Les Golden -- Published Essays on Fiscal Policy
Myths and Truths About Tax-Increase Referenda, Wednesday Journal, March 13, 2002
Reward Long-Term Residents, Punish Short-Term Users, Wednesday Journal, April 3, 2002
Golden Offers Ideas on Funding Education in Illinois, Life Newspapers, October 9, 1996
Why Not Tax-DECREASE Referenda?, Wednesday Journal, April 17, 2002
Burn the Tax Code and Start All Over, Wednesday Journal, Februrary 13, 2002
Set Limits on Land Use for Government Buildings, May 8, 2002
"Health Safety" and Similar Type Bonds Allow Schools to Abuse Tax-Caps
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NON-REFERENDUM BONDS: HOW TAXING DISTRICTS IN ILLINOIS CAN LEGALLY ISSUE BONDS AND RAISE TAXES WITHOUT VOTER APPROVAL
When a taxing district issues a "Non-Referendum Bond", it borrows money without the referendum approval of its voters. First permitted in Illinois by amendments to a 1959 law , NRBs were eliminated by tax cap legislation beginning in 1991 in six northern Illinois counties.
In August, 1995, however, only 8 months after the passage of tax caps in Cook County, Senate Bill 368 reinstated NRBs. It allowed taxing districts to effectively re-borrow the amount of an expiring bond. In effect, SB 368 gave taxing districts the ability to never retire a bond: the taxpayer would be forever paying the principal and interest ("debt service") on the original amount borrowed.
The elimination of NRBs by tax cap legislation received comparatively little notice. Its repeal by SB 368 similarly received little notice. The potential cost of SB 368 to Illinois taxpayers, however, is many billions of dollars, leading many taxpayer advocates to refer to it as causing the largest tax increase in the history of Illinois.
This report will discuss the origin of NRBs in Illinois as life-safety bonds, the misuse of life-safety bonds, and the various types of NRBs. It will present the special interests behind the passage of SB 368, which resulted in the biggest tax increase in Illinois history in Cook County and DuPage, Lake, Kane, McHenry, and Will Counties, the so-called "collar counties." The report will conclude by describing how local taxpayers can prevent NRBs from being issued, and by providing suggested changes in state law to remove the burden of NRBs.
ORIGIN OF NRBs AS LIFE-SAFETY BONDS
In December, 1958, the nation was stunned by a fire that swept through the Our Lady of Angels Catholic elementary school on Chicago's west side, killing 92 children and 3 teachers and injuring scores more. Public reaction to this private school fire led the Illinois legislature to pass a tough life-safety law for schools several months later to prevent such tragedies in the future in Illinois public schools, the Illinois Health/Life Safety Code
The Code was a bulky, two-volume set of building and safety standards for schools regulating such things as the brightness of exit signs to furnace specifications. It allowed school districts to levy a tax of 5 cents per $100 of assessed valuation without voter approval.
Those knowledgeable about the normally tortoise-like workings of the Illinois legislature were surprised by the speed with which the legislation was passed. It was achieved as a result of heavy lobbying of state lawmakers by the banks and law firms which are part of the bond community. They correctly saw a major source of new revenue.
By 1972, amendments to the Code allowed school districts to borrow money for life-safety expenditures by issuing life-safety bonds. Considered as necessary for the children's health and well-being, these bonds did not require voter approval. They were the first of the "non-referendum bonds": No referendum approval of the voters is required before the taxing district can issue the bonds.
The intent of the law was clear. Frank LaRocca, an architect with Fitch and LaRocca, had been performing life-safety work for school districts for 20 years when he stated in 1978 that "life safety work essentially means upgrading the schools' fire-safety standards." Corridors and stairways were redesigned to provide a safe lane of traffic to enable children to exit the school safely and quickly.
Satisfying local fire building codes was also judged to be valid uses of such funds. One school in Oak Park was reported in 1974 to need life-safety work because "some masonry walls at the school did not extend to the underside of concrete slabs."
The legislation allowed life-safety funds to pay for such items as corridor-stairway redesign, correction of fire code violations, fire sprinkler systems, upgraded fire extinguishers, fire alarms, circuit breakers, fire resistant doors, the repair of unstable walls and faulty wiring, and removal of asbestos. Such expenditures could be justified as the intent of the original legislation.
EXTENSION OF LIFE-SAFETY LEGISLATION
Passage of the law and its subsequent amendments showed that state legislators were heavily influenced by the "bond community" of attorneys, banks, and investment bankers. To be able to comply with the regulations set by the original Health/Life Safety Code, the legislation provided school districts a non-referendum tax rate of 5 cents per $100 of assessed valuation. A district with a $100 million assessed valuation could thereby raise $50,000 with this tax to spend on life-safety matters.
School officials argued that these amounts were not sufficient for meaningful life-safety improvements. They and the bond community persuaded the legislature in 1972 to allow the districts to issue bonds which would then be paid off over many years with the 5 cent property tax. For example, a $1 million bond could be paid off over 20 years with the $50,000 raised from the 5 cent tax.
Significantly, the extended legislation allowed these bonds to be issued without taxpayer approval. They were the first NRBs. The legislation was later changed to allow school districts to impose any amount of tax levy needed to pay off the life-safety bonds, not simply the 5 cents.
These amendments to the law opened the floodgate for abuse. With the ability to issue bonds, school districts could plan projects costing $2 to $3 million, not just $40,000 or $50,000.
Under lobbying by the bond community, the Illinois legislature extended the use of life-safety bonds further and further afield. In 1977, the legislature allowed life-safety bonds to pay for energy conservation projects, resulting in school districts using life-safety bonds to pay for lighting, heating systems, and energy-saving windows. In 1984, legislation was passed allowing school districts to use life-safety bonds to build new schools. In 1986, another amendment allowed the leasing of temporary classrooms and the building of school additions. In 1989, life-safety bonds could be used for the purchase of security systems. In 1991, paving parking lots and fixing sidewalks and playgrounds with life-saving money was allowed.
In addition to these unjustified extensions of the law by the legislature, the life-safety law provides inadequate mechanisms for oversight of the expenditures. After local school board approval of a life-safety bond, the loan must be approved by regional school superintendents and then by the State Board of Education. In practice, the regional superintendents frequently simply forward the applications directly to the state. At the state level, as of 1991, the division of school organization and facilities had only a three-person staff, two of them being architects. The state is essentially powerless in monitoring how life-safety bonds are used by local school districts.
Local taxpayer groups are also powerless. The funds obtained by the life-safety legislation are not kept in a single account by school business managers. How that money is spent in nearly impossible to determine.
Galen Gockel, the current Oak Park Township Assessor, and a member of the board of Oak Park Elementary School District #97 in the early to middle 1970's, summarized the situation well. According to Gockel, District #97 used life-safety money to construct teachers' lounges and enlarge principal's offices, among other uses. Board members, himself excluded, voted for such misuse of the funds because it was "good." According to Gockel, the State Board of Education was "very, very permissive" in approving the issuance of life-safety bonds. They gave the "benefit of the doubt to the local school boards, carte blanche to their request."
ABUSE AND ILLEGAL USE OF LIFE-SAFETY BONDS BY SCHOOL DISTRICTS
In this way, life-safety bonds quickly became a new source of revenue for schools for projects having nothing to do with fire safety. They paid for projects only marginally associated with health and safety, or having no relationship to health and safety issues whatsoever. In June, 1991, the Chicago Tribune reported on widespread abuse of school "life safety bonds." Life-safety funds have been used to build or purchase cafeterias, teachers' dining rooms, teachers' lounges, roof repairs, playground blacktops, landscaping, playground equipment, wooden decks, gym floors, lockers, auditorium remodeling, carpeting, windows and window screens, performance space enlargement, swimming pools or swimming pool repairs, running track resurfacing, tennis courts, new schools and school additions, and stadium bleachers, Table 1.
Expenditures appearing in the budget under the category of life-safety would be unchallenged not only by school boards but by the local press. Extravagance that would be challenged elsewhere in a budget would be ignored if spent as "life-safety bonds." State and local politicians, their utmost concern being reelection, would not publicly oppose the ultimate apple pie issue of childrens' safety.
Abuse of Life-Safety Bonds in Cook County and the Collar Counties: Some Examples
* Bellwood Elementary School Distgrict #88
in 1989 $30,000 to pay the Chicago Urban League to monitor affirmative acton activities
* Bensenville Elementary School District #2
1988 school addition to replace mobile classrooms
* Brookwood Elementary School District #167 in Glenwood
$475,000 for a new administration building. The officials justified the expense because one room in the building is used for student counseling and the safety of those students had to be ensured.
* Carpentersville School District #300
* Crete-Monee H.S.
issued life-safety bonds to convert locker and shower room to a faculty dining room, and to convert a gym to a student cafeteria
* Elgin Unit School District #46
in 1991 spent $339,800 to replce Elgin H.S.'s cinder running track with a rubberized track because the students might "trip on the cinders"
* Evanston Township H.S.
$170,000 for new tennis courts
* Highwood-Highland Park Elementary School District #111
in 1986 spent $44,000 for chalkboards, athletic field drainage system, learning center, and teachers' lounge renovation
* Lyons Township H.S. District #204, La Grange
in 1989 spent $16,000 for swimming pool lockers, $20,400 for basketball backboards, $18,000 for a partitiion at a learning center, and $67,5000 for energy-conserving window shades
* Medinah Elementary School District #11
in 1991 $580,000 for roof repairs
* Oak Park Elementary School district #97
$500,000 was allocated for a wooden playground at Whittier School; $1.5 million was spent to recarpet and relight the central administration building; in 1977 Lincoln School moved the perimeter of a courtyard housing a nature center
* Oak Park and River Forest H.S. District #200
in 1980 tuckpointing and renovation of the football stadium
* Plainfield Community Consolidated School District #202
in 1991 $4 million to rebuld a high school ravaged by a tornado
* Wilson School in Calumet City
in 1991 $1.3 million to renovate buildings, two years after voters rejected a bond issue fo the same purpose
More than simply abusing life-safety bonds, school districts blatantly violated the law in order to obtain funds under the guise of life-safety. According to the life-safety legislation, a school district could either levy the life-safety property tax or issue NRBs, but not both. In 1990, however, Blue Island Elementary District #130 received $135,000 through the 5 cent tax as well as $1 million to pay off life-safety bonds. Proviso High School District #209 collected $600,000 from the tax and $713,000 to pay off its life-safety bonds. New Trier High School District #203 paid $1.3 million in debt service on life-safety bonds and another $450,000 to the tax.
Other unethical or illegal uses of life-safety bonds have occurred. Life-safety money was only to be spent after a district had expended all of its operation and maintenance funds. Yet,
1. A Roselle school district informed state officials that its operation fund money was committed and received $8.5 million in life-safety money. The operations funds money was spent for a swimming pool.
2. In 1991, Dundee Unit School District #300 obtained $1.9 million for roof repairs but put $307,000 of it into a reserve account. In fact, they had paid for the roofing project out of the school building fund before the project received state approval, then used the life-safety bond funds to replenish the building fund account.
3. Argo High School District #217 in Summit in 1984 obtained $563,000 to deepen and repair their swimming pool to allow diving. Part of the money was used for new laboratory tables, expansion of a stage area for the storage of play sets, and to replace "dangerous laundry equipment."
4. In 1986, voters in Downers Grove Elementary School District #58 rejected a $3.3 million bond issue to enlarge schools and build an addition to Kingsley Elementary School. School officials then obtained $1.2 million in life-safety bonds for repairs to 100-year old Washington School, but used the money instead to build the additions to Kingsley, including a library and music room. According to school records referenced by the Chicago Tribune, the school board never intended to use the money for safety improvements at Washington School.
Life-safety bonds are "being exploited by some Illinois public schools to fill wish lists that have little to do with safeguarding students," according to an extensive study reported in the Chicago Tribune published June 9, 1991. The use of life-safety bonds, it continued, "has evolved into an almost unlimited checking account for school districts . . . a financial shell game."
The cost of life-safety bonds to taxpayers in the 1980's in Cook County and the 5 collar counties alone has been $1 billion, Table 2.
A Decade of Abuse: Life-Safety Bonds Expenditures by Public Schools 1980 to 1990 in Cook County and the Collar Counties
Cook County $500 million
DuPage County 157
Lake County 121
Kane County 96
Will County 86
McHenry County 30
OTHER TYPES OF NRBs
Life-safety bonds were the first type of NRB allowed in Illinois. Subsequent legislation permitted other taxing districts to issue bonds without referendum approval. From municipalities to counties, park districts to sanitary districts, taxing districts throughout Illinois can now borrow money without voter approval. Table 3 provides examples of some of the types of borrowing allowed by Illinois law. As can be seen, NRBs can pay for many items such as the easy-to-understand "working cash funds." Other uses require a careful reading of the law by an expert, such as "teachers' orders and claims."
PARTIAL LIST OF BONDS THAT CAN BE ISSUED WITHOUT REFERENDUM
* life safety
* working cash funds
* revenue bonds
* pay unpaid tuition claims or other claims against a non-high school district resulting from delay in collection of property taxes caused by reassessment
* teachers' orders and claims that may exceed statutory debt limit
COMMUNITY COLLEGE DISTRICTS
* working cash funds
* transfer of the leftover portion of previous borrowings to those funds having "nearest relation" to purpose of original borrowing
* sell land purchased with previous borrowing but now deemed unsuitable and use part of proceeds to retire other bonds
* teachers' orders and claims that may exceed statutory debt limit
* economic development projects
* redevelopment projects
* acquire or construct and operate a harbor project
* acquire and purchase or improve natatoriums or swimming pools, tennis courts, handball, racquetball or squash courts, artificial ice skating rinks, or golf courses
* acquire land for, or construct, an airport
* purchase or lease an existing waterworks or sewage system
* Springfield metropolitan exposition and auditorium
TAX INCREMENT FINANCING (TIF) DISTRICTS
* project costs
* revenue bonds authorized by township ordinance
* construct or improve tuberculosis sanitarium
* construct, expand, or remodel a county jail and sheriff's residence
* economic development project area
* zoo improvements and construction
* acquire, construct, extend, or improve a swimming pool or artificial ice skating rink and facilities
* acquire, construct, extend, or improve a golf course and facilities
* acquire, construct, extend, or improve tennis courts, handball, racquetball, or squash courts, or zoos and facilities
* acquire, construct, extend, or improve indoor or outdoor recreation facilities
* acquire, construct, enlarge, improve, or operate a harbor for the benefit of the public
* construct and improve aquariums and museums
RIVER CONSERVANCY DISTRICTS
* acquire land for, or construct, river conservancy project
* acquire, construct, purchase, improve, or extend waterworks
* acquire, construct, purchase, improve, or extend drainage systems
* control, prevent, and abate pollution of the streams, lakes, ponds, and other waters
TAX CAPS GUTTED BY SB 368
The tax cap legislation of the early 1990's limited annual spending increases to the lesser of 5% or the rate of inflation, unless voters approve a higher increase. It also required voter approval to issue new bonds. SB 368, however, allows taxing districts, as bonds expire, to borrow the same amount without having to worry about tax caps or voter approval. More precisely, under SB 368, the taxing districts can issue bonds without referendum as long as the debt service does not exceed the level of debt service in 1994.
In other words, if a taxing district had no debt in 1994, it had no base for future bond issues. As a result, while SB 368 was being debated taxing districts passed referenda to issue bonds in anticipation of passage of the law. As the Chicago Tribune reported in October, 1994, "taxing bodies fill up on pre-cap debt."
Under SB 368, a taxing district can actually levy tax increases greater than allowed by tax caps. For example, if a unit of government had a 1997 levy of $10 million, and inflation was 3%, then under tax caps they could only increase their levy in 1998 to $10.5 million. If, however, they had a $2 million non-referendum bond that had not been retired before 1994 and that resulted in debt service of $300,000 in 1994, they could issue a new bond and ask the taxpayers for up to $300,000 in debt service in 1998. In effect then, their budget for 1998 could be $10.8 million, an 8% increase. This is why tax-reform advocates such as Rep. Cal Skinner Jr. (R-64, Crystal Lake) state that SB 368 "gutted" the tax cap legislation and led to the largest tax increase in the history of the State of Illinois.
WHO ARE THE SPECIAL INTERESTS BEHIND THE PROPERTY TAX INCREASE?: THE LAW FIRM OF CHAPMAN AND CUTLER
The proliferation of NRBs was halted by tax cap legislation in Cook County and the collar counties in the early 1990's. SB 368 reversed that feature of the legislation.
As the opening paragraph of an article in Crain's Chicago Business read, "Springfield legislators know it as Senate Bill 368. But La Salle Street wags call it the Chapman and Cutler Partners Income Stabilization Act." The tax cap legislation was not only holding back the spending of taxing districts, but was also squeezing the profits of the Illinois bond community, especially Chapman and Cutler. This Chicago law firm provides legal opinions for more than half of the bonds issued in Illinois.
In many instances the fees paid to the law firm, banks, or consultants which draft the bond issue comes directly from the money borrowed. Although this is not always stated explicitly, some of the borrowed money goes to pay these fees. The statute governing borrowing by Municipal Joint Action Water Agencies (5 ILCS 220/3.1), for example, states that some of the borrowed money is used for "paying financial, legal, administrative and other expenses of the authorization, issuance, sale or delivery of bonds or notes."
Under tax caps, Chapman and Cutler had lost millions of dollars of fees. Of its $82 million billing reported in 1993, one-third came from bond work, but by 1995 bond issuance was reduced by 50% in Illinois. That equates to a loss to Chapman and Cutler of $14 million in just two years. Chapman and Cutler fell off the annual ranking by American Lawyer of the nation's top 100 law firms by gross revenue.
To permit NRBs despite the tax cap law, Chapman and Cutler introduced a new tax-increase device to Illinois, "limited tax bonds." These have the requirement of a base year for debt service and their introduction was a critical element of SB 368.
To obtain the passage of SB 368, Chapman and Cutler, in particular Kelly Kost, the Chapman and Cutler attorney who wrote the legislation, forged an alliance between obvious partners. These were Chapman and Cutler, the Illinois Municipal League, the Illinois Association of School Business Officials, and the Illinois Association of Park Districts. They were joined by the wolf in taxpayer-sheep's clothing, the ill-named "Taxpayers' Federation of Illinois." Banks and investment bankers also gathered to feed off what remained of taxpayers pocketbooks.
No wonder a press release dated May 30, 1995, issued by the firm stated gleefully: "The Illinois Municipal Attorneys of Chapman and Cutler are proud to announce the passage . . . of the . . . committee Report on Senate Bill 368.. . . The legislation will become effective upon signing by Governor Edgar.. . . Passage of Senate Bill 368 was made possible only by the extraordinary, concerted lobbying effort of all of the local government associations, the Taxpayer's Federation of Illinois and members of the Illinois municipal bond community. [emphasis added] Special mention should also be made of the legislation's sponsors, Representative Jack Kubik and Senator Aldo DeAngelis."
Chapman and Cutler's role, particularly that of Kost, cannot be minimized. The firm wrote the law, lobbied for its passage, advised taxing districts on its implementation, and are its major financial beneficiary. To taxing districts, they are heroes. In any other context, this might be considered conflict of interest worthy of judicial scrutiny.
WHO ARE THE OTHER SPECIAL INTERESTS BEHIND THE PROPERTY TAX INCREASE?
Chapman and Cutler and investment banker William Blair and Company joined forces to encourage taxing districts to prepare for the issuance of the new limited tax bonds. In a letter faxed to Stevenson High School District #128, and obtained by the ITEF, Elizabeth Hennessy of William Blair outlines for the High School some of the factors involved in obtaining bond issues: "After further discussion with Chapman and Cutler, it appears that we will have to change the allocation methodology used to separate the District's 1993 referendum and refunding bond issue . . .. The Governor [Edgar] is expected to sign Senate Bill 368 into law very soon. Please let me know what other information is needed for the presentation on August 8th."
The eagerness of William Blair for this business is clear from another letter to Stevenson High School dated June 2, 1995. After noting that Stevenson's tax levy for non-referendum debt service in 1994 is $5.5 million, Hennessey notes, "The limiting levy is for only non-referendum bonds, which means the District's $25 million approved by referendum cannot be included." She then writes that even that can be circumvented because that $25 million bond included a re-funding of other non-referendum bonds to the tune of $6.2 million. [emphasis added]
The banks who earn taxpayer-paid interest on the bonds were also behind the passage of SB 368. Northern Trust Bank, in particular, was well-positioned and well-informed of the progress of the passage of SB 368. The CEO of Northern Trust lobbied Gov. Edgar for passage of SB 368.
In a letter addressed to John Meredith, Superintendent of Fenton High School District #100 in Bensenville, and obtained by the ITEF, Daniel Denys and Allan Ambrose of Northern Trust wrote: "The proliferation of tax caps in Illinois has provided public administrators with new challenges. Enclosed is a summary of Senate Bill 368.. . . The Northern would welcome the opportunity to meet with you to discuss your particular needs and the issuance of debt pursuant to Senate Bill 368. The Northern's bankers have historically provided its clients with creative timely solutions . . . [and] may be able to provide you with immediate access to needed capital through the . . . use of innovative tax levy management techniques." [emphasis added]
At least one public university also saw a chance to pocket some change. Chapman and Cutler, the banks, and Northern Illinois University organized workshops describing how to issue SB 368 bonds. In letters sent to school bureaucrats by NIU, "Superintendents, Business Managers and others in Cook and Collar Counties interested in learning about Senate Bill 368" were invited to pay the registration fee for programs offered in July, 1995. The presenters were Lynda Given and Kelly Kost of Chapman and Cutler, Jane Spirgel of Banc One Capital Corp., and Ernest Tonelli of Frankfort CCSD. As an added bonus, NIU provided Continuing Education Credit units to those bureaucrats attending. The facilities of NIU, a public university, are paid for by taxpayers.
The business of harvesting taxpayer money continues in downstate counties where tax cap legislation is being discussed. According to documents obtained by the ITEF, Ms. Given and Ms. Spirgel have addressed downstate school district officials on these issues, and emphasized that the districts should extend their debt service base as high as possible in anticipation of tax cap legislation. Such meetings serve, in their own terms, as a "call to action." The meetings encourage school administrators and teachers to mobilize parents in a state-wide lobbying effort to prevent the tax caps.
THE COST TO TAXPAYERS OF NON-REFERENDUM BONDS
SB 368 was sponsored in the Senate by Sen. Aldo DeAngelis (R-40, Chicago Heights) and in the House by Rep. Jack Kubik (R-43, LaGrange Park) and Flora Ciarlo (R-80, Steger). Examples of the additional property taxes that property owners will have to pay for new spending over the life of the NRBs passed in 1995 include:
* Cook County: $34.4 million for Palatine High School District #211, $9.5 million for Wheeling Elementary School District #21, and $6.8 million for Worth Elementary School District #127
* DuPage County: $4.2 million for Village Park High School District #88 and $3.5 million for Bensenville Elementary School District #2
* Lake County: $15.4 million for Grays Lake High School District #127
* Will County: $16.1 million for Crete Unified School District #201 and $6.6 million for Joliet School District #86
* Kane County: $8.1 million for Geneva School District #304, $8.3 million for the Batavia Park District, and $7.2 million for the Geneva Park District
With the passage of SB 368, taxing districts aided by Chapman and Cutler and William Blair and Company rushed to issue bonds in 1994 to provide their base for future NRBs. Because of the issuance of these new bonds alone, $34.0 million will be paid by taxpayers in these counties on their 1996 tax bills, Table 4. Over the life of these bonds issued in 1995 alone, these taxpayers will feel the burden of a total of $192.0 million.
Similarly, an increased burden on taxpayers resulted from NRBs passed in 1996. Some notable examples are:
* Cook County: $20.6 million for Elmwood Park School District #401, $17.3 million for Morton High School District #201, $15.1 million for Thornton High School District #205, $13.8 million for Arlington Heights High School District #214, and $13.7 million for Palatine Township School District #15
* DuPage County: $23.8 million for Community High School District #99, $9.6 million for Queen Bee School District #16, and $9.4 for Marquardt School District #15
* Lake County: $39.7 million for Waukegan School District #60 and $29.0 million for Stevenson High School District #125
* Will County: $16.1 million for Crete Unified School District #201 and $6.6 million for Joliet School District #86
* Kane County: $6.9 million for Aurora East Unified School District #131 and $6.8 million for the Barrington Public Library
Because of the issue of NRBs in 1996, an additional $61.5 million will be paid by taxpayers in these counties on their 1997 tax bills. Over the life of these NRBs, the taxpayers will feel the burden of a total of $656.3 million. Together, the NRBs passed in 1995 and 1996 will cost taxpayers a total of $848.4 million, nearly $1 billion dollars resulting from issues of NRBs in only two years!
The truly disheartening fact apparent from these figures is that the amount of taxes payable over the life of the NRBs issued in 1995 and 1996 increased at a prodigious rate, as much as a factor of 4 to 7 in some counties, corresponding to 300% to 600%! Figure 1 shows the steepness of these tax increases. Only in Kane County did a decrease occur, the result of Geneva taxing districts having temporarily satiated their thirst for increased taxpayer money. As more and more business managers learn of NRBs and the bond community, particularly Chapman and Cutler, educate more taxing districts of their use, tax advocates expect these expenditures to accelerate further.
Tax Bill Effects of 1995 and 1996 Non-Referendum Bonds
(all dollar figures in millions)
County Increases in 1996 Tax Bill Total New Taxes*
Cook $19.1 $79.9
Will 6.2 35.0
DuPage 5.2 14.6
Lake 2.1 27.4
Kane 1.9 28.5
McHenry 1.5 11.5
1995 Totals by Type of Taxing District for Cook and Collar Counties
Conservation Districts 0.37 (1.1%) 8.4 (4.4%)
Municipalities 0.14 (0.4%) 2.61 (1.4%)
Parks 13.8 (40.5%) 42.4 (22.1%)
Schools 19.7 (58.0%) 138.7 (72.2%)
County Increases in 1997 Tax Bill Total New Taxes*
Increases over 1995 of Total New Taxes
Cook $30.9 $226.8 184%
Will 14.8 237.1 577
DuPage 9.1 91.9 529
Lake 10.1 106.4 288
Kane 0.8 13.7 -52
McHenry 3.1 14.6 27
1996 Totals by Type of Taxing District for Cook and Collar Counties
Libraries 0.56 (0.9%) 6.8 (1.0%)
Municipalities 1.3 (2.1%) 37.9 (5.8%)
Parks 17.4 (28.3%) 56.7 (8.6%)
Schools 42.2 (68.6%) 554.9 (84.5%)
1995-1996 Totals by Type of Taxing District for Cook and Collar Counties
Conservation 0.37 (0.4%) 8.4 (1.0%)
Libraries 0.56 (0.6%) 6.8 (0.8%)
Municipalities 1.5 (1.5%) 40.5 (4.8%)
Parks 31.2 (32.7%) 99.1 (11.7%)
Schools 61.9 (64.8%) 693.6 (81.8%)
Total New Taxes Resulting from NRBs issued in 1995 and 1996 $848,359,991
*Taxes to provide debt services over the lifetime of the bonds.
HOW TO PLACE ISSUANCE OF "NON-REFERENDUM BONDS" BEFORE THE VOTERS
Although it is not commonly known, in most cases (life-safety bonds being a notable exception) taxpayers can in fact force the taxing district to seek voters' approval for the issuance of a NRB. The taxing district must publish a legal notice announcing its intention to issue the bond. For this reason, it is important either to have representatives at the various board meetings in your community, or to read the legal notices section of your local papers regularly.
To put the NRB on the ballot, properly notarized petitions containing a certain percentage of the registered voters of the district must be presented to the taxing district within a certain period of time after publication of the legal notice.
What results is the so-called "back door referendum": The submission of a public question to the voters of a taxing district which was initiated by a petition of the voters.
One problem in placing a back door referendum on the ballot is that the number of signatures required differs widely. It is also difficult to determine just how many signatures are needed. Percent requirements vary from 5% to 15%. The base can be the number of voters who voted in a particular past election, or the "number of registered voters" as of some unannounced date. In some cases, the signature requirements are either percentages of voters or specific numbers of voters. A favorite statute is the Local Government Debt Reform Act (30 ILCS 350/15) which provides a signature requirement of "(i) 7.5% of the registered voters . . . or (ii) 200 of those registered voters or 15% of those registered voters, whichever is less." In some cases the only guide is "the general election law." Such confusion, gobbledygook, and ambiguity works against taxpayer groups wishing to follow the law and place a referendum on the ballot.
In the case of schools, to place the issuance of life-safety bonds, working cash funds, and revenue bonds on the ballot, the signature requirement is 10% or more of the registered voters. A large portion of the money raised by NRBs is for these items.
Senate Bill 373 was introduced in 1997 to standardize the signature requirements for back door referenda. If passed, the signature requirement would be 5% of the number of voters in the district who voted in the last U.S. Presidential election. This simply stated condition would be of great aid in simplyfying the process for taxpayer groups. As one prominent taxpayer advocate said, "If they standardize the requirements, how will the crooks be able to steal their money?"
The number of days after publication of the legal notice announcing the intention to issue a bond by which the petitions must be presented also can vary. SB 373 would also standardize this to 30 days.
No attorney is needed to construct the petition. They must be provided by law to any voter upon request to the taxing district. The form of these petitions is similar to that of petitions for candidates running for public office.
Because you can expect the taxing district to carefully examine the petitions, exercise care in their preparation. Provide a cover sheet, noting the number of signatures and the number of petition sheets being presented. Provide the name of the person presenting the petition and attach an affidavit or certification that the petitions were presented by that individual to the taxing district on such and such a date.
The petitions must be numbered sequentially and bound securely at the top. A pair of brass fasteners will do the job. Be certain that each circulator is in fact a registered voter in the district. The address for the circulator given must match that on his voter's registration. A business address, temporary address, or P.O. Box will not do.
It is essential to have the voters sign their name in cursive rather than print them. If the cursive signature is illegible, have the voter print his name above the signature on the petition. Because some of the signatures you provide may be challenged as valid, it is best to obtain more than the number required. Getting half again as many or twice as many signatures as required are rules of thumb used in political life.
After you have gathered your signatures, make a copy of the petitions and cover sheet for your organization. This is important for verification that they were properly prepared and for your reference in case some of the petition signatures are challenged as being valid. They also will be the beginning of a database for your campaign to defeat the tax-increase referendum. When you deliver the petitions to the officials of the district, be sure to get a receipt.
HOW TAXING DISTRICTS TRY TO PREVENT BACK DOOR REFERENDA
Taxing districts frequently will time their request for a NRB to make it difficult for taxpayer opposition. It has become commonplace in Illinois for the publication of the legal notices to appear around Thanksgiving. With the cold of winter approaching and many families busy with holiday events and vacation planning, taxpayers have difficulty organizing and gathering signatures.
For example, Oak Park-River Forest High School District #200 published a legal notice of a $4.8 million bond proposal on October 31, 1990. This required voters to gather 3609 signatures by the Wednesday following the long Thanksgiving-weekend holiday.
A more insidious strategy to ensure no opposition to a NRB was illustrated in November, 1990. Two weeks before the publication of the above District #200 bond proposal, River Forest Elementary School District #90 published their legal notice of a $1.85 million bond issue. Placing this on the ballot required 736 signatures to be gathered by November 16. Faced with a double whammy, voters in the overlapping districts failed to gather enough signatures to place either bond issue on the ballot.
This illustrates the collusion between overlapping school districts that exists to aid each other in getting NRBs through the "back door." Preventing such tax-increasing acts is a strong argument for unification of school districts.
As another example, Grayslake Community High School District #127 published their legal notice in late November, 1995. Because of the cold weather and Holiday events, taxpayers in that district could not mobilize to get the required 1158 signatures.
Taxpayers must pay special attention to the activities of taxing districts during the months of October and November.
CASE STUDY: GRAYSLAKE SCHOOL DISTRICTS
The recent experience in Grayslake (Lake County) of a taxpayer advocate group will demonstrate some of the difficulties faced in forcing the issuance of an NRB onto the ballot.
Grayslake Elementary School District #46 published their legal notice for a bond issue on March 9, 1996, for $3.0 million for a building fund bond. A group, led by tax-reform advocate Ross Goodrich, obtained 685 signatures, more than the 606 needed to place the issuance of the bond on the ballot.
School district officials, however, challenged the validity of the petitions because one of the circulators gave a storefront as her address. If her sheets were declared invalid, 147 signatures of the 685 obtained would be thrown out, and the total would be below the required 606. The local electoral board, composed of the school board President, Secretary, and longest-serving board member, ruled predictively that the petitions were invalid.
The taxpayer group took the case to the Lake County Circuit Court. The petition circulator was indeed registered at the address given, as was her husband. In fact, the family, composed of the couple and their four children, have two homes. One is a stand-alone structure and the other is in the rear of the store. The latter home has full living quarters, including laundry, garage, and back yard. The circulator told the ITEF that the family sleeps in that home more than half the time and considers it their primary residence.
The taxpayer group fully expected the court to reverse the electoral board decision. They appeared before Hon. Patrick N. Lawler. The first indication that something was amiss was that no court reporter was present. If the decision went against them, an appeal would require a record of the proceedings.
The second indication was that the judge would not receive the taxpayer group's exhibits showing the petition circulator to be a properly registered voter at the second residence.
As the defeated taxpayer group left the courtroom, the secretary of the school board, an elected official with a fiduciary mandate to represent all the voters of the district, said to the taxpayer group leader, "Ha ha, we won and you lost." This is the arrogant fuel that is driving the taxpayer revolt nationwide.
When the taxpayer group considered an appeal, they realized that the high school district had already achieved at least part of its goal. Even if Lawler's unjust decision could have been reversed, the tax-reform group had expended much energy in the ballot challenge. This dissipated the interest and commitment of some of its members to the real battle ahead of defeating the tax-increase referendum. Some legal costs were incurred. It is always best to have an attorney in your group simply to prevent these costs if they arise.
Of course, the travesty would have not occurred if the taxpayer group had obtained 50% or 100% more signatures than required.
WHAT SHOULD BE DONE
A number of actions can be taken to reduce or eliminate the burden of NRBs on taxpayers. First, SB 368 can be reversed. House Bill 2520, sponsored by State Rep. Al Salvi (R-52, Wauconda) in last year's legislative session, proposed this but was not passed. In the current session, House Bill 2110, sponsored by Rep. Cal Skinner Jr. (R-64, Crystal Lake), would have the same effect.
Passage of SB 373 would standardize the number of signatures needed to place the issuance of a NRB on the ballot for voter consideration. It would standardize the period of time after publication of the legal notice by the taxing district by which the petition requesting a back door referendum must be delivered.
Third, the number of signatures required to place a NRB on the ballot as a back door referendum can be reduced to a number comparable to that required for candidates running for public office. For example, in a high school district serving 70,000 citizens, the number of signatures currently required to place some school-related NRBs on the ballot is about 3500 whereas the number of signatures required to run for a seat on the board of education is 50!
Fourth, the time period required can be extended to that required for candidates running for public office. A candidate for office can circulate nominating petitions for 90 days before the beginning of the week-long filing period. Even under SB 373, however, only 30 days would be allowed after the publication of the legal notice to present the petition for a back door referendum.
With regard to life-safety bonds, specifically, they should first of all be made vulnerable to back door referenda. Second, the amendments which have extended the application of the initial 1959 law to non-life-safety expenditures and encouraged its abuse should be repealed. Fire exits, yes; curtains in the superintendent's office to prevent sunburn to visiting students, no. In this context, the legislation should be extended to Chicago public schools. This is only fair. After all, students in that city should be protected as well as those elsewhere in the state. (The abuses which have occurred elsewhere would most likely also occur in Chicago. A loud howl of protest might arise demanding for the above-suggested revisions of the law.) Fourth, a licensed architect should be required to certify that a proposed life-safety expenditure is in fact directly applicable to genuine life-safety issues. In this way, because the architect would be susceptible to discipline by his regulatory commission resulting from citizen complaint, abusive spending would be curtailed.
Dr. Les "Cut the Taxes" Golden holds graduate degrees from Cornell University and the University of California at Berkeley, with additional study on fellowship at Northwestern University's Kellogg Graduate School of Business, is a past fellow of the Institute for Economic Research (Great Barrington, Mass.) and the National Research Council/National Science Foundation, and teaches at the Graduate School of Business of Roosevelt University and the University of Illinois at Chicago. In 1996, "Cut the Taxes" was the overwhelming favorite to win the Republican nomination for Congress from the 7th Congressional District until removed from the ballot by Cook County Circuit Judge Raymond Jagielski for use of his nickname. (Judge Jagielski faces the voters for retention election in 1998.)
Les "Cut the Taxes" Golden holds the B.S. and M. Engineering Physics degrees from Cornell University and the M.A. and Ph.D in Astrophysics from the University of California at Berkeley. He is a former fellow of the Institute for Economic Research (Great Barrington, Mass.) and the National Research Council/National Science Foundation. A charter member of the Board of ITEF, Mr. Golden is an Adjunct Professor of Management Science in the Roosevelt Graduate School of Business, a visiting lecturer at the University of Illinois at Chicago, and has written extensively on election and referendum law. Winner of the 1991 Distinguished Leadership Award from NTUI, he was President of Citizens Active for a Responsible Electorate in Oak Park, Suburban Coordinator of the Alliance of County Taxpayers (ACT), and currently heads the National Taxpayers United of Oak Park. He has been elected to Tau Beta Pi, Phi Beta Kappa, Pi Delta Epsilon, and Marquis Who's Who. A professional actor as well, he is a member of the Screen Actors Guild and the American Federation of Television and Radio Artists.
In 1995, he was a candidate for the Board of Oak Park-River Forest High School District #200 until he was removed from the ballot by the School's Electoral Board for use of his commonly known nickname "Cut the Taxes." One of the members of the Board was himself a candidate for the School Board. In 1996, he was the front-running Republican primary candidate in the 7th U.S. Congressional District until he was removed from the ballot by a Cook County Electoral Board and Cook County Circuit Judge Raymond Jagielski, again for use of his nickname "Cut the Taxes." (Judge Jagielski faces the voters for retention election in 1998.) Golden was nominated by Chicago and Suburban Cook County Republican Committeemen to appear on the ballot as the Republican candidate for State Representative from the 8th District (west side of Chicago, Galewood, Oak Park) in the November, 1996, election.
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