Tax Increment Financing and Muni Financing

This is a repost from back on googlepages in 2007.  It is included for historical reference, and has not been updated.

I took off the history and past abuse of TIF’s.  I’ll repost if needed, but there’s several excellent starting points for information on TIF available on line now.

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Finance it!

This week council heard a Northern Trust presentation titled “Stormwater Financing Analysis”. What Northern Trust floated was the idea of not dedicating $6 million or more each year for Stormwater projects, but instead financing it with:

  • $6 million a year in loan (via bond) payments each year for 30 years for floating $180 million in bonds that would give us $108 million in funds for projects.
  • $4 million a year in loan (via bond) payments each year for 30 years for floating $120 million in bonds that would give us $72 million in funds for projects.

They also floated the concept of Non-Self Supporting Debt Outstanding as the correct debt figured against the Village EAV. There is ‘only’ $5 million in that kind of debt, because the other $36+ million in debt is paid for by the Parking Fund (for Series 1999), the TIF district (for Series 2000, 2001, 2003A), and property taxes (series 2002, 2005).

This is the first time I’ve ever heard about recategorizing debt into Self-Supporting and Non-Self Supporting types for debt ratio purposes here in Downers Grove, probably because our local government has slid funds around as needed to cover abatements and debt reduction in the past, making ‘self-supporting’ and ‘non self-supporting’ pretty much a moot point.

Note: The concept of “self-supporting” debt is that borrowed bond debt will fund projects that generate enough revenue to pay the debt service obligations. Examples of this type of debt include Tax Increment Financing (our downtown), Special Service Assessments (brick streets) and the Water Fund. GO self-supporting debt payments are a general Village obligation and must be paid from the property tax levy if revenues don’t meet debt service. Here in Downers, we’ve had to rely on property taxes to make up shortfalls in several “self-supporting debt funds”, so it doesn’t always work out in real life like it’s supposedly does on paper.

The net result is hey! We can borrow a bunch more money than we thought and not wreck our credit rating.

They also went over spreads, rate lock-ins, and interest only payments to start (yeah, I know that sounds like sub-prime and Alt-A lending come-ons), and pitched council on refi’ing Series 1999, 2000, 2001, and 2003A bonds at a lower rate, claiming that would save $173,134.00 -which is a good deal if true.

I was surprised at the 30 year bond terms. Usually muni bonds are for 20 years or 10 years, but the spokesman said the rates were not much different, although he did not quote any TIC (Total Interest Costs) on comparable 20 and 30 year loans.

Bonding for what?

At the 11/6 council meeting, it seemed like every possible fee and tax was being raised so flooding and streets could be addressed. But the net result is $6 million for 2008 funding. To paraphrase Mayor Sandack and Commissioner Durkin: “That doesn’t get it done, we need to do more faster now, when the money is cheaper, and we need to borrow.” Ding! They get it, but it’s at the expense of the municipal center. Muni complex? New Police, Fleet Services, and Village Hall buildings?

So what staff wasn’t talking about on the green sheets, is borrowing. Thing is, it’s the textbook example of when it is correct, even best to borrow. “Streets and Stormwater” if you will (flooding is the symptom) have to get done as quickly as possible. Everyone on staff and council takes turns bashing the inattentiveness and sloth of the past 25 years of local government; they hid their heads in the sand and ignored two huge growing problems. So now it’s time to change that. These improvements are permanent and have every reason to be have payment spread out over 20 years or more. By borrowing, we can fix the problem fairly quickly. This is health safety and welfare at it’s most basic.

Replacements for existing structures, even badly needed ones, are next in line, not first in line for available funding.

Commissioner Tully and Schnell expressed concerns that delaying a new village hall creates the same type of problems delaying streets and sewers did; makes it much more expensive to ‘fix’ later. It’s a harsh fact, even with all the new taxes, fees, you name it, our local government will have to make do for a bit, just like residents have done for so many years. waiting for decent streets and decent stormwater measures. Interest costs are at record lows right now. Money won’t get cheaper so the time to do it is now.

Problem: we can only borrow so much. The debt ceiling put into place is 3% of the Village EAV. Right now we’re at about 2%. The means we could borrow up to $69 million dollars, but we already have $41 million in debt now.

On Tuesday, November 20th, council will hear from bonding providers. This may get interesting…