CHICAGO -- Some governments in suburban Chicago are making a last-minute dash for approval to issue bonds before a law to cap property taxes takes effect Oct. 1 and sets up higher hurdles for issuance.
The state law limits annaul property tax collection increases by non-home-rule governments to 5% or the rate of inflation, whichever is less. It will also require the affected governments to get voter approval before issuing bonds backed directly or indirectly by property tax revenues.
Passed and signed in July, the law applies to DuPage, Kane, Lake, McHenry, and Will counties, which form Chicago's suburban ring.
Public finance officials said the governments now scrambling to put together issues make up the last wave of a trend that started in May, when the legislature first began considering the cap.
DuPage County holds the lead in the current race. On Monday Aldo Botti, chairman of the county board, proposed that issuance of about $385 million of alternate-source revenue bonds in September.
Proceeds would go to road work, a new jail, flood control, renovating the county convalescent center, and recovering some of the money that has been spent for construction projects already under way.
Before the property tax cap law was passed, Mr. Botti had proposed spreading bond issues for the projects over five years.
The proposed issue would be the largest ever by the county, which generally has funded capital projects with operating revenues. The county only has about $53 million of outstanding general obligation debt, which is rate Aaa by Moody's Investors Service and AAA by Standard & Poor's Corp.
Under the state constitution, the five counties affected by the law, as well as towns with less than 25,000 people and all school districts in the counties, are non-home-rule government.
Under current law, non-home-rule cities and counties can issue bonds up to a fixed percentage of their equalized assessed valuation without voter approval, while school districts can issue working-cash bonds without voter approval.
The new law exempts from the cap property tax collections for debt service on bonds issued before the law's effective date or for bonds approved by voter referendum after the effective date.
George Kouba, DuPage County's finance director, said the proposed bonds would be backed by sales and gasoline taxes, plus a general obligation pledge if those sources proved insufficient.
Michael Formento, chairman of the DuPage County Board's finance committee, said the board should issue the bonds before the law goes into effect, because it could be difficult to persuade voters to approve bond issues for the projects.
"I believe these projects are necessary, and I think we should go ahead with this now," Mr. Formento said.
He said the board could vote on the proposed bond issue as early as Monday if a special board meeting is called. He added that he still would favor going to the voters for approval of the proposed bond issue if the county board declines to give its approval.
Other affected governments also are trying to speed up bond issues.
The Lake County Board will vote next week on issuing $45 million of lease revenue bonds through the Lake County Public Building Commission to finance construction of a courthouse addition. The bonds would be backed by lease payments made by the board to the commission that would be derived by a special property tax assessment.
Ray Amdadei, Lake County's assistant administrator and acting comptroller, said the board is seeking to avoid the provisions of the new property tax cap law.
Officials from Kane, McHenry, and Will counties could not be reached for comment Tuesday.
Ronald Norene, president of R.V. Norene & Associates Inc., financial adviser to many suburban issuers covered by the law, said most affected governments accelerated their issuance of bonds back in May and June.
"The ones going to market now are the ones, who for whatever reason, couldn't do so back in the May and June period," Mr. Norene said. "It could have been that they weren't far along enough in the process to issue bonds or had not received legislative approval."
For example, Mr. Botti proposed that the county issue bonds for some of the projects in his current proposal back in January, but the county board did not act on his recommendations.
Paul Devine, vice president and general manager for the Great Lakes region at Moody's Investors Service, said there was a noticeable increase in bond issues by Illinois governments after the property tax cap proposal was first raised in the legislature.
"Whenever you see proposals in a legislature that could have an effect on bond issuance, governments look to speed up issues that they were planning to do anyway," Mr. Devine said.
