An important tool for school districts in fund management is
due to expire on June 30, 2020.
Districts would be wise to employ that tool before then in order to
maintain flexibility in the use of scarce resources and, even more important,
to avoid costly tax objection refunds in the future.
Section 17-2A of the School Code has long provided a useful
mechanism for moving money between any of a school district’s three principal
operating funds: Educational, Operations & Maintenance, and
Transportation. Since 2017, transfers
from the Tort Immunity Fund to the Operations & Maintenance Fund have also
been permitted. Limits on the amount of
the transfer were removed long ago. The procedural
requirements of notice and a public hearing remain. But the statute has also
contained an ill-defined usage limitation:
a transfer may be “made solely for the purpose of meeting one-time,
non-recurring expenses.” The
statute does not define “one-time, non-recurring expenses,” nor are there court
cases or administrative rules clarifying the meaning of this use limitation.
However, since 2003, the meaning of the use limitation has
been irrelevant because Section 17-2A has also included a sunset provision
temporarily waiving application of the use limitation to a specific date. And, as the sunset date has approached on
each occasion in the last several years, the General Assembly has seen fit to
push the date further out. Until this
year, that is. No bill has even been
introduced in the 2020 session to extend the sunset provision of the use
limitation in Section 17-2A beyond June 30, 2020.
What was different this year? Presumably, the recent removal of the
specific rate limitation for the Educational Fund for those districts subject
to the Property Tax Extension Limitation Law (PTELL or the “tax cap”) may have,
for some, lessened the urgency for flexibility in school district fund
transfers. But even that well-received
reform still does not address districts in non-PTELL counties or existing
balances in any district throughout the State.
So right now, every district should be closely examining
the projected year-end balances in their Educational, Operation &
Maintenance, Transportation, and Tort Immunity Funds. If there will be insufficient money in one of
those funds in the coming year, a transfer now, rather than after June 30,
should be made. Further, if there is
much more than enough money in one of those funds, it is critical to move the
excess out now. An allegation of
excessive balances in school district funds is one of the most common types of
taxpayer rate objections and can lead to severe revenue losses due to tax
refunds.
Going forward, unless there is another change in the law,
Section 17-2A transfers should still be available after June 30, but only for more
limited purposes, and arguably not for routine fund balance management. Because of this, more extensive use of the
Educational Fund in PTELL counties is strongly advised.
If you have any questions or would like assistance in
accomplishing timely fund transfers, please do not hesitate to contact one of
our attorneys.