In 1983 and 1986, the Village of Arlington Heights established two tax increment financing districts under 65 ILCS 5/11-74.4-1 et seq., the TIF Act. The districts expired in 2006 and 2009. This didn’t stop the County Treasurer from sending a letter in June of 2012 demanding the Village reimburse the Treasurer for improperly paid taxes in these districts.
The TIF Act was adopted “to provide municipalities with the means to eradicate blighted conditions by developing or redeveloping areas so as to prevent . . .further [deterioration] . . . and to remove the threat to the health, safety, morals, and welfare of the public that blighted conditions present.” Board of Education, Pleasantdale School District No. 107 v Village of Burr Ridge, 341 Ill.App.3d 1004 (citing 65 ILCS 5/11-74.4-2(a), (b), (c)(West 1994)). More, when a municipality establishes a TIF district it receives the benefits of tax increment allocation financing, the “increment”. The increment is determined by the County Clerk taking the total value of all properties within the district in a base year, the “initial equalized assessed value”. Each year thereafter, the County Clerk determines the actual current equalized assessed value and if it exceeds the initial equalized assessed value then this difference, the “increment”, is deposited in a special tax allocation fund to pay for redevelopment projects within the TIF district. At the expiration of the TIF district’s lifetime, the increment is no longer held frozen in a special tax allocation fund, but it distributed to all the taxing districts in the former TIF district pro rata for use in their general corporate funds pursuant to the Property Tax Code.
Consequently, when Arlington Heights established its TIF Districts, it used approximately $74 million in increment to develop three public parking garages; streetscape and sidewalk beautification of all downtown streets; development of Harmony Park; construction of a train station; acquisition of the Metropolis Performing Arts Centre; and various other projects. Meanwhile, various owners of properties within the tax districts filed tax objections which culminated in the circuit court of Cook County and the Illinois Property Tax Appeal Board (IPTAB) ordering the Treasurer to refund these taxpayers overpaid real estate taxes. The Treasurer issued these refunds to comply with orders and to avoid statutory interest. See 35 ILCS 200/23-20. Years after the TIF Districts closed, the County Treasurer then demanded to be reimbursed by the Village of Arlington Heights.
Arlington Heights filed a complaint seeking declaratory relief against the Treasurer. In the complaint the Village alleged that it was not liable to repay the Treasurer for post-TIF refunds, that the liability for the refunds should be evenly distributed amongst the varying tax districts, and the Treasurer should be enjoined from deducting the post-TIF refunds from any taxes due and owed to the Village. The Circuit Court denied the Village’s request which was affirmed by the First District Court of Appeals.
The Court of Appeals stated the question on review simply as “does the legislature authorize the Treasurer (either in the TIF Act or the Property Tax Code) to be reimbursed for her payment of the post-TIF refund amounts from the Village.” Village of Arlington Heights v. Pappas, 67 N.E.3d 513, 518 (1st Dist 2016). The answer to this question is yes. Specifically, the Property Tax Code provides that property taxes collected belong not to the Treasurer but to the taxing districts that levied the taxes. Accordingly, the ultimate liability for any refunds of property taxes lies with the taxing bodies that received erroneously overpaid taxes. As a consequence, the Treasurer is authorized to make refunds and then by reimbursed from the next property tax funds she collects from the taxing district. This is true even if the funds have already been disbursed to the other taxing districts after a TIF district has been terminated. The Village has said they will not appeal the ruling to the Supreme Court.
Municipalities with TIF Districts should be aware of this ruling for budgetary reasons and should take heed that even if a TIF District is closed, that the property tax appeals lingering may be taken out of following year(s) budget.