Agenda - Council - 08/11/1987 - Special

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w'• ro WHAT'S AHEAD FOR THE 1989 LEVY LIMIT Legislative Atmosphere It is too early to know precisely what the 1989 levy limit law will be. When the Legislature meets early next year, it could make substantial changes in the current law governing 1989 levy limits. Although the League will work for reforms in the levy limit law that will more realistically address city financing needs, it is entirely possible that the Legislature could tighten levy limits even further for 1989. Since the original legislative impetus for tighter levy limits came from fear of rising local property tax levels caused by the school aid reforms, and since the more dramatic property tax increases caused by school aid formula changes will occur in 1989, it is possible that the Legislature will impose more harsh, unrealistic limits on city levies for 1989 levies. 1989 Levy Limits: What Will be Different Keeping in mind that the Legislature could change the levy limit law next year, the major features of the law affecting 1989 levies are highlighted below: 1. Small cities are subject to levy limits. The 1989 levy limit law repeals the exemption from levy limits previously granted cities with populations under 5,000 (this small city exemption was granted by the 1983 Legislature). Thus, according to current law, small cities would subject to levy limits in 1989 and subsequent years. 2. Inflation cost factor is capped at three percent. Prior law capped at five percent the inflation adjustment factor allowed in cities' levy limit bases. This five percent cap is lowered to three percent for 1989 and thereafter. The inflation adjustment (measured by the state and local implicit price deflator) for 1987 levy limits was 3.5 percent; the inflation adjustment for 1988 levy limits (had the law not been changed) also would have been slightly over three percent. 3. Exemption of special levies is reinstated. Special levies that were allowed outside the levy limit prior to the 1987 changes in the law are generally reinstated. Some of these special levies include tort judgments, compliance with lawful orders issued prior to 1977, the local share of matching fund programs, increased industrial and non-residential development, shade tree disease control, certain items relating to solid waste management, and other items. (See list of special lev:*,es on page 20.) In addition, levies for bonded debt, certificate of indebteaness and unfunded accrued pension es loll remain outside levy limits. :,ace IS 3 J