.E.2d at 289.  However, the record shows that the City raised home

rule arguments in the trial court in response to Objections 8, 17 and 19.  It cannot be said that

arguments based on home rule had not occurred to the City.

	Even if this court were inclined to relax the waiver rule, the home rule argument would not

have prevailed.  The Revenue Act of 1939, as amended in 1980, required the governing body of

any taxing district receiving personal property replacement tax funds from the State, upon

determining that a surplus of funds was available for any fund, account or purpose, to adopt a

resolution or ordinance reducing a tax levy for such district.  Ill. Rev. Stat. 1987, ch. 120, ¶ 638a;

see 35 ILCS 200/18-20 (West 2000) (imposing a similar requirement on taxing districts receiving

funds under Section 12 of the State Revenue Sharing Act).  The United States Supreme Court has

held that Congress, in the exercise of its spending power, generally may attach conditions to the

receipt of federal funds by states, including conditions which require that states enact or have

enacted particular laws.  E.g., South Dakota v. Dole, 483 U.S. 203, 97 L. Ed. 171, 107 S. Ct. 2793 (1987) (upholding as against tenth amendment challenge requirement that States have particular

minimum drinking age as a condition to receipt of federal highway funds).  

	Similarly, in Illinois, the General Assembly is authorized by our constitution to make

appropriations for all State expenditures of public funds.  Ill. Const.1970, art. VIII, § 2(b).  It

follows that the State, in the exercise of its powers, generally may attach conditions to the receipt

of its funds by others, including quasi-sovereign entities such as home rule units.  The City cites no authority suggesting that home rule powers extend to dictating the General Assembly's exercise of

its own sovereign power.

	In this case, the record shows that City received personal property replacement tax funds

during the time at issue; thus, the City was bound by the statute.  Of course, a court construing a

statute will assume that the legislature did not intend to produce an absurd  result.  State Farm Fire & Casualty Co. v. Yapejian, 152 Ill. 2d 533, 541, 605 N.E.2d 539, 542 (1992).  Surpluses are to be expected upon application of conservative budgeting practices; however, the taxpayers are

prejudiced if such surpluses are not included in the following year's budget to reduce the

appropriation and levy.  See Marotta, 159 Ill. 2d at 406-07, 639 N.E.2d at 565.  

	The General Assembly undoubtedly understands the uncertainties inherent in government

budgets and projections as well as or better than Illinois courts.  Moreover, under the current

system, "[t]he process of assessing property for taxation and the levy and extension of taxes against

that property is a complex one involving thousands of taxing bodies and the cooperation of

numerous public officers."  Board of Ed. of Community Unit School Dist. No. 16 v. Barrett, 67 Ill. 2d 11, 14, 364 N.E.2d 89, 91 (1977).  We presume that the General Assembly did not intend to

require that all taxing districts receiving personal property replacement tax funds eliminate any and

all surpluses immediately upon discovery, as such a requirement would likely throw the existing

system for real property taxation into chaos.  Thus, we interpret the statute as it existed in 1989

consistent with the rules discussed in cases such as Miller and Marotta.8  

	The City relies on In re Application of McHenry County Collector (Walgenbach v. Chicago & Northwestern Rwy. Co.), 41 Ill. App. 3d 106, 110, 352 N.E.2d 42, 45 (1976), for the proposition that an abuse of discretion is shown only when the intent of the taxing body in making

the levy is to provide a surplus for other purposes or is grossly excessive and shows an intent to

accumulate funds faster than are likely to be needed.  However, this case meets those criteria.  In

this case, the PBC Fund had a surplus approximately as large as the 1989 levy for that fund.  This

surplus exceeded the average expenditures for the prior three years.  The City also apparently had

sums ostensibly collected for rent payments applied to unrelated projects.

	The City also relies on Belke v. County of Peoria, 169 Ill. App. 3d 839, 523 N.E.2d 1295 (1988), to argue that Miller only applies where the taxing body had a continuing, accumulating surplus.  The discussion of Miller in Belke is dicta, using concepts from Miller to discuss a statute that this court ultimately did not even apply in Belke.  169 Ill. App. 3d at 844-45, 523 N.E.2d at 1298-99.  As such, Belke can hardly be considered to support the City's claim.  

	More significantly, Miller is just one case reflecting long-standing Illinois law that a tax levied for a particular purpose is intended to provide for the needs of the ensuing year and not to

provide a fund for possible future needs, rendering a tax levy largely in excess of the requirements

for the particular purpose during the ensuing year illegal and void.  E.g., People ex rel. Brenza v. Morrison Hotel Corp., 4 Ill. 2d 542, 547, 123 N.E.2d 488, 492 (1954) (and cases cited therein).  This rule is not based on a continuing, accumulating surplus.  Indeed, the objection in Miller was that the amount on hand in the general assistance fund, together with funds due from the previous year's levy, made a levy for the following year unnecessary and illegal.  Miller, 42 Ill. 2d at 543, 248 N.E.2d at 90.  The objection was not based on a pattern, but the ultimate accumulation.9

	The City argues in the alternative that the trial court miscalculated the Miller ratio.  The City presents a series of calculations that result in a Miller ratio of 1.87, adjustments that would show a Miller ratio of 1.59, and other adjustments that would result in a Miller ratio of 1.84.  One of the exhibits the City cites shows a series of calculations that result in a Miller ratio of 1.69.

	The City's first objection to the trial court's calculation of the Miller ratio is that it did not count funds transferred out of the PBC accounts for purposes other than rent as expenditures.  The

City argues that as a matter of budgetary accounting, transfers like those made in this case are

expenditures.  The Objectors argue that under generally accepted accounting principles, the

transfers were not expenditures.  

	The City may have discretion to account for the transfers as expenditures as a budgetary

matter, but it cannot unnecessarily accumulate monies in the public treasury.  Illinois law is

particularly concerned with the unnecessary accumulation of taxes levied for one purpose where

they may be unlawfully diverted to another purpose.  See, e.g., Marotta, 159 Ill. 2d at 402, 639 N.E.2d at 563.  As noted above, neither the City nor the PBC could transfer the funds at issue in

this case.  Thus, the City cannot argue that the transfers should affect the Miller ratio, as such a rule would encourage unlawful diversions of funds to avoid Miller claims.

	The City's second argument is that the trial court improperly failed to subtract certain sums

in the PBC surplus accounts from the numerator of the Miller ratio.  In this case, City Assistant Comptroller Steven Lux testified that the funds available to Fund 641 totaled $28,192,578,

including approximately $14 million in surplus funds and approximately $14.1 million in revenue to

be collected in 1989.  The appropriations ordinance budgeted $708,000 of the latter amount for

loss in collection.  The $28 million figure was also the figure asserted by the City in its Exhibit 47,

though the City attempted to move away from it in its motion to reconsider the ruling on Objection

24.  On appeal, the City seeks to present calculations designed to show that it only had

$10,481,695 in surplus available for PBC purposes, not $14 million.

	The City's argument may be explained by a chart the City included in its brief addressing the

six6 series of bonds that had anticipated surpluses, the 1989 rent, and "excess credit:":

	Bond Series		Late 1988 Credit	Rent Due for 1989	"Excess Credit"

	1971A:			  $2,430,000		       $48,615		  $2,381,385

	1971B:			     $774,000		  $2,457,867

	1975A:			       $38,400		     $205,493

	1975B:			     $550,000		  $4,070,292

	1978A:			  $6,550,000		  $3,575,380		  $2,974,620

	1979A:			     $120,000		  $3,448,180

	Total:			$10,462,700		$13,805,827		  $5,356,005

The City argues that the $5,356,005 in "excess credit" could not be applied to rent for later years. 

In the City's view, only sums that could be applied to their respective accounts ($10,462,700 -

$5,356,005 = $5,106,695) should have been considered in the numerator of the Miller ratio.  

	The City does not show where it presented these calculations to the trial court, resulting in

waiver on appeal.  Moreover, the premise of the City's argument is contradicted by City Assistant

Comptroller Steven Lux.  Furthermore, section 8.1 of each bond resolution provides that "Any

advance rentals shall be held in the Revenue Fund and invested and be applied to the payment of rent for the year or years for which the advance payment was made."  The City identifies no part of the lease barring advance payment for more than one year in the future, as contemplated by the

bond resolutions made a part of each lease.

	In sum, the City has not shown that the trial court erred in sustaining Objection 24.

	V.  The Objectors' Cross-Appeal

	The Objectors cross-appeal the dismissal of Objection 23, which claimed that the City

illegally transferred a $30.1 million surplus from the Bond Redemption and Interest Fund (Fund

510) to the general Corporate Fund.  The City had moved to dismiss pursuant to section 2-619 of

the Illinois Code of Civil Procedure, which provides a means of obtaining summary disposition of

issues of law or easily proved issues of fact.  Kedzie & 103rd Currency Exchange, Inc. v. Hodge, 156 Ill. 2d 112, 115, 619 N.E.2d 732, 725 (1993).  The City's motion does not state which

subsection of section 2-619 forms the basis of the motion, but subsection (a)(9) generally permits

dismissal where the asserted claim is barred by other affirmative matter avoiding the legal effect of

or defeating the claim.  735 ILCS 5/2-619(a)(9) (West 2000);  Kedzie, 156 Ill. 2d at 115, 619 N.E.2d at 735.  "Affirmative matter" encompasses any defense other than a negation of the

essential allegations of the cause of action.  Kedzie, 156 Ill. 2d at 115, 619 N.E.2d at 735.

	The defendant has the burden of proving the affirmative matter relied upon, and the motion

should only be granted if the record establishes that no genuine issue of material fact exists. 

Streams Condominium No. 3 Ass'n v. Bosgraf, 219 Ill. App. 3d 1010, 1013-14, 580 N.E.2d 570, 573 (1991).  Conclusions of law or of fact not supported by allegations of specific fact are not

admitted.  Lawson v. City of Chicago, 278 Ill. App. 3d 628, 634, 662 N.E.2d 1377, 1382 (1996).  The standard of review is de novo.  Owens v. McDermott, Will & Emery, 316 Ill. App .3d 340, 344, 736 N.E.2d 145, 150 (2000).

	The City's motion to dismiss argued that the amount of the levy for Fund 510 for a given

year is determined by the amounts specified in bond ordinances which state amounts for years far

into the future.  The City chose not to support its motion by submitting any of the relevant bond

ordinances, stating in a footnote that the City believed it was not required to do so.  The City also

asserted that it "is not free to change each year the amount of property taxes that will be levied for

the debt service on those bonds," but cited no authority or evidence to support this assertion.  

	Even assuming arguendo that the City's assertion regarding the inviolability of its bond ordinances is correct, the Objectors' response to the motion to dismiss claims that the surplus

accumulated due to overestimates for loss in collections, not the underlying figures upon which the

estimates are based.  The Objectors relied on portions of the City's CAFRs for 1987-89.

	Similar to other funds allocated for a particular purpose, a surplus created by an

overestimate for loss in collections "should be kept separate and paid out, not for the general

expenses of the county, but for any loss in collections cushion the taxing body may need in the

future."  See People ex rel. Stuckart v. N.J. Sandberg Co. 277 Ill. 567, 571, 115 N.E. 741, 743 (1917).  This rule distinguishes this case from the diversion claim rejected in Marotta, where the objector failed to show a misapplication of funds.  Marotta, 159 Ill. 2d at 405, 639 N.E.2d at 564.  If the Fund 510 surplus arose from loss in collections, it cannot be diverted to other purposes.

	The City's reply brief notes that the alleged overestimate of loss in collections was the

subject of Objection 20.  However, the City does not make clear whether the $30.1 million

transferred from Fund 510 was already counted in sustaining Objection 20. 

	The City's motion to dismiss also claimed that the Objectors were not damaged by the

transfer of the funds.  However, assuming arguendo that the Objectors were required to show  damages, the City's argument is an alleged negation of the essential allegations of the cause of

action.  Moreover, the City's bare assertion that taxes would have otherwise been imposed to pay

for their planned expenditures is conclusory and not a basis for affirming the dismissal.

	The City argues that the transfer at issue was a permissible exercise of its home rule powers. 

However, as the analysis above shows, the City was bound to use surpluses to reduce the following

year's tax levy for loss in collections, and could not divert the taxes ultimately collected to another

purpose.

	In sum, the record shows that material questions of fact remain regarding Objection 23. 

Accordingly, the trial court erred in dismissing it.

	For all of the aforementioned reasons, the judgment of the circuit court of Cook County is

affirmed as to Objections 17, 19, and 24, reversed as to Objections 14, 20, and 23, and remanded

for further proceedings consistent with this opinion.

	Affirmed in part, reversed in part and remanded.

	GREIMAN and QUINN, JJ., concur.

	DIGEST OF OPINION

IN THE MATTER OF THE APPLICATION OF THE COUNTY COLLECTOR OF COOK COUNTY,

ILLINOIS, FOR JUDGMENT AND ORDER OF SALE AGAINST REAL ESTATE RETURNED

DELINQUENT FOR THE NON- PAYMENT OF GENERAL TAXES FOR THE YEAR 1989 AND

FOR JUDGMENT FIXING THE CORRECT AMOUNT OF ANY TAX PAID UNDER PROTEST,

KEN OAK, et al.,

Objectors.

					PRESIDING JUSTICE

 FIRST 	1-00-2499 		CALVIN C. CAMPBELL			JUNE 28, 2002 

District		Docket #		Authoring Judge				Date Filed

PANEL MEMBERS:		GREIMAN and QUINN, JJ., concur.

SUMMARY:

	Following a bench trial in the circuit court of Cook County, the trial court sustained 5 of 25

objections filed by various property taxpayers (Objectors) challenging the legality of certain 1989

property taxes levied by the City of Chicago (City).  The City appealed the final judgment of the trial

court as to those five objections.  The Objectors cross-appealed the pretrial dismissal of one of their

objections.

	The appellate court affirmed in part, reversed in part, and remanded the case for further

proceedings.  The appellate court affirmed as to Objection 17, which claimed that the City levied a tax for

the City Relief Fund  exceeding the appropriation for that purpose, as the City failed to show that the

appropriation was the correct figure from which to calculate a percentage of the Note Redemption and

Interest Fund that ultimately financed city relief.  The appellate court reversed as to Objection 14, which

claimed that the City unlawfully underestimated revenue for the Library Maintenance and Operation

Fund, as none of the testimony showed that the City had certainty in regard to the estimate at issue prior

to passage of the 1989 appropriations ordinance.

	The appellate court also held that the trial court erred in sustaining Objection 20, which claimed

that the City overestimated the loss in collections for the Debt Service Funds and the Public Building

Commission (PBC) Fund, as the City had relied on its recent financial reports and estimated a rate consis

tent with the rates shown therein.  The appellate court affirmed as to Objection 19, which claimed that the

City improperly had surplus funds from the PBC Fund  applied to purposes other than the payment of

rent to the PBC, as the transfers occurred in a manner contrary to the terms of the leases entered into by

the PBC and the City.  The appellate court also affirmed as to Objection 24, which claimed that the City

had grossly underestimated the surplus available for the 1989 PBC Fund appropriation, where state law

required taxing districts receiving personal property replacement tax funds from the State, upon

determining that a surplus of funds was available for any fund, account or purpose, to adopt a resolution

or ordinance reducing the tax levy.  In this case, the PBC Fund had a surplus approximately as large as

the 1989 levy for that fund, a sum exceeding the average expenditures for the prior three years.  

	In the cross-appeal, the appellate court reversed the dismissal of Objection 23, which claimed that

the City illegally transferred a $30.1 million surplus from its Bond Redemption and Interest Fund to the

general Corporate Fund, where the record shows that material questions of fact remained on the claim.

	Affirmed in part, reversed in part, and remanded.

	REPORTER OF DECISIONS - ILLINOIS APPELLATE COURT

___________________________________________________________________________

			IN THE MATTER OF THE APPLICATION OF THE COUNTY

COLLECTOR OF COOK COUNTY, ILLINOIS, FOR

JUDGMENT AND ORDER OF SALE AGAINST REAL

ESTATE RETURNED DELINQUENT FOR THE NON-

PAYMENT OF GENERAL TAXES FOR THE YEAR 1989 AND

FOR JUDGMENT FIXING THE CORRECT AMOUNT OF ANY

TAX PAID UNDER PROTEST,

			KEN OAK, et al.,

			Objectors.

___________________________________________________________________________

	No.  1-00-2499   

	Appellate Court of Illinois

	First District, Fifth Division

	  JUNE 28, 2002 

	PRESIDING JUSTICE CAMPBELL delivered the opinion of the court:

	GREIMAN and QUINN, JJ., concur.

___________________________________________________________________________

	Appeal from the Circuit Court of Cook County

	The Honorable Francis Barth , Judge Presiding.

___________________________________________________________________________

				   For APPELLANT, Mara S. Georges, Corporation Counsel of the City of Chicago (Lawrence Rosenthal, Deputy Corporation Counsel; Benna Ruth Solomon

and Weston W. Hanscom, Chief Assistants Corporation Counsel;

Julian N. Henriques, Jr., Assistant Corporation Counsel; 

				   For APPELLEE, Neal Gerbger & Eisenberg, of Chicago (James A. Rooney, of counsel).