Illinois Municipal Appropriation And Tax Levy Laws Changed By JAY HEDGES, Director, DCCA

HB3653 (PA 85-1178), passed in the 1988 session of the General Assembly and approved by Governor James R. Thompson, makes some notable changes in the Municipal Code pertaining to appropriations and levies for municipalities.

Illinois law (ILL. REV. STAT. Ch. 24/8-2-3) requires all municipalities under 500,000 population and not operating under the Budget Act to adopt an appropriation ordinance during the first quarter of each fiscal year. Many municipalities in Illinois operate on a fiscal year commencing May 1 and ending April 30 of the following calendar year. Therefore, these municipalities have a deadline of July 31 to adopt an appropriation ordinance for that fiscal year.

In the past, municipalities were permitted to adopt a supplemental appropriation ordinance in an amount not in excess of the aggregate of any additional revenues available or estimated to be received subsequent to the adoption of the annual appropriation ordinance. PA 85-1178 additionally provides that a supplemental appropriation ordinance may include fund balances available when the annual appropriation was adopted but which were not appropriated at that time.

The statutes previously provided that each municipality with less than 500,000 population must adopt and file a levy ordinance with the county clerk on or before the second Tuesday in September. PA 85-1178 has amended this provision requiring the levy ordinance to be filed with the county clerk on or before the second Tuesday of December. This provides an additional three months for the consideration of the levy ordinance.

It needs to be stressed that these two changes do not change the requirements for the notice and public hearing relative to the appropriation ordinance (Ch. 24/8-2-9) and compliance with the Truth-in-Taxation Act (Ch. 120/861 et seq.) applicable to the adoption of the levy ordinance.

The enactment of PA 85-1178 provides some additional flexibility, particularly to non-home rule municipalities. For example, previously, if a referendum was passed in the November general election to increase a levy rate for a specific purpose, it would be nearly two years before any additional revenues would be realized. It is deemed improper to levy in anticipation of the passage of such a referendum because the extension of taxes must be made within the rate limitations in effect at the time of the adoption of the levy ordinance. Now, after the enactment of PA 85-1178, if a referendum for an increased levy rate passed at the November general election, the municipality has four weeks in which to comply with the Truth in Taxation Act, and adopt and file the levy ordinance including the increased levy. The additional revenue from the rate increase would be available from the following tax collection.

There is a catch to this which must be considered early. Levied taxes cannot be in excess of the amount of monies appropriated for that specific purpose. If a non-home rule municipality anticipates a fall referendum, the additional revenue anticipated should be included in the appropriation. If such amounts were not included in the appropriation ordinance adopted during the first quarter, it is imperative that a supplemental appropriation be adopted prior to the filing of the levy ordinance after the referendum.

October 1988 / Illinois Municipal Review / Page 9

Since the taxes levied are not collected until the summer following the adoption and filing of the tax levy ordinance, it is also imperative to include the appropriation for the expenditure of the additional revenue derived as a result of the referendum.

This process can be simplified by remembering that the monies levied under the appropriation for the same fiscal year are spent under the appropriation of the subsequent fiscal year. Another basic fact is that municipalities cannot spend money unless it is appropriated and, if money is appropriated for expenditure, they are not obligated to spend it.

It is interesting to note that all local governments, other than municipalities, are required to adopt a budget. However, a municipality may institute the formal budget system by a vote of two-thirds of the corporate authorities. A budget officer is designated and has the responsibility to compile the annual budget (in lieu of the appropriation ordinance) which must be adopted before the beginning of the fiscal year to which it applies.

While a municipality may not wish to adopt the budget system, we believe it to be a good management policy to utilize an operating budget within the limitations of the appropriation ordinance. Experience indicates that the utilization of an operating budget provides closer control and improved fiscal performance.

Our Office of Local Government Management Services has assisted municipalities throughout the state in the development of their appropriation and levy ordinances. Additionally, the Office has assisted in the development and implementation of an operating budget, customized for each municipality's specific, needs.

For further information contact the Office of Local Government Management Services, toll free, at 1-800-562-4688 (LOC GOVT). •

Page 10 / Illinois Municipal Review / October 1988