As a Home Rule community, DeKalb has no state-imposed legal limit on its indebtedness.
Non-Home-Rule municipalities (at least those under 500,000 population) do have a limit. It’s 8.625%* of the taxable value of the properties within their boundaries, and they must report compliance with the limit by computing Legal Debt Margins for their Comprehensive Annual Financial Reports (CAFRs).
Out of curiosity, I calculated DeKalb’s debt margin for the last few years to see if the city stays within the limit even though it doesn’t have to. Here’s where it led me.
The first five rows below are the debt limit computations.
Batavia and North Aurora were not selected because they are particularly comparable to DeKalb. They’re simply the only ones I’ve found so far that a) must comply with Illinois’ debt limit, b) post their CAFRs online and c) have debt. But, they are helpful in generating questions. Such as: OK, DeKalb’s within the limit, but why does it have so much more debt applicable to the limit than the others?
|Equalized Assessed Valuation (EAV)||645,855,095||1,120,737,093||569,761,326|
|Legal debt limit (8.625% of EAV)||55,705,002||96,663,574||49,141,914|
|Amount of debt applicable to the limit||23,945,000||3,807,900||4,825,000|
|Legal debt margin||31,760,002||92,855,674||44,316,914|
|Total net applicable debt as a % of the limit||43.1%||3.94%||6.92%|
|Total debt outstanding||40,249,616||60,854,032||17,680,000|
The answer is that only General Obligation (GO) debt applies to the limit, and Home Rulers don’t have to go to referendum to get it like non-Home Rulers do.
Why is the limit just on GO debt and not total debt? Unlike other debt instruments, GO involves pledged revenues guaranteed by property taxes so it makes sense to tie together a GO limit to EAV.
Another part of the table that is striking to me is how much richer in real estate these smaller communities are in comparison (Batavia has barely 27,000 residents**, North Aurora about 16,000). DeKalb’s EAV in 2007 was virtually identical to North Aurora’s in 2009, yet our city had 30,000 more people. What is that, an NIU effect? I don’t know.
Also in 2007, DeKalb’s GO debt was 21,515,000, its total debt $41 million. You can explain part of that by population and other differences in the communities, but if you’ve lived here any length of time you know that for DeKalb there’s a “keeping up with the joneses” factor using Tax Increment Financing (TIF) too.
And we haven’t looked beyond 2009 yet.
|2011||608,332,947||Not available||43,862 (Census)|
The rate of bonded debt grew as DeKalb grew, but failed to fall when the markets crashed because we’ve stubbornly continued TIF projects. In addition, falling EAV and population have affected debt ratios on paper and residents in person.
City of DeKalb
Again, we’re dealing with bonded debt, not total debt, because this is the amount we’re on the hook for through our property taxes no matter what.
Overlapping debt comes from the other taxing units such as the park district and the county. The big jumps since 2008 come mostly from the school district, as you may have guessed. Of course, the total per capita debt burden for recent years has been even larger than reported due to what clearly were overestimates of population.
Let’s summarize what we have so far:
DeKalb’s amount of GO debt happens to lie well within the statutory limit, but the picture is changing quickly because of falling EAV.
- Without a doubt, DeKalb has lost population, which in combination with new public construction has led to a rapidly increasing debt burden for those who stay.
Look for a couple more posts in the coming weeks about DeKalb debt, debt policy and the potential impacts on our future.
*Online searches suggest debt limits imposed either by states or by local charters range from 8-10% nationwide.
**Municipalities reaching 25,000 population automatically gain Home Rule status. Batavia was recognized by the state as a Home Rule community in October 2009.
Where I got my numbers:
I used the City of DeKalb’s own numbers from the CAFRs found at the city’s Downloads page and checked some of the tax information at the DeKalb County website. Because debt is presented differently in the various CAFR reports, I further offer that the GO debt in the debt limit calculations is gross bonded debt taken from Direct and Overlapping Bonded Debt, and that total debt outstanding comes from Ratios of Outstanding Debt by Type, Last 10 Fiscal Years.