McHenry County Blog

Dave McSweeney

State Rep. David McSweeney passed his House Bill 383 yesterday by a vote of  101-6-2.

Here’s the amended version of the bill:

Amends the Local Government Debt Reform Act.

In a Section concerning alternate bonds, provides that, in governmental units with fewer than 500,000 inhabitants, the petition for a backdoor referendum must be filed with the clerk or secretary within 45 days of publication of the authorizing ordinance and notice.

Provides that, in governmental units with fewer than 500,000 inhabitants, the petition must be signed by the lesser of

1. 5% of the registered voters or 5,000 registered voters in a governmental unit with more than 4,000 registered voters, and
2. 15% of the registered voters or 200 registered voters in a governmental unit with 4,000 or fewer registered voters.

5,000 signatures or 5%, if that is a lower number, is way too high, but in the Illinois General Assembly sometimes one must take baby steps.

Increasing the time period from 30 to 45 days is a step in the right direction.

In any event, after the upheaval on the McHenry County College Board, taxpayers don’t have to worry the reconstituted MCC Board will try to shove a huge bond issue down residents’ throats.

For $35 you can meet and mingle with those who support Lakewood’s Tom Wilbeck for McHenry County College Board.

On his invitation, Wilbeck stresses,

“Tom is opposed to MCC issuing bonds for expansion without voter approval.”

The event will be held at the London Club, which is across the street from 1776, on March 14th.

Details are below:

The top of the Jan. 30th Tribune article.

David McSweeney knows how to pick ‘em.

And Jack Franks has been a master of gaining publicity for virtually his entire 14-year legislative career.

McSweeney came up with the idea to reform the alternative revenue bond process and had a bill drafted.

The changes he proposes and Franks buys into would give the taxpayer s of McHenry County College a change at defeating ill-conceived projects like the minor league baseball stadium and the proposed health club at the ballot box, rather than paying higher taxes for a couple of decades if the revenue stream identified to pay off non-referendum bonds turns into a trickle.

For those who don’t dip into McHenry County Blog that often, alternative bonds are a method approved by a previous state legislature that allow government entities, such as Lakewood with its early 1990′s golf course purchase, to borrow money for projects without going to referendum.

The premise in Lakewood’s case was that golf course revenues would pay off the bonds.

And who came up with the projections?

It was a golf course management company with no skin in the game.

I feel so personally involved because I and other Lakewood homeowners paid 53% of the cost of an amenity which I have never used.

The alternative bond document forced subsequent village trustees to flay repayments off the hides of us taxpayers.

McHenry County College is now trying to do this in order to build a health club and classrooms.

That addition space will cost a lot more than the now-re-named RedTail Golf Course, although the price per homeowner, if muscled through by the MCC Board and the revenue projected by the health club operator company Power Wellness don’t pan out, would probably be far less than the $500 a year that I remember paying.

There is currently a way that taxpayers can force a referendum when a taxing district like McHenry County College decides to borrow money without asking voters for permission, but the number of signatures needed on a petition is virtually impossible to gather.

In MCC’s case, state law now says that signatures of 7.5% of the registered voters must sign the petition.

That’s 7.5% of 182,766 voters.

Multiply that out.

My hand multiplication tells me that’s 13,709 signatures.

A bit more than the 500 that Jack Franks had to gather to put the County Executive referendum on the ballot, so he can certainly understand the statutory hurdle of those wishing to stop their tax bill from going up because of alternative revenue bonds.

The McSweeney-Franks bill would lower the petition signature number to 5% of the voters or 500 signatures, whichever is less.

The legislative proposal would also increase the length of time to gather those signatures from 30 to 90 days.

That would at least give the taxpayers a chance if the junior college decides it wants to borrow over $40 million without asking voters’ permission.

Besides the Tribune article on Wednesday and mine on Tuesday, the Northwest Herald has one today.

While the Tribune did not make the McHenry County College connection, the NWH did in its first sentence:

“Legislation filed this week in Springfield could make it harder for McHenry County College to fund its proposed expansion.”

And, the sub-headline reads, “The locally sponsored legislation could affect MCC plans.”

The article even mentions RedTail Golf Course.

The Crystal Lake Park District regularly sells bonds without a referendum. That’s how the West Beach House was financed. There are two seats on the Park Board which have no candidates. Two write-ins could win, but candidates have to register their intention to run. Email me if you are interested.

And a commenter under the article “Patrick F” of Cary points out that the Cary Park District was planning to buy a golf course (its second) with bonds not approved by voters.  (I believe he is mixing up the power that all park districts and other local tax districts that had non-referendum bonding in 1994–may be a year off.  State legislation I actively opposed allowed those with unpaid non-referendum bonds to forever use the amount being paid back in the year in question to finance new borrowing without voter approval.  That is how the Crystal Lake Park District is financing its new West Beach House.)

See articles summary of Tribune articles about what happened to Lakewood homeowners here:

• Lakewood Red(Ink)Tail Golf Club Alternative Revenue Bond Failure Featured in Chicago Tribune – Part 1
• Lakewood Red(Ink)Tail Golf Club Alternative Revenue Bond Failure Featured in Chicago Tribune – Part 2

Tuesday’s McHenry County Blog article (“McSweeney and Franks Send Shot Across McHenry County College’s Bow) about newly-introduced House Bill 983 can be found here.

Part 2 of the Chicago Tribune said about Lakewood’s alternative revenue bond purchase of what is not called RedTail Golf Club:

Lakewood is featured as one of the villages

“where bets backfired on taxpayers…where taxpayers should have been protected form tax increases” but weren’t…where “taxpayers instead awoke to hikes they never approved, ones that even exceeded what the law normally allows.”

Lakewood did not make the front page of the story, but the financing of the golf course it bought is referenced on page 10.

The Red Tail Golf Course, financed by alternative revenue bonds not approved by the taxpayers, did not come with a permanent clubhouse. .

“That’s how taxpayers is upscale Lakewood in McHenry County ended up paying for a golf course they were told wouldn’t cost a them a dime.”

Although I was not quoted in the story, I have replayed the interchange between the three residents and the then-village board several times to the current village board members.

There were three of us there.

Former Village Trustee Roger Reid said that he didn’t think it was the role of government to be in the golf club business.

Attorney Jim Bishop asked if board members knew that golf courses all over McHenry County were having financial problems.

I asked, “Is this ever going to cost me a dime?”

I was assured that it would not.

The breaching of that assurance undoubtedly explains my defense of the Property Tax Cap, which prohibited the issuance of bonds without a referendum.  (I lost the fight to keep that prohibition for park districts and you can see the most recent “need” determined by the Crystal Lake Park District at West Beach.)

A sports management company made the projections that the golf course in Lakewood would pay for itself.   The Tribune article explains,

“Some residents remained skeptical, including [former Village Trustee] Roger Reid, who recalls going with a small group to the Village Board meeting to ask for assurance that taxes would not go up because of the deal.

“‘We were assured–up and down and sideways–that, “This is not going to go on you tax bill,”‘ Reid recalled.

“Then residents were hit with the catch in the law:  If projections are off, taxes can go up.

“Turns out, the town’s projections were so far off that the golf course couldn’t even pay a penny toward its loan payment for six years.  And, by the time the bond was paid off two years ago, records show, 53 percent of it was paid off through higher taxes, not the projected golf course profit.”

The Tribune article points out that no state agency verifies financial projections that will be made by firms like Power Wellness, the health club firm McHenry County College hired to justify putting taxpayers on the hook for paying back tens of millions of dollars in projected borrowed money.

Although the Illinois Attorney General has authority to “advocate for taxpayers misled by the deals…the issue has never been raised there.”

No mention is made in this Northwest Herald article of the financial fiasco that occurred in Lakewood because of the use of alternative revenue bonds.  And there is no way to finance the MCC health club without going to referendum without using alternative revenue bonds.

= = = = =

If you into irony, the day after the Tribune article about the abuses of alternative revenue bonds ran, the Northwest Herald ran diminishing the dangers involved in using alternative revenue bonds.

On January 6, 2013, right on the top of the Sunday Chicago Tribune, there was an expose that should send warning flares up about the alternative revenue bonds that the majority of the McHenry County College Board seem set to issue.

The January 6, 2013, article by Joe Mahr and Joseph Ryan about small suburbs like Lakewood having made a decision that backfired on property taxpayers.

Alternative revenue bonds are ones ostensibly to be repaid by identified sources of revenue, for example in MCC’s case, an increase in student fees of $8 per hour, increased tuition from more enrollment and health club fees among other sources…

But, just in case, don’t you know, to be paid by property taxes if the projected revenues from the other non-real estate sources don’t bring in enough money.

The Tribune doesn’t look at junior colleges in its article. As the headline implies, it looks at “Small suburbs [that have] exploit[ed} tax loophole."

The sub-headline on the front page reads,

"Even in places where residents might expect tighter oversight, Illinois borrowing rules let towns sidestep voters, make decisions that can backfire on taxpayers"

McHenry County College taxpayers managed

• not to step in the Briar Patch when the Board wanted to borrow, without asking voters at the ballot box, $25 million to finance a minor league baseball stadium,
• but are facing a similar entangling long-term obligation in current Board members' desired to borrow, without voter approval, $45 million to build a health club and new classrooms (even while only using the classrooms 45% of the time).

Lakewood’s Red Tail Golf Course, purchased with revenue bonds which could not be repaid without forcing real estate taxes up.

The story describes alternative revenue bonds as a

“device that lets towns borrow in a way that sidesteps voters and property tax caps.

• The catch for towns:  They must be able to foresee paying off the loans without raising property taxes.
• The catch for residents:  If towns’ projections are wrong, taxes are automatically hiked to make the loan payments.

= = = = =

More tomorrow.

On January 7th, the Northwest Herald headline read, “MCC: No need to tap taxpayers,” The sub-headline read, “College says it won’t go to referendum for proposed expansion.”

Interpret this press release as you wish, but I think the bill is aimed at McHenry County College.

It could be aimed at abuses in Lakewood from over twenty years ago when the Village Board sold alternative revenue bonds to buy a golf course.

That abuse, in which Lakewood sold bonds backed by golf course revenues which fell 53% short of paying back the borrowed money, was featured, along with other similar, non-Home Rule municipal abuses in which villages made an end-run around taxpayers was featured in the Sunday Chicago Tribune on January 6th.

January 6th was one day before the Northwest Herald ran an article on its front page reassuring readers that tax dollars wold not be needed to pay for the proposed more than $40-plus million health club, et al.

In any event, here is the joint press release:

McSweeney-Franks Aim to End Alternate Revenue Bond Abuses

McHenry County –State Representative David McSweeney (R-Barrington Hills) and State Representative Jack Franks (D-Marengo) have filed HB983; a bipartisan effort to ensure greater fiscal accountability.

Recent press reports have exposed how the current alternate revenue bond law has facilitated risky deals that have resulted in increased local taxes.

If passed, the new legislation would address the ease at which alternative revenue bonds are issued because the current process sidesteps taxpayers and property tax caps in many cases.

David McSweeney

“This is a common sense bill that allows taxpayers to more easily organize a referendum to oppose local borrowing proposals,” said McSweeney.

“We are talking about large sums of taxpayer money.

“Property taxes are skyrocketing while local governments keep borrowing for what they want and cannot afford.”

For alternate revenue bonds, HB 983 provides for measures to encourage fiscal responsibility by making the Chief Procurement officer [a state official] responsible for providing accurate information about how alternate revenue bonds would be paid off.

Local governments would no longer be able to use consultants to do this important work.

Revenues from the venture should be able to pay off 150% of the debt; this is being increased from 100%.

Finally, the bill extends the allowance for petition signatures for a backdoor referendum from 30 to 90 days and in order to initiate a referendum this bill would require the lesser of 5% (currently 7.5%) of registered voters in the governmental unit or 500 signatures of those registered voters.

The most significant change is to require only 500 signatures to initiate a backdoor referendum.

Jack Franks

“Municipalities have little oversight when it comes to borrowing millions of dollars which often times end up being a back door tax hike on residents, ” added Franks.

“Oversight needs to be put into the hands of the taxpayers. We must increase accountability for our taxing bodies and empower the taxpayers to serve as fiscal guardians.”

Rep. McSweeney is Chief Sponsor of HB983 and Rep. Franks signed on as Chief Co-Sponsor. The legislation was filed yesterday.

Moraine Valley Community College sold alternative revenue bonds a year ago to finance a health club and other structures.

I’m looking at the alternative revenue bond statement approved by bond counsel Chapman and Cutler.

How does the document say they will be paid off?

“…payable from

1. the construction/infrastructure improvement fee imposed upon students of the District (the “Improvement Fee”), wellness center membership fees and other lawfully available funds of the District (the “Pledged Revenues”); and
2. ad valorem property taxes levied upon all of the taxable property in the District without limitation as to rate or amount (the “Pledged Taxes” and together with the Pledged Revenues, the “Pledged Moneys”), and all taxable property in the District is subject to the levy of such taxes…

That’s pretty much what Power Wellness’ so-called feasibility study is pointing toward for McHenry County College’s $45 million health club and other additions.

Page 6 of the document puts it this way:

If student fees and health club fees are not enough to pay back the bonds, money will come out of the education fund. That means repayment of the alternative revenue bonds at Moraine Valley Community College would come before paying faculty.

Of course, Moraine Valley only borrowed $5.4 million, not the $45 million that McHenry County College officials are banding about..

No need to ask for voter permission for these alternative revenue bonds.

And the team in charge of the MCC Board won’t.

And that means that if the project is NOT self-supporting, then the current MCC board has to cut funds available for operating purposes — including teacher salaries — for the next 30 years!

This is a continuation of Stephen Willson’s critique of the $42 million health club/classroom expansion proposed by the McHenry County College Board.

Proposition 7: The program won’t raise tuition or property taxes.

Response: False. The program will raise both tuition and property taxes.

These financial assumptions were shown MCC board members.  Included us a new $8 per credit hour fee hike called a “student infrastructure fee.”

The proposal includes an $8 per hour “student infrastructure fee” for ALL students, an increase of 9% in order to finance this project, which will be used by only a small fraction of the College’s students.

This revenue is NOT a result of the new project at all, it’s just a price increase for all students. Calling this a “fee,” rather than a tuition increase is disingenuous at best.

The projected tuition for THIS program covers all operating costs despite the fact that tuition covers only 25% of the budget for all of MCC’s other programs.

If MCC can run this program so cheaply, then why aren’t all their programs paid solely from tuition?

Why do they need any property taxes?

The answer, of course, is that it is not possible.

There is not a community college in the nation where tuition covers more than a third of college operating costs.

No evidence is provided to explain this discrepancy.

The budget also projects millions of dollars from students and local families buying memberships at the big, new health club, with revenue growth rates of 45% and 30% in years two and three.

There is absolutely no evidence in the marketing presentation to support this conclusion.

Nor is there any discussion of competing local fitness centers or any evidence presented that there is substantial unmet demand for fitness centers in the Crystal Lake area, or that this facility will have any sort of competitive advantage.

The projections imply the new health club will take thousands of members away from competing area health clubs, such as Health Bridge.

Given how little the current health club at MCC is used, MCC’s own history contradicts this conclusion.

In short, taxpayers will be on the hook for the budget shortfall and the mortgage payment.

The annual debt service on a $45 million bond issue (which includes money to pay interest for the first two years) would be $2.7 million per year at current interest rates.

Proposition 8: MCC will not ask the voters to raise taxes.

Response: MCC wants to sell property-tax backed bonds without a referendum.

No suggested financing option involves voter approval.

The marketing presentation shows “alternate revenue” bonds being sold before the middle of next year.

“Alternate revenue bonds” are the same kind of bonds Lakewood used for their infamous, taxpayer supported golf course.

“Alternate revenue bonds” were designed to help communities fund capital projects for self-supporting utilities such as water and sewer systems.

The law was never intended for speculative programs such as this.

How can MCC plan to sell such bonds when there is obviously a very large risk that taxpayers will end up footing the bill?

The answer is that all they need to sell such bonds without a referendum is the opinion of a consultant that the program is likely to be self-supporting.

MCC has already found a consultant willing to issue a positive opinion, an opinion for which

• the consultant will bear zero financial liability,
• a consultant that has an obvious conflict of interest,
• a consultant with a strong, vested financial self interest in saying such the proposed program will be successful.

= = = = =
The following are running for the three open spots on the McHenry County College Board:

• William Scott Alford, Wonder Lake, received December 19
• Chris Jenner, Cary, received December 26, 2012
• Carol Larson, Harvard, received December 17
• Erik Sivertsen, McHenry, received December 26, 2012
• Mike Smith, Village of Lakewood, received December 17
• Molly Walsh, Crystal Lake, received December 21
• Barbara Walters, McHenry, received December 26, 2012
• Arne Waltmire, McHenry, received December 17
• Thomas Wilbeck, Lakewood, received December 26, 2012

Incumbents are Carol Larson and Barbara Walters.

Rest assured I shall ask each whether they will vote to sell bonds without asking voters for permission first.

= = = = =

See Part 1 here.

See Part 2 here.

See Part 3 here.

See Part 4 here.

The average water and sewer bill on the west side of Lakewood is $1,200 a year.

Erin Smith

By 4-3, the Lakewood Village Board gave first approval to issuance of up to $8.5 million in revenue bonds which the board majority clearly wants to be alternative revenue bonds instead backed by the general revenue of the village, e.g., revenue sharing, property and sales taxes.

The bonds will re-finance the newly-expanded waste water treatment plant at a lower interest rate, plus build a new 500,000 gallon water tower. Instead of being the current 15-year bond, the maturity will be stretched to 25 years.

The impetus for the action–a looming increase in water and sewer rates that were estimated at $209 year–required Village President Erin Smith to break a 3-3 tie.

Carl Davis

Gene Furey

John Burton

Trustees John Burton, Carl Davis and Gene Furey voted in favor.

Dorothy Pfeuffer, John Pfeuffer and Ken Santowsk were opposed.

After the tie breaking vote was cast by Smith, John Pfeuffer said, “Of course.”

That would be over a 17% hike to west side ratepayers who already have higher water and sewer rates than other towns in McHenry County.

Even with the change in financing and expected lower interest rate, homeowners will see an expected 8% cost increase ($96 per year). That does not include the cost of maintenance and depreciation.

Chief among the problems seems to be that enough new home tap in fees, upon which the financing of the 2006 sewer plant expansion was based, have not materialized.

John Pfeuffer

Dorothy Pfeuffer,

Ken Santowsk

While the bonds were premised on 26 new homes being constructed per year, with the fiscal year over April 30th, only two tap on fees have been collected so far this year.

Instead of increasing water and sewer fees when the shortfall happened, the board chose to take “substantial withdrawals from cash reserves in the past two years,” a January 8th memo from Finance Director Carole Robertson reported.

The preferred alternative revenue bonds have a potential property tax hike element.

The 2006 Series Bonds that are being refunded were also “alternative revenue bonds,” which could result in higher property taxes for all Lakewood property owners, if water and sewer fees on the west side of town are not raised.

The proposed Series 2010 “alternative revenue bonds” are expected to decrease the annual bond payments, thereby reducing the increase required in west side water and sewer fees. They would also fund the construction of a replacement water tower.

Passage of alternative revenue bonds is what happened when the village board purchased the Red Tail Golf Course with non-referendum bonds right before the Property Tax Cap took effect in the early 1990′s.

The failure of greens fees to provide enough money to pay off the 20-year bonds led to levies against all property in Lakewood. Our home’s tax bill was hiked some $500 a year for most of the 1990′s.

Residents who wish to take the issuance of alternative revenue bonds to referendum may do so by gathering something over 200 signatures within thirty days. Petitions may be obtained at the Lakewood Village Hall.

In encouraging news, it was revealed that Humana was willing to provide employee health coverage for 25% less than the current carrier. That amounts to $60,000.

“This is amazing to me,” said Village President Smith, whose day job includes employee benefit work for Motorola.

The program has no cost to employees, a point Trustee John Pfeuffer suggested be reconsidered, but does have a $1,500 deductible.

At tonight’s 7 PM Lakewood Village Board meeting, the following is on the agenda:

Motion to Approve Ordinance 2010-(04) – An Ordinance Authorizing the Issuance of up to $8,550,000 Waterworks and Sewerage Revenue Bonds (Sales Taxes and Revenue Sharing Receipts Pledge) and Alternate Revenue Source Bonds (In Lieu of Such Revenue Bonds) of the Village of Lakewood, McHenry County, Illinois, to Finance and Refinance Waterworks and Sewerage System Improvements.

It’s difficult to tell from what’s on the agenda, but, whenever I see the words “alternative revenue (source) bonds,” my memory starts twitching.

Another item of the agenda is the reason:

Motion to Approve Ordinance 2010-(03) – An Ordinance Abating Taxes Levied to Pay Principal of and Interest on Certain General Obligation Bonds (Alternate Revenue Source) Series 1998, of the Village of Lakewood.

Red Tail Golf Club Trailer Club House owned by the Village of Lakewood

Those “Alternative Revenue Source” bonds cost residents in the old part of Lakewood something like $500 a year during the 1990′s. The bigger homes paid a lot more.

They were issued to buy what is now called the Red Tail Golf Course.

When I, Roger Reed and Jim Bishop attended what we thought was the significant board meeting, we brought up three points.

Former Village Trustee Reed said that he didn’t think village government should be competing with private enterprise by being in the golf club business.

Attorney Bishop pointed out that golf courses throughout the area were in financial troubles and wondered why Lakewood would want to enter such a business.

I asked, “Is this ever going to cost me a dime?”

Board members assured me it would not because the borrowing would be a revenue bond, that is, it would be repaid from the revenue from the golf course.

But, later, some swifty bond salesman told the village board members that bonds backed by property taxes, as well as greens fees would come with a lower interest rate.

Big surprise there, right?

Or, as my 12-year old would say, “Dah?”

And the village board took the bait and issued revenue bonds backed by greens fees and, just in case – don’t you know? – if the greens fees weren’t enough to pay off the bonds, higher property taxes would fill in the void.

As far as I can figure out, the quest for a lower interest rate led the more current village board to agree to a similar arrangement a couple of years ago, when the sewage treatment plant was expanded.

Now, growth has slowed to a crawl and interest rates have fallen as well.

So, the question tonight is whether to pay off the current revenue bonds, backed by property taxes, just in case there is not enough sewer and water fees to pay off the current bonds, and issue new bonds—also with a property tax backup—but at a lower interest rate and stretched out 25 years, five more than originally.

And, the 1998 alternative revenue bond abatement?

With the economy the way it is, my guess is that the golf course tax will appear within next year’s Lakewood village real estate tax bill.