On May 12, 2023, 4 ½ years after Keystone Montessori School filed for real estate tax exemption, the Illinois Department of Revenue finally issued its Order of Determination recommending that the Keystone Montessori School is entitled to a 100% real estate tax exemption as a school. This confirms the Department’s initial determination in 2019 which the Village of River Forest then challenged before an Administrative Law Judge.
By way of background, even though all schools, both public and private, offering K-8th grade are exempt under the Illinois Constitution, River Forest objected to Keystone’s application for real estate tax exemption initially arguing that it had an agreement with the School which prohibited Keystone from ever filing for real estate tax exemption in exchange for its zoning. However, in a separate lawsuit, both the Cook County Circuit Court and the Appellate Court ruled that such an agreement forcing a private school to give up its real estate tax exemption was void since it contradicted the State’s public policy to promote the education of children.
River Forest then regrouped and focused its objection before the Department of Revenue arguing that the School was primarily a “pre-school” and since pre-schools are not exempt in Illinois because they are not mandated under Illinois law, Keystone did not qualify for exemption.
At the heart of this case was the question, what is a school for purposes real estate tax exemption? On trial was the Montessori curriculum itself. The curriculum is based on multi-age classes with a range of 3 years, beginning with the Primary Class (ages 3-6). Specifically, River Forest argued that the mandated school age in Illinois for kindergarten is 5 years old. Since Montessori Primary Classes include 3 and 4 years olds, River Forest argued that a significant portion of the school is really a pre-school and therefore it was not entitled to an exemption.
The School’s position before the Department of Revenue was simple. As it argued in its opening statement before the Department, “if it looks like a duck, walks like a duck, and quacks like a duck, it is a duck.” Answering the question ‘what is a school,’ the Department of Revenue first looked to Illinois law and found that Keystone was recognized by the Illinois Board of Education as a non-public elementary school using the Montessori method, with an approved curriculum that meets both Illinois public school and Montessori standards. As such it qualifies as a “school” for purposes of real estate tax exemption.
Specifically addressing the issue of “preschoolers” who are a part of the School’s Primary Classes, the Department found that “while … the School Code makes the establishment of kindergartens mandatory, … (it also) – manifests the intent of the Illinois legislature that kindergartens are for children between the ages of 4 and 6 years.” It concluded that: “…Primary classrooms … are properly considered part of Keystone’s kindergarten through 8th grade curriculum.”
In so finding, the Department also noted that the River Forest Elementary School District offers pre-school classes as do the other private elementary schools in River Forest. Moreover, it took note that four Chicago public elementary schools have adopted the Montessori method including multi-age classrooms. Thus, the fact that Keystone’s Primary Classes have 3 and 4 year old children did not alter the nature of the school stating: “Including children under 5 in kindergarten classes is not anathema to Illinois law, it is an express part of the School Code.”
Addressing the issue of public policy, the Department looked to the underlying purpose of giving private schools a real estate tax exemption. Put simply, the question is: how do private schools benefit the public? The answer is that they ensure the State’s obligation to educate our children.
Citing the Illinois School Code, the Department explained: “(i) the Constitution of the State of Illinois provides that a fundamental goal of the people of the State is the educational development of all persons to the limits of their capacities and (ii) that the educational development of every school student serves the public purposes of the State.” As the Department of Revenue found: “Keystone’s provision of its State approved educational curricula reduces the burden already undertaken by the State to provide education to children.” It went on to say how it reduces the burden: “…if the school (Keystone) did not exist, the parents or persons who pay Keystone for its educational programs would have to use the programs … that are being offered at other public schools, or public school districts, to the extent they are available.” Instead, as the Department pointed out: “Keystone’s clients pay both local property taxes… and the fees charged to attend Keystone’s school, while Keystone itself does not consume any of the general funding the State provides to free, public, schools. That is how Keystone’s operations help to reduce the State’s burden to educate students.”
Just how much does Keystone reduce the State burden? Assuming conservatively that River Forest and the surrounding School Districts spend an average of $15,000 annually to educate each student, Keystone, in educating an average of 100 students per school year is saving the taxpayers $1,500,000 per year.
Additionally, the Department took note that many public schools offer pre-school classes and questioned the fairness of River Forest’s argument which would disqualify a private school from exemption for offering pre-school classes but then apply a different standard encouraging public schools to offer pre-school classes even though exemptions for both are governed by the same Section of the Illinois Revenue Code.
After 4 years of litigation, the question is, “so what?” The Department’s Order is significant not only for Keystone Montessori School, but for all other elementary Montessori schools in Illinois, since they are all based on multi-age classes beginning with the Primary Class (ages 3-6) and all faced losing their tax-exempt status if River Forest were to prevail. In the Department’s Opinion, the Montessori curriculum, beginning with its Primary Classes, is found to be part of its K-8th grade curriculum and per se exempt.
However, the Opinion is also good news for other private elementary schools who offer pre-school classes as part of their curriculum in that it recognizes that there is no ‘regulatory straight jacket’ requiring them to adhere only to what the State has mandated for public education in order to qualify as a “school” for exemption purposes. As stated by the Administrative Law Judge:
The Illinois School Code does not mandate that all free or public elementary schools use multi-age kindergarten classes, but intervener (River Forest) has not persuaded that an elementary school’s use of them, even though not required by the School Code, is a per se nonexempt use of part of that property …
There is a note of caution due here. The Village of River Forest may still appeal this decision. After expending great effort and resources to make the School pay taxes, Keystone hopes River Forest will finally put this litigation to rest and recognize that Keystone is a school entitled to tax exemption, and in doing so, finally allow Keystone to follow the State’s mandate to educate children.