SPECIAL SERVICE AREA FINANCING: THE BASICS

Special service area (SSA) financing is a taxing mechanism used by a municipality or a county to finance additional services, improvements, or facilities desired in a certain portion of its jurisdiction. 35 ILCS 200/27-5 (1994). An SSA constitutes a differential taxing area within a municipality in which the improvement or service is financed through a tax applicable only on the area receiving the benefit. Office of the Local Government Management Services, Illinois Department of Commerce and Community Affairs, Municipal Project Financing (1995). For example, if people located in the main business district of a community go to city hall and ask that new street lighting be installed, then according to the SSA method of financing, the city could issue bonds payable from property taxes levied in only that business district. These taxes would be extended by the county clerk and would appear on the real estate tax bill of each person within the boundary of the special service area. Arthur Thorpe and Patrick Lucansky, "Special Assessment and Special Service Areas" in Illinois Municipal Law, pp. 21-61, Illinois Institute for Continuing Legal Education, 1994.

The 1870 Illinois Constitution mandated uniform taxation, thus prohibiting counties and municipalities from levying a tax to a limited geographic area for public improvements or services. However, in 1970, the Illinois Constitutional Convention altered the constitution to grant municipalities and counties the following power:

 

...to levy or impose additional taxes upon areas within their boundaries in the manner provided by law for the provision of special services to those areas and for the payment of debt incurred in order to provide those special services.
IL Const. Art. VII. §6(l)

Following the inclusion of this provision in the Constitution, the Illinois Supreme Court held that the provision is not self-executing, and that in order to establish special service areas, the General Assembly would need to adopt enabling legislation.Oak Park Federal Savings & Loan Association v. Village of Oak Park, 54 Ill. 200, 296 N.E.2d 344 (1973). Accordingly, in 1973, the General Assembly passed the Special Service Area Tax Act, 35 ILCS 235/.01,et seq., outlining the procedures by which SSAs can be established, bonds issued, and taxes levied. In 1978, the Illinois Supreme Court upheld the constitutionality of special service area financing when it determined that whether or not taxes on a particular property might exceed the benefit to the property does not invalidate the SSA tax.Coryn v. City of Moline, 71 Ill. 2d 194, 374 N.E.2d 211 (1978). The initial 1973 Special Service Tax Act was repealed on January 1, 1994, and replaced by the Special Service Area Tax Law, 35 ILCS 200/27-5,et seq.

The Illinois Department of Commerce and Community Affairs has broken down the statutory guidelines for establishing a special service area into nine steps. A municipality may have an unlimited number of special service areas, which may overlap entirely or partially. There are no minimum or maximum physical size requirements, although a special service area cannot consist of the entire jurisdiction of a governmental entity.

STATUTORY GUIDELINES:

1. Adopt an ordinance proposing the establishment of the special service area.
Included in the ordinance should be a statement of the purpose of the special service area, a legal description of the boundaries, an annual maximum tax rate, and the maximum number of years the tax will be levied.

2. Adopt a resolution at a public hearing to determine if and when a public hearing will take place to create the SSA.
Before or within 60 days after the adoption of an ordinance proposing the special service area, the governing board should adopt a resolution establishing the time and place of a public hearing.

3. Provide notice of the public hearing.
Notice must be published in a newspaper with a general circulation within the municipality at least 15 days before the public hearing. In addition, notice must be mailed within ten days of the hearing to all the property owners in the proposed special service area and to persons who paid the property taxes for the preceding year. The notice must contain the time and place of the hearing, boundaries of the area by legal description and street location, the maximum tax rate for the area, the maximum number of years the tax will be in effect, and a statement that all interested persons will be given an opportunity to be heard and object to the tax at the hearing.

4. Conduct a hearing by the governing board.
The governing board must conduct a hearing at which anyone with an objection may be orally heard on any issue relating to the proposal. In addition, the board has the authority to delete territory from the proposed special service area.

5. Observe 60-day waiting period to allow petition to block implementation.
The board must wait 60 days following the hearing before commencing any further action. The purpose of the waiting period is to allow anyone with an objection to circulate a petition. If 51 percent of the electors and 51 percent of the owners who reside in the special service area sign a petition and it is submitted to the clerk, the proposed special service area may not be formed. The failure of either class to have 51 percent or greater signing the petition will defeat the objection and validate the ordinance. Ciacco v. City of Elgin, 85 Ill. A pp. 3d 507, 407 N.E.2d 108 at 113 (1992). Furthermore, a successful petition objecting to the SSA will block the establishment of a special service area for two years.

6. Adopt the final ordinance.
After expiration of the 60-day waiting period, the governing body may adopt the final ordinance. After this point it is questionable whether new properties can be legally added to the SSA because the owners and electors would not have received notice or the opportunity to object and petition.

7. Implement special service area.
The governing body then commences with the project or service and uses the approved tax levy as indicated in the final ordinance. The tax revenue generated from the special service area tax must be put into a fund that will be budgeted and expended by the governing body only for the stated purpose of the special service area.

8. File documents with county clerk and recorder within 60 days.
A certified copy of the ordinance establishing the special service area must be filed with the county clerk and the office of the recorder in each county in which any part of the area is located. In addition, if the tax is based on an assessed valuation, the municipality must provide an accurate map of the territory to the county clerk. Furthermore, if the tax is based on a method other than an assessed valuation, the municipality must provide a special tax roll and a certified copy of the ordinance to the county clerk. The purpose of the special tax roll is to explain the method of spreading the tax, list the lots, blocks, tracts and parcels of land in the special service area, and to list the amount assessed against each property. (NOTE: Title insurance providers should be aware that SSAs may show up on title searches.)

9. Alter the special service area.
Once a special service area has been created, the preceding procedures may be utilized to enlarge the area, change the tax or debt limitations, alter the type of tax authorized for debt retirement, or extend the life of the special service area if it was limited to a fixed number of years.

Both special service area financing and special assessment financing may be options for financing a particular project. Special service area financing has some basic advantages over special assessment financing. First, the legal procedures involved in SSA financing are more efficient than those involving special assessment financing. Each special assessment levied against a property must go through the time-consuming process of confirmation by the circuit court. Second, it is commonly believed that the ad valorem bonds issued for SSAs are marketable at a lower interest cost than special assessment bonds. Third, legal fees involved in SSA financing are significantly lower than if special assessment financing is utilized for the same project. Fourth, although not conclusive, it is widely believed that taxes paid in SSA financing may be deductible for federal income tax purposes. Fifth, distribution of the cost of an SSA project is quick and inexpensive. Finally, there is flexibility in the type of tax that can be utilized. For example, a municipality could use a sales tax or any other type of tax to finance the special service area.

Special service area financing is an effective way for counties and municipalities to provide and fund additional services and projects for a portion of a jurisdiction. Title insurance providers need to be aware that SSA financing exists, how it can be found in the public record, and the importance of showing the SSA lien as an exception to title.

© ATG atgc0998vol22

 

Print this page