Navigating Statewide Property Tax Freeze for Public Bodies Illinois Local Government Lawyers Association 23 rd Annual Conference February 15, 2016 Naperville Campus, Northern Illinois University 1120 East Diehl Road, Naperville, Illinois Kelly Kost Chapman and Cutler LLP kost@chapman.com (312) 845-3875 3935686
SB 318 Property Tax Extension Limitation Law Introductory Considerations The Illinois Property Tax Limitation Law ( PTELL or Tax Caps ) (35 ILCS 200/18-185) is currently in effect in 39 counties SB 318 would impose PTELL statewide, including on home rule units Because SB 318 has not been signed into law, the information provided in this presentation may not accurately reflect whatever tax freeze legislation (if any) is enacted into law 2
Overview Aggregate Extension Levies to Pay Voted Bonds Levies to Pay Non-Referendum Bonds 3
Overview (continued) Intent of PTELL is to limit the growth of property taxes Caps the total dollar amount certain property taxes may increase from year to year Such property taxes can only increase by CPI or 5% (whichever is less) PLUS any new property added to the tax rolls each year. Property Taxes x (1 + CPI) = Next year s max revenue $1,000,000 x 1.02 = $1,020,000 (assumes 2% CPI) Slows the growth of property taxes when property values and assessments are increasing faster than inflation Increases the growth of property taxes when property values and assessments are increasing slower than inflation Under SB 318 and other property tax freeze bills the rate of growth would be zero (unless a different rate is approved by referendum) and NOT the lesser of CPI and 5% Affects levy years 2016 and 2017 for non-cook County governmental units Affects levy years 2017 and 2018 for Cook County governmental units 4
Overview (continued) Taxes for bond payments (non-referendum bonds) are also impacted by PTELL Total taxes extended to pay NON-REFERENDUM bonds in the levy year that Tax Caps go into effect creates Debt Service Extension Base ( DSEB ) Under Tax Caps, maximum annual tax levy for new non-referendum bonds may not exceed the DSEB Non-referendum bonds issued prior to the date Tax Caps go into effect (and bonds issued to refund such bonds) are outside Tax Caps but count against the DSEB Referendum-approved bonds (and bonds issued to refund such bonds) are outside Tax Caps 5
Overview (continued) PTELL does not Cap or limit individual property tax assessments EAV is not capped Cap or limit individual property tax bills Cap or limit certain special purpose property taxes (such as taxes extended to pay pre-tax Cap non-referendum bonds or voter-approved bonds) 6
Background Enacted by the Illinois Legislature 1991 mandatory for the 5 counties bordering Cook County 1995 extended mandate to Cook County 1996 extended as option to all other Illinois counties with voter approval 2015/16 extended to the entire State under SB 318 or HB 4247 Law in 39 of 102 Illinois Counties representing approximately 80% of the State s population 6 by Legislative mandate 33 by voter approval Defeated in 10 counties Only one county has voted since 2002 (Jersey defeated 2015) Cumberland County attempted to remove caps but was defeated 7
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Governmental Units Eligible for Tax Caps Prior to SB 318, a governmental unit will be subject to PTELL under one of the following conditions: For a governmental unit that has all of its EAV within one county, the governmental unit will be subject to PTELL if county voters approve PTELL Governmental units that have EAV in two or more counties are treated differently. Both of the following conditions must be met before the governmental unit becomes subject to PTELL All counties in which the governmental unit is located must have held a PTELL referendum (regardless of whether or not it passed), AND A majority of the governmental unit s EAV must be located in Cook or collar counties or counties where voters have approved PTELL If these two conditions are met, the entire governmental unit becomes subject to PTELL, even the portion of the governmental unit in any county where voters rejected PTELL Under SB 318 all districts become capped for levy years 2016 and 2017 (or 2017 and 2018 in Cook County) Under other property tax freeze bills there is no PTELL end date 9
Potential Impact Restricts the financial capacity to: Generate Revenues by Limiting the Total Dollar Amount of the Taxes Extended for Operations Borrow Funds by Limiting the Total Dollar Amount of the Taxes Extended for Non Referendum Debt This is called the Aggregate Extension Base This is called the Debt Service Extension Base (DSEB) 10
Aggregate Extension Base Pie grows by the lesser of 5% or CPI SB 318 and other property tax freeze bills set growth at 0% for 2016 and 2017 (or 2017 and 2018 in Cook County) levies Taxing Districts can still take advantage of new property and recovered tax increment value in the limiting rate calculation Governmental Unit can decide how to allocate the pie within the PTELL maximum rates Under SB 318, Aggregate Extension Base is set by December 2015 levy (December 2016 levy in Cook County) Special purpose extensions made for public safety purposes are subject to unique treatment 11
Extensions Made for Public Safety Purposes Public safety purposes extensions made for new PTELL districts are completely excepted from each district s aggregate extension. Extensions for such purposes would not be subject to the tax freeze or included in or limited by the limiting rate. Public safety purposes extensions made for current PTELL districts are excepted from each district s aggregate extension for the years that the district is subject to the freeze, but would be subject to a special limiting rate calculation for levy years 2016 and 2017 that would permit the amount of such extensions to grow by the percentage increase in the Consumer Price Index. Senate Bill 318 does not provide for a special limiting rate calculation for levy year 2018 for current PTELL districts within Cook County. Public safety purposes extensions for those districts for levy year 2018 would not be subject to the tax freeze or included in or limited by the limiting rate. 12
Extensions Made for Public Safety Purposes Made for public safety purposes, includes, but is not limited to, special purpose extensions made under any of the following Sections: Section 3-125 or 4-118 of the Illinois Pension Code; Section 11-1-3, 11-1-5.1, 11-7-1, or 11-7-3 of the Illinois Municipal Code; Section 30-160, 30-165, 200-10, or 200-12 of the Township Code; Section 13, 14, 22, 23, or 24 of the Fire Protection District Act; Section 5-9 of the Park District Code; or Section 11 of the Rescue Squad Districts Act. 13
Extensions Made for Public Safety Purposes Illinois Pension Code Article 3: Police Pension Fund Municipalities 500,000 and Under Article 4: Firefighter s Pension Fund Municipalities 500,000 and Under 3-125 4-118 Financing: The city council or the board of trustees of the municipality shall annually levy a tax at the rate which will produce a sum sufficient to meet the annual requirements of the police pension fund. Financing: The city council or the board of trustees of the municipality shall annually levy a tax at the rate which will a sum sufficient to meet the annual actuarial requirements of the pension fund. 14
Extensions Made for Public Safety Purposes Illinois Municipal Code Article 11: Corporate Powers and Functions Division 1: Police Protection and Tax Division 7: Fire Protection Tax Cities and Villages of Less than 500,000 11-1-3 The corporate authorities of any city or village containing less than 500,000 inhabitants may levy a tax to provide revenue for the purpose of police protection in that municipality. 11-1-5.1 In any municipality which is authorized to levy a tax under Section 11-1-3 of this Division 1, the tax rate limit so authorized may be increased to not to exceed.60%, of the value of all the taxable property in such municipality. 11-7-1 The corporate authorities of any city or village containing less than 500,000 inhabitants may levy a tax to provide revenue for the purpose of fire protection in the municipality. 11-7-3 In any municipality which is authorized to levy a tax under Section 11-7-1 of this Division 7, the tax rate limit so authorized may be increased to not to exceed.60%, of the value of all the taxable property in such municipality. 15
Extensions Made for Public Safety Purposes Township Code Article 30: Annual Township Meeting Article 200: Township Emergency Vehicles and Equipment 30-160 In counties having a population of 1,000,000 or more, the electors may authorize the township board to furnish police protection in the unincorporated area of the township. The township board may declare the unincorporated area of the township a special police district for tax purposes. 30-165 The electors may authorize the township board to furnish fire protection in the unincorporated area of the township. The township board may declare the unincorporated area of the township a special fire district for tax purposes. 200-10 Any township having a population of less than 100,000 may levy annually a tax to provide revenue for the purpose of fire protection, rescue, and emergency vehicles and equipment. 200-12 A township with a population of less than 100,000 may levy taxes at a rate in excess of 0.02% of the value of all taxable property within the township if the increase is approved by the voters as provided in this Section. The township board may levy the taxes at a rate in excess of 0.125% but not in excess of 0.40% of the value of all taxable property within the township. 16
Extensions Made for Public Safety Purposes Park District Code Article 5: Taxing Powers 5-9 Any park district may levy and collect annually a tax for the purpose of organizing and maintaining a police system within the parks and playgrounds maintained by the district. 17
Extensions Made for Public Safety Purposes Fire Protection District Act Section 13 Section 14 Section 22 Section 23 Section 24 At the time of or before incurring any indebtedness, the board of trustees shall provide for the collection of a direct annual tax sufficient to pay the interest on such debt as it falls due, and also to pay and discharge the principal thereof as the same shall fall due, and at least within twenty years from the time of contracting same The Board of Trustees may levy and collect other taxes for all corporate purposes. All taxes proposed to be levied by a district shall be levied by ordinance The Board of Trustees of any fire protection district incorporated under this Act is authorized to provide emergency ambulance service to or from points within or without the district; to contract with providers of ambulance service; to combine with other units of governments for the purpose of providing ambulance service; to levy a tax for the provision of such service and to adopt rules and regulations relating to ambulance service within their jurisdiction. The board of trustees of a fire protection district which: (1) lies within a single county which has a population between 400,000 and 575,000; or (2) lies within 2 counties with respective populations of between 400,000 and 575,000 and between 900,000 and 1,000,000, may by ordinance levy an annual tax for the purpose of providing ambulance services pursuant to an intergovernmental cooperation agreement with any other unit of local government. However, no tax may be levied pursuant to this Section with respect to any property which is subject to any other tax levied for the purpose of providing ambulance services. In addition to any other tax authorized by law, the board of trustees of a fire protection district may levy a special annual tax for the purpose of obtaining funds to pay for the costs of emergency and rescue crews and equipment. This tax or any increase in this tax must be voted on in accordance with the general election law 18
Impact Upon the Issuance of Non-Referendum Bonds SB 318 does not change the authority for current PTELL districts to issue non-referendum property tax supported bonds. New PTELL districts are authorized to issue unlimited tax nonreferendum bonds in accordance with applicable law until March 1, 2016. PTELL districts can issue alternate bonds and non-referendum unlimited tax general obligation bonds to refund referendum approved bonds or bonds issued prior to March 1, 2016. New PTELL districts that wish to issue non-referendum limited bonds supported by a property tax for levy year 2016 or 2017 will need to limit the bond and interest tax extension for such years to the amount of their debt service extension base. 19
Debt Service Extension Base DSEB for current PTELL districts are not affected by SB 318 DSEB for new PTELL districts is set by the amount extended to pay non-voted bonds for: 2016 Levy for non-cook County (Taxes Extended in 2017) 2017 Levy for Cook County (Taxes Extended in 2018) Non-voted bonds issued prior to caps going into effect are grandfathered but count against DSEB DSEB grows by CPI for both current and new PTELL districts, including in the tax freeze years 20
Considerations Review operating levies Will the aggregate extension create a sufficient base for future needs? 21
Considerations Review Bond and Interest Levy Does the governmental unit have outstanding Bonds that will produce a DSEB? Is the DSEB bond payment schedule increasing year over year or decreasing to provide room for future borrowing? Is the DSEB sufficient for future borrowing needs? 22
Summary SB 318 has not been enacted into law The final form of any property tax freeze law, if any, is not yet known Understand the potential impact, as lead time, if a bill is passed, may be short 23
This document has been prepared by Chapman and Cutler LLP attorneys for informational purposes only. It is general in nature and based on authorities that are subject to change. It is not intended as legal advice. Accordingly, readers should consult with, and seek the advice of, their own counsel with respect to any individual situation that involves the material contained in this document, the application of such material to their specific circumstances, or any questions relating to their own affairs that may be raised by such material. 2016 Chapman and Cutler LLP 24