CHICAGO – The Cook County Clerk’s office has reversed course and signed off on the validity of Harvey, Ill.’s property tax levy request.
The clerk’s finding -- made public late Friday -- that last week's levy request vote is valid allows the cash-strapped Chicago suburb city to avoid steep cuts and layoffs.
It may help the city make future bond payments and one of the city’s bondholders, who didn't receive his firm’s December debt service payment, now hopes the city will make good on the debt.
“That is good news. I hope they passed a large enough tax rate to run the city properly for the citizens' sake,” said the investor, who asked not to be identified. “I’ll be watching for the payment to come in.”
Mayor Eric Kellogg and four of six council members have battled over routine governance issues, leading to the council’s failure to pass the city’s 2016 property tax levy by an initial December deadline. The clerk’s office extended the deadline to May 2.
At an April 25 council meeting, confusion ensued over the $15 million property tax levy vote and questions arose over whether a sufficient number of members were present to produce a valid quorum.
The levy vote was 2-2 with the mayor casting a tie-breaking vote. The clerk's office initially rejected the levy request, saying it required a majority.
A special meeting had been scheduled Friday to pass a portion of the levy to fund pensions and debt payments. It was disclosed in council chambers that the clerk’s office reversed course and approved the levy as valid based on the vote of members present at the meeting. The city has home rule status under Illinois law and the vote appeared to abide by applicable law.
“In view of the information received and a review of Illinois law, levy ordinance No. 3335 appears, on its face, to be a valid ordinance by the City Council and certified by the City Clerk,” said the letter from the County Clerk David Orr’s office.
One of Kellogg’s opponents said she would support a lawsuit challenging the legality of the vote, according to published reports.
The levy request approval leaves unanswered questions over the city’s apparent default, which came amid city officials' efforts to catch up on financial reporting, address ongoing deficits, and overcome a tarnished past.
The impoverished city south of Chicago appears to have initially made debt service payments owed in December on a $37 million new money and refunding general obligation issue from 2007 but then pulled back the payments, according to the investor, whose calls to the city have gone unreturned.
The next payments are scheduled for June 1 on the bonds, for which an ad valorem property tax is pledged.
The city did later make some payments on the tax-exempt portion of the deal, but not the taxable piece. That's according to a representative of a fixed-income investment management firm that purchased a portion of the taxable bonds for his firm's retail clients.
The city, which bears responsibility for investor disclosure, has not reported the status of the payments to the Municipal Securities Rulemaking Board's EMMA site. The city has not filed updated financial information since 2014.
City officials have not returned calls to comment. U.S. Bank NA serves as the paying agent, but there is no trustee to bear responsibility for notifying bondholders of any default and work for bondholders to recoup their investments.
Joseph Letke, the city's former comptroller, was fined and barred from future municipal bond offerings by a federal judge last year.
The court's ruling brought to a close the civil case launched by the Securities and Exchange Commission against the city and Letke for misleading investors on several bond offerings by diverting bond proceeds from sales in 2008, 2009, and 2010 from their intended use. The SEC's complaint marked the first instance in which the agency sought an emergency court order to halt a municipal bond offering.
