October 27 2015 City of De Kalb Illinois

October 27, 2015 City of De. Kalb, Illinois Financing Update Elizabeth M. Hennessy Managing Director 312. 364. 8955 ehennessy@williamblair. com

The Property Tax Limitation Law (per Senate Bill 318)

Senate Bill 318 • ALL TAXING BODIES IN ILLINOIS BECOME SUBJECT TO THE TAX LIMITATION LAW Operating Fund Tax Extension • Operating tax levies (all levies except bond and interest) may increase by the lesser of CPI or 5% over the prior year operating levy (aggregate extension base) plus a factor for new property • For levy years 2016 and 2017 CPI = 0% for aggregate extension base • Levies for public safety pensions are excluded from the Tax Limitation Law Debt Service on Non-Referendum Bonds • Non-referendum bonds may be issued ONLY if the payments for those bonds do not exceed the 2016 tax extension for non-referendum bonds plus a CPI factor • This is called the Debt Service Extension Base • Bonds issued prior to March 1, 2016 are not subject to the Tax Limitation Law Debt Service on Referendum Bonds • Any bonds approved by referendum are not subject to the Debt Service Extension Base Note: This presentation does not represent legal advice 1

Property Tax Limitation Law (PTELL) • 1991 Legislation enacted in collar counties around Cook County • 1994 enacted for Cook County • 1995 included non-referendum debt in PTTEL limited to amount of non-referendum bond and interest tax levy in 1994 levy year (debt service extension base) • 1996 extended option to enact PTELL to all other counties in Illinois pursuant to a county wide vote • 2009 included CPI factor on debt service extension base (DSEB) 2

Property Tax Limitation Law (PTELL) • PTELL is law in 39 of 102 Illinois Counties representing an estimated 80% of the population 3

PTELL Creates 2 Buckets of Tax Revenue Aggregate Extension Base Debt Service Extension Base • Limits total extension to CPI plus a factor • Refers to the dollar amount of the tax for new property levy for non-referendum bonds • Includes operating funds – Corporate fund, IMRF, Social Security, Tort Liability, Road and Bridge, etc. • Formula: • This is the Debt Service Extension Base (DSEB) • DSEB is formed the first year the District becomes subject to tax caps • Each levy builds on the prior year • Future issues of non-referendum bonds when combined with other nonreferendum bonds are subject to the DSEB annually • Voted max tax rates disappear and max tax rates per fund apply • All other rules for issuing nonreferendum bonds apply Prior Year Extension x (1+CPI)/(EAV-New Property ) 4

Aggregate Extension Base

PTELL Allows Each Fund to go to the Maximum Tax Rate However, combined, all operating tax levy may not exceed the Aggregate Extension Base-except for Pension levies for Public Safety 5

Example of Calculation of Aggregate Extension Base Under Senate Bill 318, CPI in levy year 2016 and 2017 is 0% 6

Example of Calculation of Aggregate Extension Base • Once Aggregate Extension Base is determined, then money is allocated to the various funds • The District has flexibility within its maximum tax rates to allocate funds to the most needy funds • However, the total must add up to the aggregate extension base • This is why one fund’s benefit is another fund’s loss (Robbing Peter to pay Paul) 7

Aggregate Extension Base Considerations • Senate Bill 318 and PTELL becomes effective on March 1, 2016 • If approved, levy 2015 will be the final opportunity to increase the operating levies that will become the aggregate extension base for all future operating tax levies • Therefore, review your current levies to see if you are at your maximum tax rates • Don’t underestimate EAV growth • Be sure that all funds have a levy 8

City’s Tax Levy vs Non-Home Rule Tax Capped Levy • City of De. Kalb 2014 Tax Extension • Note columns for Tax Cap Calculations 9

Non-Home Rule City Subject to Tax Limitation Law 10

Debt Service Extension Base

Debt Limit 11

Currently Outstanding Debt Service with 2016 DSEB 12

Currently Outstanding Debt Service with 2016 DSEB 13

Non-Referendum Bonds Under Senate Bill 318 • DEADLINE FOR BONDS TO BE EXEMPT FROM PTELL IS MARCH 1, 2016 • Under Senate Bill 318, year establishing Debt Service Extension Base is 2016 levy year • If non-referendum bonds are issued prior to March 1, 2016, they can establish a larger DSEB and give the City more future bonding capacity • If the City does NOT abate more of its general obligation bond levies in levy year 2016 it can increase its debt service levy and establish a higher debt service extension base • The following page shows an example 14

Example of Not Abating Series 2012 and 2013 B Bonds in Levy Year 2016 Only 15

Example of Not Abating Series 2012 and 2013 B Bonds in Levy Year 2016 Only 16

Bonds without Home Rule Debt Certificates • PAID FROM GENERAL OPERATING FUNDS • NO BACKDOOR REFERENDUM OR PUBLIC HEARING REQUIRED • FINANCE capital improvements • TITLE TRANSFER TO City SIMULTANEOUS WITH CLOSING OF PURCHASE CONTRACT AND FINANCING Alternate Bonds • A REVENUE SOURCE (OPERATING FUNDS) MUST BE IDENTIFIED AND PLEDGED TO REPAYMENT OF BONDS – MUST DEMONSTRATE 1. 25 TIMES COVERAGE • “DOUBLE-BARRELED” BONDS BECAUSE THE BOND AND INTEREST LEVY SERVES AS A BACKUP REVENUE SOURCE IF THE PLEDGED REVENUE SOURCE DOESN’T MATERIALIZE • TYPICAL PLEDGED REVENUES INCLUDE: • Sales Tax • Corporate and Personal Property Replacement Taxes • Other Lawful Levies • ALTERNATE BONDS REQUIRE petition period AND PUBLIC HEARING PROCESSES • DO NOT COUNT AGAINST DEBT LIMIT UNLESS TAXES ARE EXTENDED 17

Notice and Disclaimer The accompanying information was obtained from sources which William Blair & Company, L. L. C. believes to be reliable but does not guarantee its accuracy and completeness. The material has been prepared solely for informational purposes and is not a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy. Historical data is not an indication of future results. The opinions expressed are our own unless otherwise stated. Additional information is available upon request. Contact Information: William Blair & Company 222 West Adams Chicago, Illinois 60606 www. williamblair. com Elizabeth M. Hennessy Managing Director ehennessy@williamblair. com Phone: (312) 364 -8955 Fax: (312) 236 -0174 18