Cook County is establishing a loan program to help local governments deal with tax delays

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Cook County plans to establish a $300 million loan program that will provide interest-free loans to eligible IRS-suburb local governments in Chicago suburbs to address a four-month delay in collecting the second installment of the property tax.

The bridge loan program saves suburban tax authorities from issuing tax advances to bridge the gap, with eligibility tied to a local government’s need and cost of accessing capital markets. Up to 500 tax authorities can qualify.

“We know that the four-month delay in funding will impact tax authorities across the county. We also know the impact will not be felt evenly and will disproportionately affect county taxation in historically disinvested and local income communities,” County Board President Toni Preckwinkle said during a briefing on the program on Thursday.

“We know that the four-month delay in funding will impact tax authorities across the county. We also know the impact will not be felt evenly and will disproportionately impact counties’ taxation in historically disinvested and local income communities,” said Toni Preckwinkle, President of the County Board.

The county is working with PNC Bank to provide a line of credit to fund the bridge loan program. The office of the county’s interim chief financial officer, Lawrence Wilson, will manage the applications and distribution of the loans. The administration will seek board approval this month to borrow up to $500 million for the program, which will be supported by its own loan.

The application process is expected to begin next month, with distribution beginning in September. The county will prioritize loans based on an equity model established for distributing federal pandemic assistance in the CARES Act: state school funding metrics, three-year average collection rates, and the need to fund vital services.

“Our plan is to pay out $300 million,” Wilson said. “We got the extra authority [case of the] Possibly we underestimated the need,” he said. “We are not ready to go higher. We don’t want to go any higher and risk undue burden on the county…we have spoken to our rating agencies and this is an amount we can do without concern or impact on our creditworthiness.”

Out of pocket administrative and interest expenses for a $300 million program is $5 million, which would increase to $8 million if the county uses the entire $500 million permit. Loans are repaid directly to the county when tax revenues are distributed.

Licensing guidelines limit lending to tax authorities with less than 120 days on hand and at least a rating at least one notch below that of the county. If a company has a split rating and at least one is lower than the county, they are eligible. The district currently has an overall bond 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 communities are also eligible.

Paper districts used as conduits for third-party tax collection are not eligible, as are overlapping districts with more than 1/3 of their jurisdiction outside of the county. Chicago-based tax districts are also ineligible. The minimum loan is $20,000 and the maximum would be based on expected payments and available cash in days.

The tax bills for the second installment are usually due in the summer. They are expected to run out later this year, due in time for homeowners to claim the tax exemption on their 2022 income tax returns.

Preckwinkle blamed the delays on a combination of the COVID-19 pandemic and an ongoing major technology upgrade — he was staying out of a dispute between two other elected bodies.

Cook County Assessor Fritz Kaegi, who administers property valuations, and the Board of Review, a three-person elected body that handles appeals, have blamed each other for the delays resulting from the technology transition to an integrated property tax system.

Chicago does not foresee a liquidity problem. “We have ample cash and liquidity” with $4.5 billion in cash and investments at the end of 2021, almost “consistent with our 2022 corporate fund budget of $4.8 billion,” said Treasury spokeswoman Rose Tibayan, in an email. “The delay is not expected to extend past the end of our fiscal year.”

Chicago public schools often use TANs to manage cash flow, but haven’t said if the delay poses a challenge.

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