Bill Requiring Cash Reserve Reduction Plans Becomes Law


Bill Requiring Cash Reserve Reduction Plans Becomes Law

Aug 11, 2023

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Piggybacking off of last year’s new cash reserve balance disclosure requirement, Governor Pritzker recently signed into law Public Act 103-0394, requiring some districts to prepare cash reserve reduction plans. P.A. 103-0394 amends the School Code by adding Section 17-1.10, entitled Operational funds expenditure report and reserve reduction plan.  Under new Section 17-1.10 and beginning in the 2024-25 school year, school districts that do not receive federal impact aid funding must annually calculate their operational funds’ cash reserve balances and compare them with the district’s average annual expenditures.  The district must then “annually present a written report covering the annual average expenditures of its operational funds for the previous 3 fiscal years at a board meeting.”  105 ILCS 5/17-1.10 (2023). 

Under the new law, school districts must calculate the annual average expenditures in their operational funds (education, transportation and operations and maintenance) for the previous 3 fiscal years using the amounts reported in the district’s most recently audited annual financial reports. If the combined cash reserve balances exceed 2.5 times the annual average expenditures, the school board must adopt and file with the State Board of Education by December 31 a “written operational funds reserve reduction plan to reduce, within 3 years, the district’s combined cash reserve balance of its operational funds to an amount at or below 2.5 times” the 3-year average annual expenditures.  The State Board shall post any operational funds reserve reduction plans received on the State Board’s website. 

Public Act 103-0394 borrows largely from certain portions of the case law on tax rate objections most famously set forth in the 1969 Supreme Court case of Central Illinois Public Service Co. v. Miller, 42 Ill.2d 542 (1969).  Under this line of cases, Illinois courts have found that taxing districts are subject to tax objections for excessive accumulations when the amounts available to districts exceed 2.0 times the average annual expenditures.  While the new law stops short of increasing this permissible “Miller ratio” from 2.0 to 2.5, this expression of legislative intent provides a compelling argument for dismissal of cases where taxpayers object to Miller ratios that are less than 2.5.  On the other hand, school districts should be mindful that Section 17-1.10, in effect, puts a cap on how much money districts can hold in reserves.  However, it should be noted that districts would not be required to spend the excess reserves, but only to submit a plan detailing how they intend to do so over the next three years.  This acknowledges the understanding that there are several reasons for a district to build up reserves, including saving up to pay for capital expenses, purchasing a new security system or planning for a situation where their HVAC system fails. 

For any questions or additional information about the new requirements under Section 17-1.10, please contact your Robbins Schwartz attorney.