SALES TAX REBATE AGREEMENTS/
VICTORY AT CIRCUIT COURT LEVEL
FOR CITY OF LOVES PARK

By BETH ANNE JANICKI, Chief Legal Counsel, Illinois Municipal League

On May 12, 1992, the City of Loves Park (City) entered into an agreement with Riverside Partners II (developers) for the purpose of developing land within the City and constructing a car dealership and other businesses on that land. The land in question was 11 acres and had been vacant and unimproved for a lengthy period of time. Pursuant to the agreement, the developers were to construct the car dealership and the City would lend financial assistance to the project by rebating a portion of the Retailer's Occupation Tax revenues generated by automobile sales at the dealership.

Pursuant to a request from Paul A. Logli, State's Attorney of Winnebago County, the Office of the Illinois Attorney General issued an informal opinion wherein the agreement entered into between the developer and the City was found to be beyond the authority of a non-home rule municipality. The informal opinion found that because the City was not statutorily granted any specific authority to rebate sales taxes and because the City did not conform with statutes granting municipalities the ability to promote economic development such as the Economic Development Area Tax Increment Allocation Act (20 ILCS 620/1 et seq.), the Tax Increment Allocation Redevelopment Act (65 ILCS 5/11-74.4-1 et seq.), and the Illinois Enterprise Zone Act (20 ILCS 655/1 et seq.), that the rebate of taxes was an unauthorized gift of city taxes and therefore invalid. The informal opinion further advised the State's Attorney that under Article 13 of the Code of Civil Procedure, he could bring a quo warranto action against the City to prevent it from carrying out its agreement with the developer.

In September of 1993, the Illinois Municipal League Home Rule Attorneys Committee, in a letter authored by its Chairman, Patrick A. Lucansky of Klein, Thorpe & Jenkins, responded to the Attorney General's informal opinion. The letter referenced the Intergovernmental Cooperation provisions of the Illinois Constitution of 1970 and the Illinois Municipal Code (the Business District Development and Redevelopment Act (65 ILCS 5/11-74.3-1 et seq.) and the Industrial Project Revenue Bond Act (65 ILCS 5/11-74-1 et seq.)) in coming to the conclusion that agreements such as the one at issue in Loves Park were valid.

State's Attorney Logli, followed Attorney General Burris' advice and brought suit against the City. On May 3, 1994, in an opinion written by Associate Judge Gerald F. Grubb, the agreement entered into by the City was found to be a valid exercise of power by a non-home rule municipality. (People of the State of Illinois v. City of Loves Park, 93 MR 133). The City Attorney for Loves Park, Paul Nicolosi, argued that the agreement was valid, relying on many of the same statutory and constitutional provisions contained in the letter authored by the Illinois Municipal League Home Rule Attorneys Committee. The State's Attorney, represented by William D. Emmert, sought to uphold the reasoning of Attorney General Burris' informal opinion.

Judge Grubb dismissed the Industrial Revenue Bond Act and the Local Government Tax Fund Act as inapplicable, but found that the broad grant of authority contained in Article 7 Section 10 (a) of the Illinois Constitution of 1970 (the Intergovernmental Cooperation provision) provided sufficient authority for an agreement to rebate sales taxes as it "reverses Dillon's Rule under certain conditions for non-home rule municipalities". Article 7 Section 10 (a) of the Illinois Constitution of 1970 provides: "Units of local government and school districts may contract and otherwise associate with individuals, associations, and corporations in any manner not prohibited by law or by ordinance." (Ill. Const. 1970, art. VIII § 10(a)). Judge Crubb saw the intent of the drafters of the Constitution as desiring to "encourage new arrangements between municipalities and private enterprise." Further, because sales tax rebate agreements were not prohibited by law and the City had not exceeded its debt limitation, the Judge upheld the agreement.

There has been no indication from the State's Attorney regarding the appeal of this decision.

June 1994 / Illinois Municipal Review / Page 13