5.5. SR 03-24-2003 - Laserfiche WebLink

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Cities Bulle Number 11 March 19, 2003 Concerns about impact of governor's levy limit plan, Senate freeze for capital projects Gary Carlson, Tom Grundhoefer, and Eric Willette As reported in last week's Cities Bulletin, the governor's levy limit proposal and the Senate property tax freeze have raised significant questions from cities across the state about the impact on issuing debt. The governor's proposal would not directly restrict the ability of cities to issue new debt, but instead would limit the ability of cities to increase the property tax levy to service some forms of debt. The Senate property tax freeze would prohibit a city from issuing almost any new debt if the debt would increase the city's debt service levy for taxes payable in 2004 or 2005. Under past levy limit laws, cities were able to claim "special levy" status for property tax levies needed to support bonded indebtedness as well as principal and interest on most forms of certificates of indebtedness. "Special levies" related to debt service were traditionally outside levy limits to preserve the ability of cities to secure the credit advantage offered by the city's full faith and credit. In addition, in recent years levy limits have been placed only on cities over 2,500 population. Both the governor's and the Senate's proposals would affect all 853 cities. The governor's plan Under the governor's proposal, cities would generally be allowed to maintain special levy authority for existing debt. In addition, cities would be granted special levy authority for new debt for which the city has entered a binding contract or has received voter approval prior to May 1, 2003. The governor's proposal seems to allow the issuance of debt after May 1, 2003, ifa binding contract or agreement is in place before May 1, 2003. Special levy authority is also granted for new debt that under existing law requires voter approval and is spread against referendum market value rather than tax capacity. Generally, this includes only general obligation bonds that are supported solely through property taxes. Finally, cities maintain the special levy authority for most certificates of indebtedness, other than certain tax or aid anticipation certificates and certificates issued to fund current expenses or to pay the cost of extraor- dinary expenditures that result from public emergency. Other than the items listed above, the governor's plan would not provide a city with additional authority to levy for any new debt that requires an increase in property taxes in 2004. Apparently, a city could cover debt service within the city's levy limit. But given the deep cuts in state aids, most if not all cities would have a difficult time fitting a new debt service levy within the extremely tight levy limits proposed by the governor. For example, under current law, improvement bonds paid at least 20 percent through special assessments with the balance paid through property taxes would not req,uire voter approval. If this type of bond is issued and no binding contract to spend the proceeds is entered into by the city prior to May 1, 2003, then no special levy authority would be granted to pay the new debt service levy in 2004. The only exception might be that a city could ask voters for general authority to exceed its levy limit by a specific dollar amount at a special or general election on or before the November general election. This option may be difficult to use in some circumstances because cities will not be notified of their levy limit by the Dept. of 1Zevenue until Sept. 1. Some cities may be reluctant to ask for, and some citizens may be reluctant to approve, authority to exceed an unspecified levy limit. In 2005 and beyond, cities would not be covered by levy limits and, therefore, could increase their levy to pay for new debt or other needs. Any increase in the levy, however, could be rejected by the voters after the final levy is certified in December through a reverse referendum procedure. If voters successfully challenge a levy increase, the city's property tax levy would be limited to the previous year level; therefore, any additional debt levy required by the city would have Continued on page 3