AN EXAMINATION OF THE LOCAL GOVERNMENT FINANCE STUDY COMMISSION RECOMMENDATIONS AND THEIR EFFECT ON PARK DISTRICTS

Robert F. Toalson
Executive Director, Champaign Park District

On April 1, 1981 the Local Government Finance Study Commission presented their initial report with recommendations for financing local government. It is important that park district commissioners and administrative staff members be aware of this report as implementation of the recommendations will directly affect the financing for park districts.

The study pointed out several problems facing local governments. The three most important problems were:

1. That approximately one-fourth of the local property tax base has been cut away by General Assembly action to provide for exemptions such as homestead exemptions or preferential assessments for farmland.

2. That due to the property tax exemptions and their complex nature the property tax cycle is running months behind schedule. The recent use of multipliers has also been a factor in pushing the cycle back. As a result many local governments have been forced into short term borrowing. In a survey of thirty counties in 1978 the short term borrowing by local governments and school districts amounted to well over seven hundred million dollars with an interest cost of $45 million. ¹

3. That the accessibility to credit markets by local governments is deteriorating as lending institutions are imposing an interst rate penalty due to the lack of generally accepted accounting standards by local governments in Illinois.

To overcome these problems the Commission has issued several recommendations for consideration by the General Assembly.

Two of the three primary recommendations will have an effect on park district. They are:

I. The Legislative should implement Article VIII, Section 4 of the 1970 Constitution to require local governments and school districts to develop systems of accounting, auditing and reporting.

II. Beginning with levies made in 1982 local governments and school districts should be required to use the second preceding year's equalized assessed valuation and to accelerate their cash flow by use of quarterly tax payments. ²

Park districts in general do a fairly good job with their accounting, auditing and reporting procedures. The publication, Simplified Financial Managment for Illinois Park Districts is a major help to districts in the area of budget and finance. The Commission does have a valid point when they point out that the current fiscal reporting documents such as the publication of the annual treasurer's report makes no sense to the taxpayer. They recommend that some form of annual report with a narrative statement summarizing the financial condition of the government body along with a report for the outlook for current and future operations be published.

The recommendation that will have the major effect on park districts is the assessed valuation recommendation. If instituted this recommendation would require that "beginning in 1982, the 1980 equalized assessed valuation plus 1981 new construction should be used as the base upon which the 1982 levies will be made". ³

The initial reaction of park district adminstrators will be to oppose such legislation where their district stands to lose two years growth of assessed valuation. Before acting however, it would be wise to look at some advantages of the plan.

One of the problems most districts now have is determining the anticipated assessed valuation on which to base the annual tax levy. If estimated too low the district will lose authorized tax income. Therefore, most district administrators over-estimate the assessed valuation to protect against this possible loss. With the entry of the truth in taxation law, this results in an estimated tax which is many percentage points over the previous year's levy. The reading the taxpayer gets is that the park district (and other local governments with fixed rates) have gone wild. If the district knew the assessed valuation on which the tax was to be levied, an accurate levy could be made that would not be out of line on the high side. The district would also be able to prepare a true budget based on actual anticipated tax income.

As previously stated, the problem of late issuance of tax bills has resulted in many districts having to borrow short term funds and to use tax monies to pay the interest. Under the new proposal this would not be necessary as the tax bills would be mailed in November with tax payments in January, March, June, and September. This early receipt of tax income would also allow the districts to earn more interest because of the longer period the tax funds could be invested before they were needed. In fact this extra interest earnings could offset the loss of income due to change in the assessed valuation base.

This summary only hits the high points of the report by the Local Government Finance Study Commission. There is much more that should be reviewed and considered by each park district board and staff as it can have a major effect on their finances. We must be prepared to work with the General Assembly as these recommendations are considered from a basis of a thorough knowledge and understanding rather than a quick reaction to something we just heard about.

1 Local Government Finance Study Commission Report, State of Illinois, April 1, 1982, page i

2 Local Government Finance Study Commission Report, State of Illinois, April 1, 1981, page ii

3 Local Government Finance Study Commission Report, State of Illinois, April 1, 1981, page 33

Illinois Parks and Recreation       15         May/June 1982