Presentation to IASBOThe Tax Cap, Issuing Debt, and the LawMay 17, 2006

Tammie Beckwith Schallmo

UBS Investment Bank

Chicago, IL 60606

312.525.4649

tammie.beckwithschallmo@ubs.com

Laura McKinney

Chapman and Cutler LLP

Chicago, IL 60603

312.845.3912

mckinney@chapman.com

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Table of Contents

I. Tax Cap Review

II. Senate Bill 1682

III. Issuing Short Term Debt

IV. Issuing Long Term Debt

V. Questions

Tab

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Tax Cap Review

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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

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PTELL Effective Dates

Cook County and Collar Counties: 1994 Levy Year

Other counties: Dates of Referenda Vary

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Communicating Debt Policy with the Public

Senate Bill 1682

(PTELL and Tax Rate Increase Elections)

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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

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The Solution: SB 1682

Improves referendum process

Retains tax rate increase phase in for pre-March 21, 2006 referenda

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What does SB 1682 Do?

1.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

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What does SB 1682 Do?

2. New Forms for Tax Rate Increase Propositions

Beginning with November 2006 election

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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?

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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)?

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What does SB 1682 Do?

C. 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)?

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What does SB 1682 Do?

3.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:

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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 $__________.

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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 $__________.

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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).

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What does SB 1682 Do?

4.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:

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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 $__________.

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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 $_________.

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What does SB 1682 Do?

5. Uniform Operating Rules

A. New Tax Rates First effective for levy year during which the referendum is

held Cannot be levied until after the canvass

B. 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

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What does SB 1682 Do?

6. Tax Rate Increases Approved Prior to March 21, 2006

Still governed by 5-year phase in

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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.

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For an Increase in the Limiting Rate

Limiting Rate x EAV

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Issuing Short Term Debt

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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

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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.

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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

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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

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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

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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

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Per the School Code and Federal Tax Law, maximum amount that can be issued is the lesser of:

Tax Anticipation Warrant Sizing

Equalized Assessed ValuationEqualized Assessed Valuation

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Fund’s Maximum Tax RateFund’s Maximum Tax Rate

XX

85%85%

LESS:LESS:

Outstanding TANOutstanding TANss or TAW or TAWss

Largest month’s projected fund deficit for Largest month’s projected fund deficit for 13 months13 months

PlusPlus

5% of budgeted expenditures5% of budgeted expenditures

LESS:LESS:

Working cash fund balanceWorking cash fund balance

State Law Formula Federal Law Formula

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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

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Long Term Debt

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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

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Long Term Borrowing Options for Working Capital

Working Cash Fund Bonds

Funding Bonds

Insurance Reserve Fund Bonds

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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

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Federal Tax Law Considerations – Working Capital

Must demonstrate need for the money

Prepare cash flow estimates

Working capital questionnaire

Enhanced IRS scrutiny

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Arbitrage Rebate

Small Issuer Exception

6 Month Exception

18 Month Exception

2 Year Construction Exception

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The Daily Herald Expose

Three Issues

Backloading Debt

Capital Appreciation Bonds

Selling bonds at a premium

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Backloading Debt

Section 19-3 of the School Code

Maximum maturity of 20 years

School Board discretion

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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.”

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Premium Bonds

Section 10 of the Local Government Debt Reform Act

Section 10-22.14 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.”