The following three letters were sent by facsimile and U.S. mail. They were provided to The Rock River Times at deadline Tuesday, Feb. 27, by Winnebago County Board Member Mary Ann Aiello (R-9), an ardent opponent of city bond sales for the acquisition or continued support of a hockey team by the City of Rockford. She would not disclose the identity of the clients referred to in the following letters. Their attorney, David F. Pardys, was not available for comment.
City of Rockford Legal Director Patrick Hayes said: Obviously, the City of Rockford disputes the contention of Swanson, Martin & Bell that our authority to extend this tax is not being properly exercised. Its clear that the legislative enactment granted this authority to Rockford. That piece of legislation has been in place for well over a decade.
To have somebody now take out after something thats been state law for 15 years is something that the city will vigorously defend, Hayes promised. At this point, we feel very confident that the tax is appropriately applied.
When asked if all appropriate city officials were apprised of these letters, Hayes replied, Well, because of the timing of this stuff, the aldermen are not all aware of this correspondence. Hayes noted that letters like this are commonplace. When an attorney sends, basically, an anonymous inquiry, we answer the inquiry.
I just dont like the idea that somebody can take pot shots like this at the City of Rockfords taxing authority without revealing who they are. Its tough to give much credibility to inquiries like this, Hayes said.
Aiello said: The reason that nobody questioned this for the last 20 years is because it never had been brought up, but they just continued to collect the tax. If this issue on the MetroCentre wouldnt have been brought up, with the IceHogs and BlackHawks and everything else, and the renovations, [the MetroCentre tax] probably would never have been questioned because nobody would have thought that there was any problem with it. The city was the one that brought it up.
The city will sell $29.8 million in bonds March 5. In all, $6.8 million is for 1999 Coronado Theatre refunding, and $23 million is for MetroCentre bonds. (See City Council briefs on page A1.)
Letter No. 1
From Swanson, Martin & Bell, LLP, Attorneys at Law, Libertyville, Ill.:
Feb. 19, 2007
Patrick W. Hayes
425 East State St.
Rockford, IL 61104
Re: City of Rockford Metro Authority Sales Tax
Dear Mr. Hayes:
Please be advised that our office has been retained to review the subject of the City of Rockfords ongoing enforcement and collection of the Metro Authority Sales Tax.
Based upon our review of information provided to our clients by the City, we note that on April 10, 1978, the Rockford City Council approved Ordinance 1978-52-0, amending Chapter 7 Article II of the Rockford Code of Ordinances. This amendment added sections 7-56 through 7-64 (the Ordinance). The Ordinance established a sales tax upon food, beverages, alcoholic liquor and the rental of hotel and motel rooms (the Metro Sales Tax). The taxes collected were to be deposited into a Redevelopment Fund which was to be administered by a trustee and would provide funding for, among other things, the operating deficit (as defined by the Ordinance) of the Metro Authority. The ordinance and the sales tax enacted thereby were to expire pursuant to Section 7-64: Twenty (20) years after its effective date, or upon the retiring of all bonds issued by the Metro Authority and supported by State Funding, whichever date is later. As you know, the 20-year Metro Bonds were retired a number of years ago. Accordingly, the sales tax imposed by the Ordinance should have expired, by its own terms, in 1998.
At the time that the City of Rockford approved the Ordinance, it was designated as a home rule community. The citizens of Rockford removed Rockfords home rule status following a referendum in 1983. Following the approval of the referendum, Rockford became subject to Dillons Rule and was authorized to exercise only such powers as were expressly granted to it by the Illinois legislature. It does not appear that the authority to enact and levy the Metro Authority sales tax was among the powers that the City of Rockford retained. Although the Rockford City Council attempted to extend its authority to levy the sales tax to 2018 and more recently to 2028, it did so by the passage of ordinances in 1990, 1998, 2004 and 2006. Each of these ordinances was approved long after Rockford was stripped of its home rule authority.
As you know, in 1985, the Second District Appellate Court considered a challenge to Rockfords authority to continue to collect the Metro Sales Tax two years following the loss of its home rule status in the case of Royal Liquor Mart, Inc. v. The City of Rockford. The Second District upheld Rockfords right to continue to collect the sales tax notwithstanding its non-home rule status, in large measure, based on the contractual commitment of the City to pay the Metro Authority the operating deficit …until all bonds issued by the Metro Authority and supported by State Funding are retired and the expectations of the bond holders of the ability of the City to collect that tax.
The following passage from the Second Districts opinion is particularly instructive: The sales tax ordinance passed by Rockford in 1978 sets forth a period of time under which it would constitute a levy, 20 years or upon the retiring of all bonds issued by the Metro authorities and support by State funding, whichever is later. It has been held that a municipality can have a tax imposed for a period of time necessary to pay the underlying debt or levy.
As a rule, taxes are not popular among the electorate. The Rockford City Council was no doubt aware of this predilection and elected to create a self-imposed limitation upon its authority to levy the Metro Sales Tax to a twenty-year period or the date on which the State-funded Metro Authority bonds were retired. Most likely, this limitation assisted the City Council in garnering support among local businesses and residents for the approval of the Metro Sales Tax and the intergovernmental agreement with the Metro Authority.
As the Metro Authority bonds have long since been retired and the Ordinance expired of its own terms in 1998, we are unaware of any authority by which Rockford, as a non-home rule municipality, was empowered to revive the 1978 ordinance and effectively levy a new sales tax without referendum approval by the residents of Rockford. If you are aware of some other legislative grant of power which allowed the City of Rockford to extend the levy of the Metro Authority sales tax beyond 1998, we would greatly appreciate your office providing that information to our attention.
My clients are anxious to resolve this question and have asked that we provide them with our conclusions prior to the end of this week so that a determination can be made as to whether to proceed with appropriate litigation challenging the enforcement and continuing collection of the Metro Tax. Consequently, I would greatly appreciate the opportunity to speak to you and obtain your insight on this matter.
Very truly yours,
SWANSON, MARTIN & BILL, LLP
David F. Pardys
Letter No. 2
Editors note: The following letter from Patrick W. Hayes, City Legal Director, was sent Feb. 22, 2007, to David F. Pardys of Swanson, Martin & Bell, LLP.
Re: City of Rockford Metro Authority Tax
Dear Mr. Pardys:
Your letter is an excellent review of the history of our Metro Authority Tax up to the point of the amendment to 65 ILCS 5/8-11-6a, which enacted the following: This Section is not intended to affect any existing tax on food and beverages prepared for immediate consumption on the premises where the sale occurs, or any existing tax on alcoholic beverages, or any existing tax imposed on the charge for renting a hotel or motel room, which was in effect January 15, 1988, or any extension
of the effective date of such an existing tax by ordinance of the municipality imposing the tax, which extension is hereby authorized, in any non-home rule municipality in which the imposition of such a tax has been upheld by judicial determination, nor is this Section intended to pre-empt the authority granted by Public Act 85-1006.
The above provision specifically authorizes any extension of the effective date of the tax by the City of Rockford.
Should you have any other questions, please do not hesitate to contact me.
Very truly yours,
Patrick W. Hayes, Legal Director
City of Rockford Department of Law
Letter No. 3
Editors note: The following letter from David F. Pardys of Swanson, Martin & Bell, LLP, was sent Feb. 26, 2007, to Patrick W. Hayes, City Legal Director.
Re: City of Rockford Metro Authority Tax
Dear Mr. Hayes:
Thank you for your letter dated February 22, 2006 and your compliments on the quality of our previous letter to you. I appreciate your office providing us with the relevant language from 65 ILCS 5/8-11-6a. We have reviewed that statute in more detail and note that if this is the sole authority upon which the City of Rockford asserts that it may effectively levy a sales tax as a non-home rule municipality, then we continue to maintain that such authority is legally suspect, at best. At the outset, the exception is curiously placed amidst a statute which is designed to place taxing limitations upon home rule municipalities. It goes on to state that it is not intended to affect any existing tax which is in any non-home rule municipality in which the imposition of such a tax has been upheld by judicial determination. As you know, the only court decision to address the Rockford Authority Metro Tax (Royal Liquor Mart v. City of Rockford), did so in the confined context of an ordinance which was limited in time to 20 years and was directly tied to the retirement of bonds issued by the Metro Authority. The Second District specifically noted the time frame for which the sales tax would constitute a levy (20 years or upon the retiring of all bonds issued by the Metro authorities and support by State funding, whichever is later). Consequently, there has been no judicial determination as to the validity of the existing tax levies which were allegedly enacted as a result of extensions of the Metro tax after Rockford had lost its home rule status. Accordingly, at a minimum, it would appear that Rockford tax levy is not protected by Section 8-11-6a as there has been no court approval of the existing ordinance and levy.
Perhaps more importantly, however, is the fundamental problem with the wording of Section 8-11-6a. As you are aware, the Illinois Constitution prohibits the legislature from enacting a special law or local law when a general law is or can be made applicable (Ill. Const. 1970, art. IV, Section 13). As non-home rule municipalities never had the power to enact a sales tax, the provisions of 8-11-6a can only apply to former home rule communities which have since lost their home rule status. The legislation did not stop there, however. Rather, it made the law even more exclusive for Rockford by adding the requirement that only a non-home rule community that has been challenged in court with a resulting court decision upholding the tax, would be entitled to continue to levy and collect a sales tax. So, in essence, the legislation effectively abrogated the power of the legislature to allow the judiciary to make the determination as to which non-home rule community can or cannot impose a sales tax. Furthermore, the legislation essentially means that any other non-home rule community in the same position as Rockford, cannot continue to impose a sales tax based upon Rockfords good fortune of having a citizen filing suit to challenge the tax resulting in a judicial determination. Those unfortunate towns that did not have the good luck to have a disgruntled citizen challenge their taxes are simply without remedy, and their sales tax power ceased when they lost their home rule status.
This type of legislative classification is precisely the type of non-rationally based legislation that the Illinois Constitution prohibits. Combined with the improper abrogation of the legislative power to the judiciary, we believe that there is ample ground to challenge not only the application of Section 11-8-6a to the Metro Authority Tax, but also the very constitutionality of that statutory provision. In light of the importance of the ongoing application of the sales tax in the Citys financial plans, we wanted to raise these issues with the city and obtain its feedback so that my clients can finalize their plans as to how they wish to proceed.
I would be happy to discuss this matter with you in person or by telephone. Please feel free to call me.
Very truly yours,
SWANSON, MARTIN & BELL, LLP
David F. Pardys
From the Feb. 28-March 6, 2007, issue