Rushing to beat a property tax cap law that takes effect Tuesday, governments in Chicago`s collar counties are borrowing money at a furious pace, issuing about $1 billion in bonds so far this year-more than a 60 percent jump over all of 1990, according to county records.
During the first nine months of 1991, governments in Du Page, Lake, Will, Kane and McHenry counties dramatically stepped up borrowing from 1990, and the pace of bond filings rapidly accelerated after Gov. Jim Edgar signed the Property Tax Limitation Act into law on July 25.
The huge increase in bonding seems sure to increase homeowners` tax bills, but how much is uncertain because of the complexity of interest rates, the length of bond terms and other factors.
The heavy, last-minute borrowing represents a shift away from the pay-as- you-go approach traditionally used by suburban government. Now, taxpayers in the collar counties must pay off millions of dollars in debt on bonds issued by local governments that regard Tuesday`s deadline as the last chance to fund programs or make purchases without the limitations of the tax cap.
A complete accounting of the bonding won`t be available until after the cap goes into effect.
In addition, county officials acknowledge that the bond figures for both 1990 and 1991 include some duplication because some taxing districts cross county lines and must report bond issues in more than one county. The final calculations could somewhat alter the total amount of the increase over last year.
Nevertheless, the stark rise in bond issues filed in the collar counties is a vivid illustration of the borrowing rush spurred by the tax cap. The law is designed to hold annual increases in property tax collections by most units of government in the collar counties to 5 percent or the rate of inflation, whichever is less. Beginning Tuesday, increases above that level must be approved by referendum.
To allow taxing bodies to complete projects, such as new schools, that were already in the works, the General Assembly created a two-month
”window,” setting an Oct. 1 deadline for school districts, park districts, municipalities or other units of government to issue bonds.
But some governments may not have limited themselves to issuing bonds for projects already under way in July, and a leading Republican lawmaker said it appears as if some officials have violated the intent of the tax cap law.
”It doesn`t sound as if they have complied with the spirit of the law,” said state Rep. Lee Daniels (R-Elmhurst), the House minority leader, who was among Republican leaders who demanded that a property tax cap be part of a final agreement on a new state budget.
”It sounds like an awful lot of groups rushed to add new projects before the cap.”
The pace of bond filings quickened after the July 19 passage of the tax cap measure, records show.
In August and September, for example, 38 taxing districts filed bonding notices totaling more than $96 million in Lake County, or nearly half the $219 million issued in the county so far in 1991. By comparison, only two bond issues totalling about $5.2 million were filed during the same two-month period last year.
The collar county bond rush could be a preview of events in Cook County next year. Although the county was exempted from the tax cap legislation, Republican lawmakers are pushing to extend the measure to Cook County.
Toni Hartrich, an analyst for the Chicago-based Civic Federation, a taxpayer watchdog group, said the bonding surge marks a significant change in the way suburban governments do business.
”In the five suburban counties there`s been a real reticence on long-term debt. Here, the flood gates have been opened,” Hartrich said. ”You just did four to five years` debt in one year.”
Through bonds, municipalities, schools and other taxing bodies pay for new buildings or other programs by borrowing money that is repaid with property taxes.
More Top Picks Ladder Tosssssssssssss
Most of this year`s issues are general obligation bonds, which are paid directly out of property tax receipts. Some are revenue bonds, which are paid from sources other than property taxes.
Hartrich said those who believe the tax cap will keep their bills down may actually see their taxes rise over the next two years as a result of the new debt.
”John Q. Homeowner has been saying, `I`ve got a 5-percent property tax cap and my taxes will only go up 5 percent,` ” Hartrich said.
But ”in a lot of areas,” she estimated, ”they will see their bills increase by more than 5 percent because of the new debt service. You could see 10 to 15 percent increases.”
Here is a county-by-county breakdown of bond filings:
– In Du Page County, taxing bodies filed bond issues valued at $412 million through September, compared with $193 million in 1990.
The biggest borrowing came when the County Board voted to issue $48 million in bonds for a jail addition and $69 million in bonds to tackle the county`s flooding problems. The bond proposal fueled an anti-tax petition drive to put the measure on the ballot, but the effort fell short of the required signatures.
County officials will consider another bond issue of up to $65 million Monday to fund road projects.
There have been 101 bond ordinances filed in Du Page County so far in 1991 in contrast to 61 in all of 1990. A third of the 1991 bond issues, a total of 38, were filed after Sept. 15 as the tax cap deadline approached.
– In Lake County, the value of bond issues filed through September soared to $219 million from $139 million in 1990.
The number of bond issues filed in Lake rose to 78 in 1991 from 53 in 1990. Of the $96 million in bond ordinances filed in August and September of this year, slightly over $60 million is for spending by 22 school districts.
– In Will County, taxing bodies filed bond issues of more than $254 million through September, more than double the $102 million filed in 1990.
In 1990, there were 43 bond issues filed in Will. In the first nine months of 1991, there were 65. From June 1 on, governments filed more than $180 million in bond issues, including $124 million for school districts.
– In Kane County, taxing bodies filed bond issues of $173.6 million during the first 9 months of 1991, a slight increase from the $173.5 million filed in 1990.
There were 31 bond issues filed in Kane in 1990 and 36 through Friday.
– In McHenry County, 29 bond issues totaling $55 million were filed through September. In 1990, 31 bond issues totaling $74.8 million were filed. The decline may be the result of an inflated 1990 total, which includes $29 million in bonds issued by a Barrington school district, only part of which is in McHenry County.
More than half the 1991 bond issues were filed after July 19, with 14 coming in September.
Carl Tannenbaum, vice president and director of capital market research at LaSalle National Bank, said the upsurge in bond activity in the collar counties is part of a national trend toward stepping up bond issues in cash-strapped municipalities.
In 1990, there were roughly $90 billion in bonds issued by municipalities nationwide, he said. Through early September of this year, he said, about $105 billion in bonds had been issued by municipalities. And the total for the year could rise to as much as $150 billion.
Tannenbaum said the trend is occurring because the recession is drying up two main streams of revenue for municipalities: property taxes and sales taxes.
”With retail sales lagging and property values in many sections of the country falling, those traditional revenue sources are drying up,” he said. Instead, municipalities ”have turned to a financing technique long used by other economic entities, which is borrowing.”
Though those trends also are affecting taxing districts in Illinois, the Oct. 1 deadline for the property tax cap law played a key role in the stampede of bond issues, said Tannenbaum.
In August, as scores of governments moved to issue bonds and beat the deadline, he described the bond market as being in a ”frenzy.”
That frenzied atmosphere continued in the Will County clerk`s office on Friday morning. The legal papers announcing the sale of bonds arrived in such a flurry that they had to be piled on the corner of a desk until clerks could find time to file them away.
Meanwhile, the phone of Deputy Clerk Tim Reading was ringing with calls from park, city and school officials telling him they were on their way to Joliet, the county seat, to file bond notices.
Reading said the bond filings this week were the heaviest he has seen in his 12 years in the office.
”I would guess they were at least double the normal number,” he said.