DEBT SERVICE OPTIONS FOR ILLINOIS MUNICIPALITIES

General Obligation Bonds – The Illinois Municipal Code requires that General Obligation Bonds secured by a direct unlimited ad valorem property tax must be approved by the voters. The debt limitation for municipalities is 8.625% of the equalized assessed valuation (EAV) of the municipality. General obligation bonds are generally subject to the debt limitation. Under the Debt Reform Act, whenever a municipality is authorized to issue bonds (defined in the Debt Reform Act to include any instrument evidencing the obligation to pay money) without referendum, the municipality may add issuance cost (including underwriter’s discount, bond insurance or other credit enhancement costs) to the estimated project. The municipality may pay such costs from bond proceeds. The Municipal Code provides that certain general obligation bonds, including the following may be issued without referendum:

• Bonds to refund existing indebtedness;
  
• Bonds to fund or refund judgment indebtedness;
  
• Working cash fund bonds; Bonds issued by a municipality when ordered to abate pollution under the Environment Protection Act (EPA);
  
• Bonds issued for the acquisition, construction, or improvement of water or wastewater treatment facilities mandated by a compliance order issued by the United States Environmental Protection Agency of the Illinois Pollution Control Board;
  
• Bonds issued under Section 8-5-16 of the Municipal Code so long as such bonds, together with the other bonds issued and outstanding under that Section, do not exceed one-half of one percent of the equalized assessed value of taxable property within the municipality.

Alternate Revenue Bonds – Alternate Bonds must be issued for a lawful corporate purpose. They do not constitute debt for the purpose of any statutory provision or limitation unless taxes, other than a designated revenue source, are extended to pay them. The revenue must be pledged to the payment of the alternate bonds by the Municipality. The bonds are also payable from a full faith and credit tax levy. The intent is that the revenue source will be sufficient to pay the bonds so that the taxes need not be extended for their payment. The issuance of alternate bonds must be approved by referendum if the requisite number of voters in the Municipality files a lawful petition with the secretary of the board within 30 days following the publication of the Municipality’s intent to issue the bonds. Pledged revenues should be equal to or greater than 1.25% maximum annual debt service.

Debt Certificates - A Municipality may issue certificates evidencing the indebtedness incurred under a lease or installment purchase agreement for a period of no more than 20 years. From time to time, as the Municipality governing body (the “governing body”) executes contracts for the purpose of acquiring and constructing the services or real or personal property that is a part of the subject of the lease or agreement, including financial, legal, architectural, and engineering services related to the lease or agreement, the governing body shall order the contracts filed with its nominee officer, and that officer shall identify the contracts to the lease or agreement; that identification shall permit the payment of the contract from the proceeds of the certificates; and the nominee officer shall duly apply or cause to be applied proceeds of the certificates to the payment of the contracts. All indebtedness incurred under such debt certificates, when aggregated with the existing indebtedness of the Municipality, may not exceed the Municipality’s debt limits provided by applicable law.