CHICAGO -- Local governments in Illinois may face financial pressure in paying off their tax increment financing bonds because Gov. Jim Edgar did not appropriate necessary funding for the districts in his proposed fiscal 1993 budget, according to state and local officials.

Because most of the bonds were issued with the understanding the state would distribute incremental state sales tax revenues from local TIF developments back to the governments, officials said those governments may have to tap other revenues to pay debt service on the bonds.

Tax increment financing bonds in Illinois may be in jeopardy because Gov. Edgar's proposed fiscal 1993 budget does not include necessary funding, state legislators and officials say.

Don Eslick, executive director of the Illinois Tax Increment Association, said the lack of a state appropriation in the governor's budget "inevitably will result in bond defaults." Most of the TIF districts depend on the state money to pay a portion of debt service on the bonds, he said.

Mr. Eslick said the association, which represents tax increment financing districts throughout Illinois, believes TIF districts are entitled to $27 million in state sales tax revenues in fiscal 1993, which begins July 1.

He called the Edgar adminstration's decision not to appropriate the money "unbelievable" in view of his group's figures that there are 110 outstanding bond issues secured in part by a pledge of sales tax increment. This represents about $300 million in debt, he said.

Darlene Logsdom, a program administrator in the Illinois Department of Revenue, said the governor's budget lacks an appropriation because the state is "broke."

The governor last month proposed a $28.6 billion all-funds budget that would plug a $1.4 billion gap by providing cuts and new revenues, and by taking $237 million of temporary income tax revenues away from local governments.

"It didn't make sense to subsidize" the TIF districts, Ms. Logsdon said, because the governor had to take away the income tax money from the governments to help balance the budget.

Under a state law enacted in 1986, local governments that used incremental increases in their sales and property taxes to support TIF bonds would also be eligible for incremental state sales tax revenues from the districts.

While there is some support in the Illinois General Assembly for appropriating money for the districts, Mr. Eslick said the lack of state money in the governor's budget has local officials concerned about their outstanding TIF bonds.

"In some cases, local money will be sufficient to hold off defaults," he stated, noting that many issues were sold in 1991 with three years of capitalized interest built into them.

He said the state created a TIF bond rush that year by promising 15 years of state sales tax support for the bonds if they were issued by Jan. 29, 1991. Bonds issued thereafter were only promised eight to 10 years of state support, he added.

Mr. Eslick added that many local governments will have to worry about defaulting after the three years of capitalized interest and if no state money is forthcoming.

But the Edgar administration is holding the door open to appropriations for the TIF districts in the future.

"This is definitely a one-year decision," Ms. Logsdon said. "We don't have the money this year."

However, the state Senate on Wednesday amended a budget bill to include $18 million for the districts. According to Judy Erwin, a spokeswoman for Senate President Phil Rock, D-Oak Park, the money was included in the budget because "you can't promise someone you will help pay off their bonds and then decide to pull the rug out from under them."

In the House, Steve Brown, a spokesman for House Speaker Michael Madigan, D-Chicago, said there was some hope that money for the TIF districts will be approved.

"There is a pretty widespread concern about the state meeting its obligation for TIF funding," Mr. Brown said. "How much we might provide, I don't have a guestimate at this point."

Still, Mr. Eslick said it was hard to predict whether the funding will remain in the budget when the legislature ends its budget deliberations next month.

He said his group successfully fought for appropriations in previous years, and the current fiscal year budget was the first time the TIF districts were not fully funded by the state, getting only $18 million of the $24 million originally requested.

A bond attorney said a key question is whether the state money should be subject to annual appropriation.

State Sen. Aldo DeAngelis, R-Chicago Heights, is taking a step in that direction. He said he will propose a plan to the Edgar administration to look at all the TIF districts receiving state incremental sales tax revenues to determine how much the state is "morally or legally obligated" to pay. The state could then issue bonds and use the proceeds to pay for its obligation to local governments for their TIF districts, he added.

Meanwhile, local government officials are lobbying their representatives in the legislature to return the TIF funding.

Jack Manahan, village manager of Park Forest, a Chicago suburb, said the $5.3 million of TIF bonds the village issued in 1986 and refunded in 1990 are not in danger of default because the bonds carry the town's general obligation pledge. But he said the lack of state sales tax money will mean the district's other revenues will have to fill a hole of about $235,000.

He warned that the lack of state money for the districts could have other repercussions besides possible defaults.

"The state will get the reputation that it is not to be trusted as a partner in development deals," Mr. Manahan stated. "Then not a lot of investments will come our way."

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