Cook County plans to implement a $300 million loan program that eligible suburban Chicago local governments with taxing authority can tap into for interest-free loans to manage a four-month backlog in the collection of property taxes from the second installment.
The bridge loan program will save suburban tax agencies from having to issue tax anticipation notes to bridge the gap, with eligibility tied to a local government’s needs and its market access costs capital. Up to 500 tax organizations could be eligible.
“We know the four month funding delay will impact tax agencies across the county. We also know that the impact will not be felt evenly and will disproportionately impact tax districts in historically disinvested and local-income communities,” County Council Chairman Toni Preckwinkle said Thursday during a a briefing on the program.
The county is working with PNC Bank to provide a line of credit to fund the bridging loan program. The office of the county’s acting chief financial officer, Lawrence Wilson, will handle loan applications and distribution. The administration will seek board approval this month for borrowing up to $500 million for the program backed by its own credit.
The application process should be launched next month and distributions will begin in September. The county will prioritize loans based on an established equity model for distributing federal pandemic assistance in the CARES Act: Public School Funding Metrics, Three-Year Average Recovery Rates, and Need for Funding vital services.
“Our plan is to shell out $300 million,” Wilson said. “We have obtained additional authority in [case of the] possibility that we have underestimated the need,” he said. “We don’t want to go any higher. We don’t want to go any higher and risk an undue burden on the county…we’ve spoken to our rating agencies and it’s an amount we can do without any concerns or impact on our creditworthiness.
Reimbursable interest and administrative costs for a $300 million program total $5 million, which would increase to $8 million if the county operated the full $500 million authorization. Loans will be repaid directly to the county as tax revenues are distributed.
Eligibility guidelines limit loans to tax agencies with less than 120 days of cash and at least a rating that must be at least one notch below county. If an entity has a shared rating and at least one is lower than the county rating, it is eligible. The county currently carries a general obligation rating of AA-minus from Fitch Ratings, an A2 from Moody’s Investor’s Service and an A-plus from S&P Global Ratings. Unrated municipalities are also eligible.
Paper districts, which serve as a tax collection hub for a third party, are ineligible, as are districts that overlap with more than one-third of its jurisdiction outside the county. Chicago-based tax districts are also not eligible. The minimum loan is $20,000 and the maximum would be based on expected payments and days of cash available.
Second installment tax bills are usually due in the summer. They should be out later this year and in time for homeowners to claim the tax exemption on their 2022 tax returns.
Preckwinkle blamed the delays on a combination of the COVID-19 pandemic and a major technology upgrade being completed – staying clear of a dispute between two other elected bodies.
Cook County Assessor Fritz Kaegi, who handles property appraisals, and the Board of Review, an elected three-member board that handles appeals, blamed each other for delays resulting from the technology transition to a system of integrated property tax.
Chicago does not foresee a liquidity problem. “We have sufficient cash and liquidity” with cash and investments of $4.5 billion at the end of 2021, which is almost “equal to our enterprise fund budget of $4.8 billion for 2022,” finance department spokeswoman Rose Tibayan said in an email. “The delay should not exceed the end of our fiscal year.”
Chicago Public Schools frequently use TANs to manage cash flow, but did not say whether the delay is a problem.