5.5. SR 03-24-2003 - Laserfiche WebLink

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Continued from page 1 to come from the existing property tax levy. The Senate plan The Senate property tax freeze is perhaps best understood as an attempt to limit local government property tax levies to the 2003 level for the next two years. To achieve that freeze, the bill would generally prohibit the issuance of new debt, including installment purchases and lease purchase contracts after March 31, 2003, if the obligations would require a new levy first coming due for taxes payable in 2004 or 2005. There is some confusion surround- ing the March 31 effective date. The original bill contained a May 31 date and the tax committee adopted an amendment that changed the date to March 31. However, the amendments reported to the Senate floor did not contain the date change. We under- stand that the author will officially make the date change to March 31 in the rules committee or on the Senate floor. An exception in the bill would allow the issuance of new debt if the city's total debt service levy for 2004 and 2005 does not increase above the 2003 amount. This situation would most likely occur where an existing obligation is retired in 2003, which would have otherwise reduced the city's debt levy in 2004.Two other exceptions also apply: refunding bonds, which would presumably reduce debt service costs, would be permissible; and, obligations that a municipality finds will not require any additional levy in 2004 or 2005 (i.e., those funded through non-property tax sources, such as pure revenue bonds). The bill would create a set of transition rules that would allow bonds sold pursuant to an agreement with a purchaser or an underwriter entered into before April 1,2003. In addition, bonds sold by a municipality to finance projects required to be funded by the federal government or state government, and bonds to fund a contract with a builder or supplier entered into before April 1,2003, would be permissible. Unlike the governor's proposal, the Senate plan does not seem to allow even voter approved new debt. Issues rai~ed by the pmpo.~ls Cities and public finance professionals have raised concerns about the impact of these proposals on pending projects, particularly those planned to fund upcoming improvement projects. City officials have complained that these proposals would disrupt projects that have been in their city's long-range planning for years. Capital projects often take several years to get through planning, design, open bidding, signing contracts, and selling bonds. Many projects that are partially through this process could be delayed or cancelled. For developing communities, these proposals would make it very difficult to bond for new infrastructure. At least one large, fast-growing city is contemplating a moratorium on new development in response to these proposals. If this phenomenon is widespread, it will create a severe impact on the availability of new housing and on the construction industry, and could push development into neighboring states or township areas (which are not covered by the governor's proposal). For older communities, redevelop- ment projects could similarly be jeopardized if cities are restricted in their ability to issue debt or raise debt levies. In addition, many older cities are in the midst of 20 or 30 year plans to replace all their streets. Each year they sell bonds to pay for that year's street replacements. Even though the amount of debt they service each year does not change, the governor's proposal would not grant levy authority for many of these projects for 2004. City officials and public finance professionals are also concerned with the governor's proposal for a reverse referendum procedure after 2004. Under the procedure, cities could not be assured that they would be able to increase their levy to pay debt service on bonds issued during the year until the following January. This uncertainty would not only be challenging for city budgeting purposes, it would also likely increase the perceived risk to the bonds, decreasing their credit rating. Cities should be cautious about changing their behavior due to one proposal or the other. For example, if a city looks merely at the governor's proposal and decides to enter into a binding contract for an upcoming project prior to the May 1,2003 deadline, the city and its taxpayers are then more exposed if the Senate's plan is adopted. Under that scenario, the city could be obliged to pay the cost of the contract with no ability to issue bonds, and, therefore, would be required to fund the entire cost of the project upfront with other existing revenue sources. Both the governor's and Senate's proposals would result in delay and cancellation of many necessary capital projects at a time of historically low interest rates. This would disrupt long- range plans and increase costs to taxpayers. It would also have major impacts on the construction, engineer- ing, and architectural sectors of our economy at a time when there is already a dearth of construction activity. The uncertainty these proposals introduce into the bond market will also likely drive up costs of borrowing to local governments. The League will be communicat- ing our concerns to the governor and legislative leaders in meetings scheduled this week. ~ March 19, 2003 Page 3