CURRENT CASES
(AND OTHER PROBLEMS)

In the January and February edition of this column, I discussed a number of legislative acts and cases of interest to Illinois municipalities. However, my intention to conclude the series of articles last month on these subjects was interrupted by the need to discuss the decision in People ex rel. Bernardi v. City of Highland Park. This month's column is the final part of a three article series on items of importance to Illinois municipalities originating in both the legislature and the courts.

E & E Construction Co. v. State of Illinois
674 F. Supp., 269
(November 26, 1987)

In this case, United States District Judge Milton Shadur, has ruled against the State of Illinois in a suit which challenges the constitutionality of the "Illinois Preference Act" (Ill. Rev. Stat., 1985, as amended Ch. 48, par. 2201-2207 (the "Act")) which requires the use of Illinois resident laborers on public works projects. The plaintiffs filed this action in June of 1987 claiming that the Act violates several provisions of the United States Constitution. Upon a hearing of the facts, Judge Shadur issued a temporary restraining order "preserving the status quo." His ruling of November 26, 1987 was in response to a motion by the State of Illinois to dismiss the claim of the plaintiff.

Midwest Construction Company, one of the plaintiffs, is general contractor on a project to reconstruct the Lake Michigan lakefront at Winthrop Harbor, Illinois. E & E Construction and other named plaintiffs are subcontractors and their employees on the project. Their complaint has alleged that the department has required that certain employees of E & E and Midwest be terminated because they are not "Illinois Laborers" within the meaning of the Act. The complaint alleges that four provisions of the United States Constitution are violated by the Act. Those provisions are the Due Process Clause, the Equal Protection Provisions, the Privileges and Immunities Clause, and the Commerce Clause. In addition, the plaintiffs are seeking damages against the individual defendants under the Civil Rights statutes (42 U.S.C. Sec. 1983) for the alleged violations.

In Judge Shadur's Opinion and Order of November 26, he chastises the attorneys for the State of Illinois for raising arguments which "have already been conclusively decided against them." His reference to previous decisions relates to the finding that the prior version of the Illinois Preference Act was held unconstitutional by the Illinois Supreme Court in the case of People ex rel. Bernardi v. Leary Construction Co., 102 Ill. 2d 295, 80 Ill. Dec. 36, (1984) and by the Seventh Circuit Court of Appeals in the case of W. C. M. Window Company v. Bernardi, 730 F. 2nd 486 (7th Cir. 1984). Before discussing the merits of the Motion to Dismiss, Judge Shadur clearly shows his irritation with the defendants' arguments by stating:

"Defendants have inexplicably ignored both Leary Construction and W. C. M. Window (their memoranda cites W . C. M. Window only in passing and never even mentions Leary Construction!) instead purporting to argue from first prin-

April 1988/ Illinois Municipal Review /Page 13

ciples on issues that have already been conclusively decided against them. While a few defendants' contentions have at least surface merit, most plainly do not. Nevertheless this opinion, after describing the constitutional claims raised by plaintiffs, will address each of the defendants' contentions in turn."

Although none of Judge Shadur's rulings in the Opinion conclusively decide any of the constitutional issues, he does find that the plaintiffs have standing for the action and may sue the individual defendants in their individual capacity (as distinguished from their official capacity). The Opinion does make clear that, at the time of its writing. Judge Shadur is clearly leaning towards an invalidation of the current version of the Illinois Preference Act. The only reservation expressed by Judge Shadur is the need to fully develop the factual record of the case at trial prior to issuing a final ruling. However, from the tone and tenor of his opinion it appears likely that, upon development of the record, he will find the Preference Act to be unconstitutional even though following Leary Construction, the statute was reenacted in an attempt to restore its constitutionality.

ARBITRAGE LAWSUIT UPDATE
Government Finance Officers Association v.
United States of America _ F. Supp. _

In the August, 1987 edition of this column entitled "The Hidden Taxes of Tax Reform," I reported on this case which challenged certain provisions of the Tax Reform Act of 1986. The Government Finance Officers Association (GFOA) had challenged the Arbitrage Rebate Provisions of the Act as an unconstitutional tax on debt obligations of units of government.

On February 3, 1988 the Federal District Court in Atlanta, Georgia dismissed the case on procedural grounds. The court did not rule on the substance of the complaint but ruled that the plaintiffs had either to (a) pay the tax, file a claim for refund with the Internal Revenue Service, have the claim denied and thereafter file suit in the Federal District Court or, (b) in the alternative, pursue the matter through the United States Tax Court following the IRS determination of the amount of the tax allegedly owed. Generally, these are the normal procedural methods utilized in resolving a tax law question. At this time, it is unknown what action, if any, the GFOA and other plaintiffs will take to have the suit reconsidered in either the Federal District Court or the United States Tax Court.

BAKER v. CITY OF BELLEVILLE
162 Ill. App. 3d 197,113 Ill. Dec. 193, 514 N.E.2d 1204

In the November 1987 edition of this column entitled "Letter from the Plumber," I reported on this case and its potential adverse affects for municipalities.

In the action, Galen and Agnes Baker sought reimbursement from the City of Belleville for expenses incurred in repairing a sewer line connecting their plumbing to a sewer trunk line adjacent to their property. After a holding by the St. Clair County Circuit Court for the owners, the City of Belleville appealed. The Appellate Court held that the city was liable for repairs to the lateral sewer line under the city street absent an ordinance explicitly requiring the cost of such repairs to be borne by the property owner.

Following the decision of the Appellate Court, Belleville asked for leave to appeal the case to the Illinois Supreme Court.

On February 3, 1988, in Docket No. 66083, the Illinois Supreme Court denied leave to appeal without comment, letting stand the decision of the Appellate Court. While the denial of leave to appeal does not indicate the Supreme Court's explicit approval of the decision of the Appellate Court, it effectively makes the decision of the court below the law in Illinois. Therefore, my suggestions in the November, 1987 article bear repeating. In writing any ordinance, a municipality should be guided by two rules. First, say what you mean. Second, mean what you say. In other words, don't depend on a court to guess what an ordinance is

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supposed to mean. Had the City of Belleville specifically provided that the property owner would pay for repairs in situations such as that presented in this case, then unquestionably the city would have prevailed. However, the failure to provide explicitly for allocation of the cost of repairs to the owner has resulted in the city paying the substantial cost of repair to the lateral line.

BOND REFORM
House Bill 854 (Public Act 85-158)

For a number of years, many Illinois municipal attorneys have recognized that the law governing financing of governmental operations in Illinois through the issuance of bonds has not kept pace with developments in the field that have occurred across the nation. In response to this, the General Assembly has adopted the "Municipal Bond Reform Act."

This Act added Division 4.1 to Article 8 of the Municipal Code in an effort to streamline certain procedures relating to the issuance of bonds and to specifically provide for the use of certain concepts in bond issuance that have developed in the bond market in recent years.

One of the most significant improvements brought about by this Act is the addition of Paragraph 8-4.1-4 which enables a municipality to forestall the drafting and expense of a bond ordinance until applicable requirements for a referendum or back door referendum have been completed. Under previous law, a municipality was required to adopt the Bond Ordinance, in effect issuing the bonds, the final approval of which was subject to the results of a referendum or a petition for a back door referendum and its subsequent outcome. The addition of this paragraph enables a municipality to adopt a more general ordinance which describes the authority by which the bonds are proposed to be issued, the nature of the project or purpose to be financed, the estimated total cost and the maximum amount of bonds to be issued to pay such costs. The statute specifically provides that no other details of the bond issue are required to be included in the ordinance. The passage of such an ordinance along with the giving of the notice required by the statute pursuant to which the bonds will be issued is sufficient to meet the referendum requirements of the authorizing statute.

The balance of the Act generally provides technical provisions which specifically authorize municipalities issuing bonds to enter into certain types of agreements relating to security in payment for bonds, payment of interest and payment of redemption premiums. In addition, the Act allows the municipality to capitalize interest out of the proceeds of an issue for a period not to exceed the greater of two years or six months after the estimated date of completion of the project or purpose for which the bonds are issued. Finally, the Act allows a municipality to invest proceeds of a bond issue or monies on deposit in a debt service or reserve fund or account in tax exempt obligations which qualify under Section 103 of the Internal Revenue Code of 1986, subject to certain credit rating limitations. Effectively, this provides statutory authority for municipalities to invest in the tax exempt obligations of another municipality provided that the credit rating restrictions are met.

ERRATA
House Bill 301 (Public Act 85-0591)

The 1987 Legislative Report published in the Review (January, 1988) contains an error in regarding the summary of this Bill.

This Bill created the Southwestern Illinois Development Authority to promote industrial, commercial and recreational growth in Madison and St. Clair counties. The authority is empowered to finance development projects through the issuance of bonds.

In the summary, it was also indicated that the cities and counties within the authority had the power to levy taxes to support the authority. However, that power was deleted from the final version of the Bill.

We regret the error. •

April 1988 / Illinois Municipal Review / Page 15