Berman v. Board of Education

Jeanne C. Berman, appellant, filed her bill of complaint in the circuit court of Cook county to enjoin the board of education of the city of Chicago from issuing bonds in the sum of $10,000,000 for the purpose of paying tax anticipation warrants. The bonds were to be issued under the provisions of an act of the General Assembly purporting to authorize the board of education of any school district, in any city having a population exceeding 500,000 inhabitants, to issue bonds to pay tax anticipation warrants where the taxes anticipated had not been collected. A motion in the nature of a demurrer was sustained and the bill was dismissed for want of equity. From that decree the present appeal was taken.

Appellant, a citizen, resident and tax-payer of Chicago, alleged in her bill that Chicago comprises one school district; *Page 537 that she owns both real and personal property within the district which has been subject to all past taxes and will be subject to all future taxes levied therein, and that she has fully paid all of her taxes, including those anticipated by the tax warrants in question. She alleged that pursuant to the supposed authority given by the act in question the board of education on January 24, 1934, passed a resolution for the issuance and sale of bonds in the amount of $10,000,000 for the purpose of paying outstanding tax anticipation warrants drawn against the taxes for the years 1928 and 1929, and that at the request of the board of education the city of Chicago passed, and the mayor signed, a certain ordinance ratifying the resolution of the board and providing for the issuance of the bonds. The bill further alleged that the tax anticipation warrants in question were not obligations of the board of education, but, on the contrary, were payable solely out of the taxes anticipated by them, if and when collected, and not otherwise; that the use of the proceeds of the sale of such bonds, or their exchange in retirement of tax anticipation warrants, would amount to an appropriation of money for the purpose of paying a contract which by its terms is not an obligation of the board of education, and that the act of the General Assembly, the resolution of the board and the ordinance of the city of Chicago are each in direct violation of section 2 of article 2, section 14 of article 2 and section 9 of article 9 of the constitution of this State. The bill further alleged that defendants were preparing to carry out these objects and would do so unless enjoined; that the ordinance and the act of the legislature should be decreed to be void as violative of the constitutional provisions above mentioned; that the act was by its terms retroactive and authorized the appropriation and use of moneys by municipalities for private rather than corporate purposes; that it altered the obligation of contracts created by tax anticipation warrants, and by implication attempted to give municipalities *Page 538 the right to create a debt, within the constitutional meaning of section 12 of article 9 of the constitution, without any consideration therefor.

The act relied upon as authority for issuance of the bonds in question was passed by the legislature in 1933, (Smith's Stat. 1933, chap. 122, pars. 327i-327p; Cahill's Stat. 1933, chap. 122, par. 410 (4);) and sections 3 and 6 thereof were amended in February, 1934. (Laws of 1933-34, first, second and third special sess. p. 241.) The act provides that where the corporate authorities of a school district in a city having a population exceeding 500,000 inhabitants shall have levied taxes for educational or certain other purposes and shall have sold anticipation warrants against such taxes, and where the taxes have not been paid or collected in amount sufficient to pay the warrants and interest thereon, the board of education may, with the consent of the city council, subject to certain limitations, issue bonds for an amount sufficient to pay the warrants, with interest, remaining outstanding and unpaid twelve months following the month in which the taxes became due. The bonds are to bear interest at a rate of not more than six per cent, to mature within twenty years, and may be issued without submitting the question to a vote of the people. The city council is required to levy a tax, to be paid annually, upon all taxable property of the district sufficient to pay the principal and interest of the bonds. The proceeds of the bonds are required to be kept separate for payment of the proper warrants and for placing the excess in the bond and interest sinking fund of the board of education, to be used for paying the principal and interest of the bonds, and for the proportionate abatement of subsequently levied taxes with such money as may remain after the payment of all warrants. It is stated that the authority granted by the act shall be considered as cumulative and not as repealing any existing laws. Section 8 states the purpose of the act in the following language: *Page 539 "This act is adopted for the purpose of empowering the corporate authorities of such school district to recognize the moral, equitable and honorable obligation resting upon such school district and its inhabitants to pay such tax anticipation warrants in spite of the non-collection of the taxes constituting their source of payment and to assume as a legal obligation such moral obligation in like manner as a just person recognizes in his own affairs, the duty to re-pay money received and used for his own benefit, having in mind the benefits to said school district and its inhabitants resulting from the purchasers of such tax anticipation warrants furnishing money to maintain and operate the public schools therein."

Tax anticipation warrants are issued pursuant to statutory authority, which provides the circumstances under which they may be issued, the amount permitted to be outstanding, and, in part, prescribes the form and wording of the warrants themselves. (Smith's Stat. 1933, chap. 146 1/2, Sec. 2.) They may be issued only against taxes already levied, and the statute in mandatory terms requires "that warrants drawn and issued under the provisions of this section shall show upon their face that they are payable solely from said taxes when collected and not otherwise," etc. Such warrants do not constitute, and cannot be construed as constituting, any promise of payment, either express or implied, on the part of the taxing body issuing them, but the holder thereof "must rely solely upon the ability and fidelity of the revenue officers in the collection and payment of the money mentioned in the warrants." (Fuller v. Heath, 89 Ill. 296.) We have held that it was the intention of the legislature, in so providing, to make it clear that tax anticipation warrants do not constitute an obligation between the taxing body and the purchaser or holder thereof. (City of Springfield v. Edwards, 84 Ill. 626; ColesCounty v. Goehring, 209 id. 142.) The legal effect of the transaction is that the person receiving such *Page 540 warrant discharges the corporation from all liability on account of the services or obligation for which it was drawn. (Law v. People, 87 Ill. 385; Hodges v. Crowley, 186 id. 305.) When the warrant is issued and accepted or sold the transaction is closed on the part of the municipality, leaving no future obligation upon it, either absolute or contingent, whereby its debt may be increased. (Booth v. Opel, 244 Ill. 317; People v. Nelson, 344 id. 46.) The transaction is similar to that of a bank selling a note "without recourse." The holders of tax anticipation warrants must look to the specific fund set apart for the payment of their warrants, as the cases above cited are authority that tax anticipation warrants are not contracts and the municipality is not indebted as a result of their issuance. The legislature itself recognized that the outstanding tax anticipation warrants were not legal obligations of the board of education, for it clearly appears from language used in section 8 of the act that authority to issue bonds was based upon the satisfaction of a moral, rather than a legal, obligation. It therefore becomes necessary to inquire whether the legislature has the power to authorize a school district to issue bonds and assume a legal liability for the payment of what it characterizes as "a moral, equitable and honorable obligation." The determination of this question will settle the principal issue in this case.

It is claimed by appellees that section 1 of article 8 of the Illinois constitution imposes a mandatory duty upon the legislature to "provide a thorough and efficient system of free schools," by which, as a matter of public policy, they say it is required to enact legislation authorizing the payment of a debt for which the city was at first only morally liable, but which, upon validation by legislative enactment, the courts are powerless to question. Their basic argument is that there is no constitutional limitation, express or implied, upon the power of the General Assembly permitting a school district to recognize a moral obligation *Page 541 as one of legal and binding effect. True it is that we have held that the power of the legislature to enact laws to establish and maintain school systems is not subject to judicial review unless some limitation imposed by the constitution is exceeded. (Fiedler v. Eckfeldt, 335 Ill. 11;Keime v. Community High School District, 348 id. 228.) But in the exercise of this power the legislature is primarily bound by certain constitutional limitations. One of these (section 9 of article 9) is a limitation upon powers which the General Assembly may confer upon corporate authorities of cities, towns and villages with reference to local improvements and taxes. After authorizing the General Assembly to enable cities, towns and villages to make local improvements by special assessment or special taxation it provides: "For all other corporate purposes, all municipal corporations may be vested with authority to assess and collect taxes; but such taxes shall be uniform in respect to persons and property, within the jurisdiction of the body imposing the same."

The principle is well established that all taxation by municipal authorities must be for corporate purposes. (Wetherell v. Devine, 116 Ill. 631.) At times some difficulty is experienced in determining whether a given appropriation is for a corporate purpose. In the present case, however, no such difficulty exists, as we have repeatedly held that the holders of tax anticipation warrants have no claim against the municipality. The General Assembly cannot confer upon a municipality the power to issue bonds for an illegal purpose or for the purpose of paying a debt not incurred by the exercise of some authorized corporate function or purpose. At various times we have reiterated this principle. We have held that a tax imposed for the payment of a debt not incurred by the authority imposing the tax, and for the payment of which it is in nowise responsible, is not for a corporate purpose; (Sleight v. People, 74 Ill. 47; Livingston County v. Weider, 64 id, 427;) *Page 542 that a city has no power to donate for private purposes revenue derived from license fees; (Washingtonian Home v. City ofChicago, 157 Ill. 414;) that it is beyond the corporate powers of a city to purchase special assessment bonds out of moneys derived from miscellaneous sources; (City of Chicago v. Brede,218 Ill. 528;) that it is not a corporate purpose for a city to pay for the construction of sidewalks when the cost thereof has been provided for by special taxation or special assessment; (Midland Lumber Co. v. City of Dallas City, 276 Ill. 172;) that legislative enactment conferring power upon a municipality to grant pensions to persons who had retired from public service prior to the passage of the act was void because it was in the nature of a gift or gratuity to certain individuals and not for a corporate purpose. (Porter v. Loehr, 332 Ill. 353; People v.Abbott, 274 id. 380.) From these and numerous other authorities it seems clear that tax anticipation warrants are not debts and do not represent direct legal obligations of the municipality issuing them. It follows that an appropriation and levy for their payment must fail, since not for a corporate purpose. Where the money is not due as a result of any promise, contract or debt of the municipality, little justification can be found for an appropriation to pay private holders of tax anticipation warrants the moneys which they have failed to collect from the sources to which such collections are exclusively confined. An appropriation for such a purpose certainly could not be deemed an appropriation for a corporate purpose.

Another constitutional limitation upon the power of the General Assembly to vest the proposed taxing power in the corporate authorities here is found in the due process clause — section 2 of article 2. This section is violated if a citizen's money is taken from him under the guise of a tax for any other than a public purpose. (Chicago Motor Club v. Kinney,329 Ill. 120.) Under this section a law must be binding upon and affect alike each member of the *Page 543 community of the same class. (People v. Rathje, 333 Ill. 304.) A statute violates also the due process clause of the constitution if it results in taxation for other than corporate purposes, as prohibited by section 9 of article 9. (Mathews v.City of Chicago, 342 Ill. 120.) The appellant here paid her taxes and had every reason to believe, both on legal and moral grounds, that she would not again be taxed for the same purposes and for the same year under the guise of a bond issue which, in effect, was to pay the debt of certain defaulting tax-payers. The effect of this statute was to impose an unjust and unequal burden upon many tax-payers who had paid their taxes, requiring them to pay twice for the same object, and likewise discriminating in favor of those defaulting citizens who either failed or deliberately refused to carry their just share of the tax burden. It must be borne in mind that a certain moral obligation rests upon a municipality to protect its non-defaulting tax-payers from unjust and unequal tax burdens, such as would be imposed by the authorization of the bond issue in this case. The act contains no provision which allows a credit to all persons who had paid their taxes for the years in question. This omission, (Fairfield v. People, 94 Ill. 244, ) and the obvious lack of uniformity as between persons and property of the same class or under similar circumstances, clearly renders the act unconstitutional. People v. Rathje,supra.

In arriving at this conclusion we have not failed to consider the cases cited and relied upon by appellees as authority to sustain the power of the General Assembly to pay a soldiers' bonus, to pay for injuries or for services rendered, to pay for volunteer advancements for the public welfare, to pay claims arising from depredations of war, and claims arising from the taking of private property to prevent disease. Claims and payments for any of these purposes, involving the public welfare and oft-times the public health and safety, have at times been justified under *Page 544 the sovereign powers of the different States involved where there existed no constitutional inhibitions, but these cases offer no close analogies to the issues here presented.

In our opinion the act of the Fifty-eighth General Assembly, entitled "An act to authorize the board of education of any school district constituted by law in any city having a population exceeding 500,000 inhabitants to issue bonds to pay tax anticipation warrants where the taxes anticipated have not been collected and to provide for their payment," is unconstitutional and void, together with the ordinance passed pursuant thereto. The decree of the circuit court of Cook county is therefore reversed and the cause is remanded to that court, with directions to overrule the demurrer to the bill.

Reversed and remanded, with directions.