Presentation to IASBO The Tax Cap, Issuing Debt, and the Law May 17, 2006 Tammie Beckwith Schallmo UBS Investment Bank Chicago, IL Laura McKinney Chapman and Cutler LLP Chicago, IL

1 Table of Contents  Tax Cap Review  Senate Bill 1682  Issuing Short Term Debt  Issuing Long Term Debt  Questions Tab

2 Tax Cap Review

3 Property Tax Extension Limitation Law (PTELL)  Limits annual growth in amount of property taxes to be extended for certain Illinois non-home rule units  Generally limits annual growth to the lesser of 5% or the percentage increase in CPI

4 PTELL Effective Dates  Cook County and Collar Counties: 1994 Levy Year  Other counties: Dates of Referenda Vary

5 Communicating Debt Policy with the Public Senate Bill 1682 (PTELL and Tax Rate Increase Elections)

6 The Problem  PTELL Unchanged  Property Tax Code, Election Code and School Code unchanged  Tax rates continue to erode  Tax rate increase referendum needed to generate additional revenues

7 The Solution: SB 1682  Improves referendum process  Retains tax rate increase phase in for pre-March 21, 2006 referenda

8 What does SB 1682 Do?  Eliminates Particular Fund Referendum Approved Tax Rate Ceilings  Effective for levy year 2005 and all subsequent years  Maximum tax rate is that set by statute  Increases flexibility for tax levies  Total extensions cannot exceed limiting rate

9 What does SB 1682 Do?  New Forms for Tax Rate Increase Propositions  Beginning with November 2006 election

10 What does SB 1682 Do? A. Proposition to Authorize a New Tax Rate Shall_______________ (legal name, number, if any, and county or counties of taxing district and geographic or other common name by which a school or community college district is known and referred to), Illinois be authorized to levy a new tax for ______________ purposes and have an additional tax of ____% of the equalized assessed value of the taxable property therein extended for such purpose?

11 What does SB 1682 Do? B. Proposition to Increase the Limiting Rate Shall the limiting rate under the Property Tax Extension Limitation Law for _______________ (legal name, number, if any, and county or counties of taxing district and geographic or other common name by which a school or community college district is known and referred to), Illinois, be increased by an additional amount equal to ___% above the limiting rate for levy year ___ (insert the most recent levy year for which the limiting rate of the taxing district is known at the time the submission of the proposition is initiated by the taxing district) and be equal to ___% of the equalized assessed value of the taxable property therein for levy year(s) (insert each levy year for which the increase will be applicable, which years must be consecutive and not exceed 4)?

12 What does SB 1682 Do?  Proposition to Increase Tax Extension Limitation Shall extension limitation under the Property Tax Extension Limitation Law for _______________ (legal name, number, if any, and county or counties of taxing district and geographic or other common name by which a school or community college district is known and referred to), Illinois, be increased from the lesser of 5% or the percentage increase in the Consumer Price Index over the prior levy year to ___% (insert the percentage of the proposed increase) per year for 20__ (insert each levy year for which the increased extension limitation will apply)?

13 What does SB 1682 Do?  Uniform Supplemental Information Required to Appear on the Ballot and in Election Notices – For a New Tax Rate and Limiting Rate Increase  The ballot shall have printed thereon, but not as a part of the proposition submitted, only the following supplemental information:

14 What does SB 1682 Do? (1) The appropriate amount of taxes extendable at the most recently extended limiting rate is $____________, and the approximate amount of taxes extendable if the proposition is approved is $____________. (2) For the ___ (insert the first levy year for which the new rate or increased limiting rate will be applicable) levy year the approximate amount of the additional tax extendable against property containing a single family residence and having a fair market value at the time of the referendum of $100,000 is estimated to be $__________.

15 What does SB 1682 Do? (3) Based upon an average annual percentage increase (or decrease) in the market value of such property of ___% (insert percentage equal to the average annual percentage increase or decrease for the prior three levy years, at the time the submission of the proposition is initiated by the taxing district, in the amount of (A) the equalized assessed value of the taxable property in the taxing district less (B) the new property included in the equalized assessed value), the approximate amount of the additional tax extendable against such property for the ___ levy year is estimated to be $__________ and for the ___ levy year is estimated to be $__________.

16 What does SB 1682 Do? (4) If the proposition is approved, the aggregate extension for ___ (insert each levy year for which the increase will apply) will be determined by the limiting rate set forth in the proposition, rather than the otherwise applicable limiting rate calculated under the provisions of the Property Tax Extension Limitation Law (commonly known as the Property Tax Cap Law).

17 What does SB 1682 Do?  Uniform Supplemental Information Required to Appear on the Ballot and in Election Notices – For an Extension Limitation Increase  The ballot shall have printed thereon, but not as a part of the proposition submitted, only the following supplemental information:

18 What does SB 1682 Do? (1) For the ___ (insert the first levy year for which the increased extension limitation will be applicable) levy year the approximate amount of the additional tax extendable against property containing a single family residence and having a fair market value at the time of the referendum of $100,000 is estimated to be $__________.

19 What does SB 1682 Do? (2) Based upon an average annual percentage increase (or decrease) in the market value of such property of ___% ((insert percentage equal to the average annual percentage increase or decrease for the prior three levy years (at the time the submission of the question is initiated in the taxing district) in the amount of (A) the equalized assessed value of the taxable property in the taxing district less (B) the new property included in the equalized assessed value)), the approximate amount of the additional tax extendable against such property for the ___ levy year is estimated to be $_________ and for the levy year ___ is estimated to be $_________.

20 What does SB 1682 Do?  Uniform Operating Rules  New Tax Rates  First effective for levy year during which the referendum is held  Cannot be levied until after the canvass  Increased Limiting Rates  May be effective for the levy year prior to year of the referendum if canvassed more than 30 days before the extension in all counties  Notify county clerks within 2 days after canvass  May not be necessary to adopt a new levy if previously approved levy is large enough to utilize the new limiting rate

21 What does SB 1682 Do? 6. Tax Rate Increases Approved Prior to March 21, 2006  Still governed by 5-year phase in

22 What does SB 1682 Do? 7. Tax Rate Increases Approved after March 21, 2006 For a New Tax Rate Step 1: The limiting rate is calculated as though there had not been a referendum. Step 2: The amount of the voted increase is then added to that amount to produce the applicable limiting rate. For subsequent years, the limiting rate is calculated in the usual manner.

23 For an Increase in the Limiting Rate Limiting Rate x EAV

24 Issuing Short Term Debt

25 Short Term Borrowing Options  Interfund Transfers  Interfund Loans  State Aid Anticipation Certificates  Personal Property Replacement Tax Notes  Revenue Anticipation Notes  Tax Anticipation Warrants  Teachers Orders

26 Permanent Transfers Among Operating Funds  May occur among education, O&M, and transportation funds.  May not exceed 20% of property taxes received in transferor fund for year previous to transfer.  Transfer made solely for one-time nonrecurring expenses.  Public hearing required prior to adoption of resolution authorizing transfer.

27 Transfer of Interest Earned  Board of Education may approve transfer of interest earnings to the fund most in need (unless earmarked previously for a specific purpose).  Prohibited transfers of interest earnings:  IMRF  Tort  Life Safety

28  Excess school building bond proceeds may be transferred to O&M fund after all items specified in the original referendum question have been completed.  Excess life-safety proceeds may be used for:  Other approved life safety projects  Payment of principal and interest via transfer to bond and interest fund Other Transfers

29  Authorized among O&M, education, transportation and life safety funds.  Working cash may loan to any fund for which taxes are levied by the District.  Loans must be paid within three (3) years if from O&M, education or transportation funds.  Working cash fund loans must be repaid upon receipt of property taxes. Interfund Loans

30  Most common type of short-term borrowing method used by school districts.  Issued in anticipation of taxes levied but not yet collected.  May be issued up to 85% of total amount of tax levied.  Not included in calculation of bonded indebtedness or debt limit.  Fixed maturity date. Tax Anticipation Warrants

31 Per the School Code and Federal Tax Law, maximum amount that can be issued is the lesser of: Tax Anticipation Warrant Sizing Equalized Assessed Valuation X Fund’s Maximum Tax Rate X85%LESS: Outstanding TAN s or TAW s Largest month’s projected fund deficit for 13 months Plus 5% of budgeted expenditures LESS: Working cash fund balance State Law FormulaFederal Law Formula

32 1.Can you demonstrate a need for the borrowing? 2.Cash Flow projections required. 3.Compliance with Federal Tax requirements: –8038-G –Opinion of Bond Counsel –Use of Proceeds Federal Tax Law Considerations for Short Term Borrowing

33 Long Term Debt

34 Long Term Borrowing Options for Capital Projects  School Building Bonds  Alternate Bonds  School Fire Prevention and Safety Bonds  Working Cash Fund Bonds  Debt Certificates (lease or installment contract)  Funding Bonds

35 Long Term Borrowing Options for Working Capital  Working Cash Fund Bonds  Funding Bonds  Insurance Reserve Fund Bonds

36 Federal Tax Law Considerations – Capital Projects  3 Year Temporary Period  Binding commitment to spend at least 5% within six months  Reasonably expect to spend 85% within three years  Proceed with due diligence to complete the project

37 Federal Tax Law Considerations – Working Capital  Must demonstrate need for the money  Prepare cash flow estimates  Working capital questionnaire  Enhanced IRS scrutiny

38 Arbitrage Rebate  Small Issuer Exception  6 Month Exception  18 Month Exception  2 Year Construction Exception

39 The Daily Herald Expose  Three Issues  Backloading Debt  Capital Appreciation Bonds  Selling bonds at a premium

40 Backloading Debt  Section 19-3 of the School Code  Maximum maturity of 20 years  School Board discretion

41 Capital Appreciation Bonds  Section 10 of the Local Government Debt Reform Act “Bonds…may…become due at such time or times…, bear interest payable at such intervals and at such rates or rates as authorized under applicable law,…and be sold…at such price, all as the governing body shall determine.”

42 Premium Bonds  Section 10 of the Local Government Debt Reform Act  Section of the School Code “When bond proceeds from the sale of bonds include a premium…the board shall determine by resolution whether the…premium realized in the sale of the bonds…is to be used for the purposes for which the bonds were issued, or instead, for payment of the principal indebtedness and interest on those bonds.”