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-tVI Cities Bulletin ONLINE EDITION Concerns about impact of governor's levy limit plan, Senate freeze for capital projects Issue 11 March 19, 2003 By GaOLGf!dii.Qfl, Tom Grundhoefer. 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 ifthe 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, if a 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 extraordinary 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.