CITY COUNCIL AGENDA ITEM
ACTION REQUESTED:
title
Conduct a Truth-in-Taxation hearing for the 2022 property tax levy (Item 1 of 3)
body
DEPARTMENT: Finance Department
SUBMITTED BY: Rachel Mayer, Finance Director
BOARD/COMMISSION REVIEW:
N/A
BACKGROUND:
If the City of Naperville chooses to raise revenue through property taxes, it is required to approve and file a property tax levy ordinance by the last Tuesday in December with DuPage County and Will County. Several statutorily required steps must occur prior to filing the levy. The completed steps to date include:
ü Make tentative annual budget available for public inspection. (October 14)
ü Estimate the amount of taxes to be levied at least 20 days prior to approval. (November 15)
ü Determine whether a Truth-in-Taxation hearing is required. (November 15)
ü Publish notice for a public hearing on the tentative annual budget. (November 27)
ü Hold hearing on tentative annual budget and pass ordinance approving annual budget. (December 6)
ü Publish notification in the newspaper of Truth-in-Taxation hearing not less than seven days and no more than 14 days prior to date of the Truth-in-Taxation hearing. (December 11)
The remaining step this year in the property tax levy process is:
§ Hold Truth-in-Taxation hearing and adopt levy. (December 20)
Per Illinois state statue, municipalities are required to publish and hold a Truth-in-Taxation hearing if the amount of the requested levy is more than 105% of the prior year’s general corporate and special purpose tax extensions, plus any amount abated prior to the extension. When comparing Naperville’s tax year 2021 extension to the initial, unabated 2022 levy, the proposed 2022 levy is 119% of the previous year’s levy, therefore requiring the City to hold a Truth-in-Taxation hearing.
The City Council received the estimated tax levy and set a Truth-in-Taxation hearing at its November 15, 2022 meeting. The Truth-in-Taxation hearing notice was published on December 11 in the Naperville Sun newspaper.
DISCUSSION:
The 2022 property tax levy recommendation supports the 2023 annual operating budget, which was approved by the City Council on December 6, 2022. A key policy decision throughout the budget development process is the establishment of the annual property tax levy amount. Property taxes are the primary funding source for long-term obligations of the City, such as public safety pensions, IMRF pensions and debt service payments. Property taxes are also the predominate funding source for Naperville Public Library and Naper Settlement operations.
Like prior years, this year’s recommended property tax levy takes advantage of growth in the equalized assessed valuation (EAV) of the community. Assuming 4% growth in EAV, the proposed tax levy is estimated to produce a property tax rate of 0.6743. That estimated rate represents a 1.9% reduction to the 2021 extended rate of 0.6874. Actual tax extension rates are dependent on final EAV, so the 2022 extended rate may be slightly higher or lower depending on final EAV, which is not determined until after the tax levy filing deadline.
The estimated tax rate assumes that after approval of the 2022 property tax levy ordinance, the City will abate $9.78 million in debt service levies for which the City will fund through other sources.
Property Tax Levy Ordinance
The first ordinance attached to this agenda item is for approval of the 2022 property tax levy, which will be used to fund the 2023 operating budget approved at the December 6, 2022, City Council meeting.
The initial 2022 property tax levy for the City of Naperville is requested at $65,004,372. This amount includes all corporate and special purpose levies but does not include any abatements related to the utility or special fund debt service.
The total property tax levy is derived from a variety of sources, as detailed below:
General Corporate
The general corporate portion of the levy request supports the City’s General Fund which provides fire, police, and public works services to the community. The $7.00 million levy request supports just 5% of the City’s total General Fund operating expenses; however, this amount represents a key component of the City’s revenue diversification model as property taxes are historically the City’s most stable revenue source.
Debt Service Levy
The debt service levy is based on the City’s annual debt service requirements. As required per statute, City Council approves a levy for the entire value of general obligation (GO) bond debt service, including those for general corporate borrowing, water/wastewater and electric utility borrowing and borrowing related to special purposes, at the time the bonds are issued. The City is required to levy for all GO debt as part of the initial levy. The amount for all GO debt service is $17.89 million. Following approval of the 2022 property tax levy ordinance, City Council will be asked to approve an ordinance to abate $9.78 million from the debt service levies. This represents the portion of debt service paid for through other sources, such as the Water Utilities Fund and the Electric Utility Fund.
Illinois Municipal Retirement Fund (IMRF) Pension Levy
The portion of the tax levy allocated to IMRF is based on the actuarial calculated percentage provided to the City by IMRF. The 2023 rate is 7.26%, a 15.4% decrease from the 2022 rate. The 2022 levy amount totals $2.05 million and represents the General Fund portion of the total estimated IMRF obligation.
Public Safety Pension Levies
Per the 2022 actuarial valuation report, the required contributions to the fire pension decreases by $607,924, or 5.7%, and the police pension decreases by $154,430, or 1.9%. The total required public safety pension contributions amount is $17,946,457. The property tax will fully fund public safety pensions in 2023, with the Food and Beverage Tax funding an additional $1,475,376.
Naper Settlement Levy Request
The Naper Settlement portion is based on the request made by the Naperville Heritage Society. The Settlement receives more than 90% of its annual funding through property taxes. The Heritage Society requested a levy of $4,162,796, an increase of 6.5% from the prior year’s levy request. The levy supports the increasing cost of operations created by the addition of two new buildings on the museum campus, along with normal cost increases.
Naperville Public Library Levy Request
The Library portion is based on the request made by the Naperville Public Library Board. The Naperville Public Library is more than 95% funded by property taxes. The Library Board requested City Council approve a levy of $15,960,000, an increase of 4.2% from the prior year’s levy request. The levy request supports the increasing cost of operations, particularly personnel costs partly driven by increases in minimum wage.
The initial total tax levy is requested at $65,004,372. The chart below shows the 2021 extension compared to the 2022 initial request; these are the figures utilized to calculate the Truth-in-Taxation requirements.
|
Purpose |
2021 Final Extension |
2022 Estimated Levy |
% Change |
|
General Corporate |
6,750,185 |
7,000,000 |
3.7% |
|
Debt Service |
8,683,337 |
17,885,119 |
105.9% |
|
IMRF |
2,218,371 |
2,050,000 |
-7.6% |
|
Naperville Fire Pension |
10,053,973 |
10,011,276 |
-0.4% |
|
Naperville Police Pension |
7,526,615 |
7,935,181 |
5.4% |
|
Naper Settlement |
3,913,840 |
4,162,796 |
6.4% |
|
Naperville Public Library |
15,314,681 |
15,960,000 |
4.2% |
|
Total Levy |
54,461,001 |
65,004,372 |
19.4% |
Property Tax Abatement Ordinance
Following the 2022 property tax levy ordinance, a second ordinance is presented for consideration by the City Council. This ordinance is for abatement of a portion of debt service owed by other funds on outstanding GO bonds. Taxes abated will be offset by funds available from other sources, including user fees in the Electric Utility and Water Utilities funds; separate property taxes received through Special Service Area (SSA) #23 and the Water Street TIF; revenues dedicated to debt service from Food and Beverage taxes; and existing cash balance in the Debt Service Fund. The breakdown of the abatement is as follows:
|
Funding Source |
Bond Series |
Amount |
|
Electric Fund |
2012 |
$823,280 |
|
|
2016 (refunding) |
$1,046,600 |
|
|
2020 |
$663,900 |
|
Subtotal |
$2,533,780 |
|
Water/Wastewater Fund |
2016 (refunding) |
$571,350 |
|
|
2020 |
$1,629,750 |
|
|
2022A |
$1,136,800 |
|
Subtotal |
$3,337,900 |
|
Downtown Parking Fund |
2016 (refunding) |
$290,400 |
|
|
2020 |
$4,000 |
|
Subtotal |
$294,400 |
|
SSA #23 Fund |
2016 (refunding) |
$98,939 |
|
Subtotal |
$98,939 |
|
Water Street TIF Fund |
2014 |
$410,100 |
|
|
2016 |
$274,900 |
|
Subtotal |
$685,000 |
|
Debt Service Fund Balance |
2014 |
$1,000,000 |
|
Subtotal |
$1,000,000 |
|
Food and Beverage Fund |
2020 |
$1,826,118 |
|
Subtotal |
$1,826,118 |
|
Grand Total $9,776,137 |
Final Property Tax Levy Amount
Taking the initial total tax levy of $65,004,372 and combining it with the $9,776,137 in abatements from utility and special funds results in a total property tax levy of $55,228,235. The net effect is a 1.4% increase over the final 2021 tax extension.
|
|
2021 Final Extension |
2022 Levy w/Abatements |
Change (%) |
|
General Corporate |
6,750,185 |
7,000,000 |
3.7% |
|
Debt Service |
8,683,337 |
8,108,982 |
-6.6% |
|
IMRF Pension |
2,218,371 |
2,050,000 |
-7.6% |
|
Fire Pension |
10,053,973 |
10,011,276 |
-0.4% |
|
Police Pension |
7,526,615 |
7,935,181 |
5.4% |
|
Naper Settlement |
3,913,840 |
4,162,796 |
6.4% |
|
Library |
15,314,681 |
15,960,000 |
4.2% |
|
Total |
$54,461,001 |
$55,228,235 |
1.4% |
The City strives each year to maintain an appropriate property tax levy and continues to have one of the lowest property tax rates among our comparable communities. While the City components makes up only 10% of a property owner’s total tax bill, the City attempts each year to minimize the impact it has on the overall property tax bill.
FISCAL IMPACT:
The final property tax levy after abatements will be $55,228,235, which will support the 2023 Annual Budget.