An Illinois appellate court recently concluded that an arrangement, in which a school district received real estate transfer tax revenues from the city through an intergovernmental agreement, did not violate the U.S. Constitution or exceed the authority of either the school district or the city. In Rajterowski v. City of Sycamore, a group of citizens sued the City of Sycamore and Sycamore Community Unit School District 427 asserting various constitutional violations related to the City’s Transfer Tax ordinance. The citizens argued that the City’s Transfer Tax, from which buyers of homestead real estate who resided in the City for at least one year were exempt, violated the federal and state constitutions. Plaintiffs also argued that the School District exceeded its constitutional and statutory authority by entering into an intergovernmental agreement under which the City forwarded the Transfer Tax revenues to the School District. The trial court dismissed the citizens’ complaint, and the appellate court upheld that decision.

The City adopted the Transfer Tax Ordinance to create a new source of funds for the School District to supplement the School District’s revenue. In particular, the purpose was to increase school funding to help offset costs associated with new students moving into the city. Those exempted from the tax were established residents who, under the City’s rationale, would not add new burdens to the schools when they purchase new homes in the city. The Court found this tax to be constitutional because it was a reasonable means to meet the City’s purpose.

The citizens also argued that the School Code does not give the School District the authority to impose the Transfer Tax directly or indirectly through the City, nor does it give the School District the authority to receive Transfer Tax revenues from the City. The court, however, noted that the City, and not the School District, enacted the Transfer Tax and found that none of the School Code provisions prohibit a school district from receiving transfer tax revenues. Accordingly, the School District did not exceed its authority in entering into the intergovernmental agreement.