Make mention to most Illinois Municipal Officials who are charged with the responsibility of conducting public works programs, that a project should be financed by a "Special Assessment Proceeding," and promptly an Iron Curtain of fear is dropped. One hears the immediate response in "It's Impossible."

This evidenced lack of knowledge of what is possible, and indifference towards learning what can be accomplished by the use of special assessment proceedings, and the failure of the responsible parties to take those steps which are necessary to a successful use of special assessment proceedings, are responsible tor the deferment of construction of a vast number of important and necessary public works projects. Almost unlimited field of financing and construction of public works will be opened when public officials again avail themselves of the use of special assessment proceedings.

Let us review somewhat, and in the most brief manner, the problem of financing public works.

The construction of public works projects by municipalities will, in general, classify the projects as either:

(1) Those which result In a "general improvement," or

(2) Those -which are In the nature of "local improvements."

In such classifications the pertinent criteria is the relative degree of "public" benefit's or of "local" benefits. Where the improvement is one of the type and scope that the municipality and its people generally derive appreciable direct or indirect benefits, such as where the proposed work lies in practically all parts and the entire community is equally benefited, there can be little doubt but that the project is a "general improvement." Conversely, where the proposed improvement is of such nature that the benefits to be derived from its accomplishment are largely benefits to certain special areas or to particular properties and the public benefits become secondary or nil the local benefits become of prime consideration, the project is a "local improvement."

From another angle, public works projects when accomplished generally give benefit to:

(1) The public as a whole,

(2) Certain specific areas or property, or

(3) To Individual consumers or users of a service.

Generally, too, our Illinois public improvement laws are directed to serving these three types of benefited persons or properties.

Most everyone is familiar with the fact that projects which provide general community benefits may be financed by general obligation bonds which are retired by general taxation. Similarly, most persons are familiar with the fact that improvements which give service benefits to users are generally financed by some form of revenue bond issue whereby the benefited user of the service pays for that service and the corresponding project through the collection of service charges or rents. It is when the improvements are of such character that only certain specific properties or areas are particularly benefited, and where special assessment proceedings and financing are most equitable and applicable, that most people fail to recognize the potential of special assessment proceedings and to avail themselves of it through appropriate channels.

Reflect, if you will, that in 1897 our State provided a so-called Local Improvement Act permitting the financing of public works by special assessments against specially benefited properties. This act is still on the statute books and with relatively few amendments made to it in the interim. It is still a usable and useful piece of legislation, but relatively infrequently used.

Prior to the economic collapse in the year 1929 which some of us still remember, and particularly the investment bankers well remember, special assessments were very frequently and regularly used as a means of defraying the cost of local improvements and retiring special assessment bonds which then found a ready sale and were generally regarded as attractive investments. Following the financial collapse of 1929 this type of bond quickly fell into direpute as bondholders found themselves unable to realize upon their investments. According to the statute foreclosure proceedings in the case of defaulted bond retirements, had to be instigated by the municipalities. Municipalities were loath to take such foreclosure steps and no other recourse tor collection was available to the bondholder who consequently was left without adequate legal remedy. It was then quickly discovered that the whole principle of special assessment financing had been terribly abused and that the statute had not provided adequate safeguards. Speculation in real estate perhaps more than any other single thing contributed most to the discrediting of special assessment bonds. Areas where there was little likelihood and less need of real development were improved with expensive special assessment projects. In many instances improvements were made for properties where the benefits to be derived were not in any way commensurate with the cost of the improvements, particularly with the deflated property values of the depression years following 1929.

With the discrediting of special assessment bonds, a great void was created in the municipal financing structure. The disrepute into which special assessment financing fell was so great and long lasting that numerous worthwhile and very necessary local improvements have been, and still are, impractical to construct due to lack of reasonable financing possibilities.

In 1947 a legislative attempt was made to fill the undesirable void in the municipal financial structure and to restore the advantages of special assessment financing for municipal use, by enactment of the so-called "New Special Assessment Act." I refer to the enactment by the 65th General Assembly of the State of Illinois of House Bill 568 introduced by the Honorable Ben S. Rhodes, State Representative, and signed and approved by the then Governor Dwight H. Green on August 7, 1947.

For an understanding of the subject, it is important to know that there are now two separate and distinct local improvement statutes. Enactment of the new statute did not in any way effect, change, or amend the old (1897) statute or its validity. Choice of use of either act is optional; but once a particular act is selected, its provisions must be strictly followed for the particular improvement being processed.

At the time the new act was written there was considerable discussion as to whether the old act should be amended or whether a new law should be drafted. Those persons supporting amendment procedures pointed out that the old act had a long heritage of

* Presented to the Illinois Municipal League 42nd annual meeting, Springfield, Illinois, November 14, 1955.

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court adjudications and its overall validity was unquestioned. Those supporting a new act felt that to adequately amend the old act represented a tremendous task and that the amendments would of necessity be of such scope that the general validity of the act might be impaired, and confidence in its use would not necessarily be restored.

After consideration of these factors, it was decided that enactment of an entirely new law would be the best procedure. Years of use had indicated that proceedings under the old statute, which is extremely long and complicated, were cumbersome and frequently became ensnared in litigation over trivialities. More important, however, was the unbankability and lack of confidence in bonds issued under procedures of the old act. The new bill was drafted with the express intent of (1) simplifying procedures in an overall way, (2) providing certain safeguards designed to prevent the indiscreet use of special assessments, and further (3) of insuring the holder of a special assessment bond in the safety of his investment, by providing ways and means of recovery in the case of a defaulted bond issue, and by permitting any bondholder to institute foreclosure proceedings. With the new act it was hoped to simplify special assessment procedures and at the same time to make special assessment bonds readily saleable by restoring confidence in them as an investment.

A more detailed comparsion between the old and the new special assessment acts and a more extensive commentary on them may be found in an article entitled "The New Special Assessment Procedure" published in the March 1948 issue of "The Illinois Municipal Review." At this date there is no way of knowing whether or not the new act would realize the intentions of its authors because it has never been used. In the absence of any court decisions validating any portion of the act, most recognized bond counsel refuse to issue approving legal opinions on improvements instituted under the act.

To date, then, all special assessment proceedings have been processed under the old act. Considering the adverse conditions that have prevailed since 1929 it becomes of interest to learn whether this highly desirable form of local improvement financing is being used to an appreciable extent or whether its use is being completely denied the various municipalities. To this end, a questionnaire was submitted to Illinois municipalities throughout the state but outside of Cook County and having over 5,000 population. Replies were received from seventy-four of the one-hundred-ten questionnaires submitted. Thirty-two municipalities replied that they had performed special assessment work within the past five years. This would indicate that possibly 40% to 50% of the larger municipalities in Illinois and outside Cook County have engaged in some form of a special assessment program in recent years. Of those who replied that they were using special assessments, eighteen stated that they found a ready sale for the bonds and four replied that disposal of the bonds was difficult. Twenty-tour of the municipalities which were using special assessments were disposing of the bonds locally with contractors taking the bonds in most cases. Bonds from the other eight municipalities have been sold on the open market. The local improvements which had been performed consisted of paving and appurtenant, work, sanitary sewers, water mains, and street lighting with the relative volumes of work probably being in the order named. Four out of five of the municipalities having recent special assessment experience stated that they were finding the method satisfactory for the work they had performed and approximately the same percentage thought there was an increasing tendency to use special assessment procedures for local improvements. Several of the municipalities which had not used special assessments in recent years stated that they would like to do so but had found no market for the bonds. Another municipality replied that it would like to use special assessments but contractors were forced to discount the bonds to such an extent that the city officials felt that it was not equitable to the property owners to proceed.

Because sanitary districts have special assessment powers very similar to those granted municipalities a somewhat similar questionnaire was submitted to eighteen such districts. Fourteen replies were received with four of these districts stating that since 1945 they had financed sewer construction in greater or less degree by special assessments. All bonds had been sold locally or given to the contractor in payment. All four districts felt that special assessments represented a satisfactory method of financing sanitary sewer construction. One district has had about twenty such projects in recent years and another district will have financed since 1952 approximately $500,000 worth of work by the end of next year. One of the districts which has not used the statutory special assessment procedure has financed large volumes of sanitary sewer construction on a cash basis with the district acting as agent for the property owners and performing all engineering and administration work on a straight 10% fee basis.

In lieu of statutory special assessment proceedings, outright financing by private funds for all types of local improvements has frequently occurred. While this method has been found suitable for organized subdivision developments and for certain limited types of improvements in developed areas, it falls far short of meeting the needs of the overall local improvement requirements. Motor fuel tax refunds have in some measure substituted for special assessment financing. In this connection it is interesting to note that the motor fuel tax law specifically urges the desirability of using refunds to defray the "public benefit" portion of special assessment projects where applicable. In recent years motor fuel tax refunds have been used for this purpose in probably less than ten instances.

The results of the above survey cannot be regarded as conclusive in any way nor should the survey be considered from a strictly statistical standpoint. It is too limited in its scope. However, as it serves to indicate the trends of special assessment work, certain general conclusions may be drawn from it:

1. Recent special assessment experience is limited both in geographical distribution and volume of work.

2. Where reasonably favorable conditions prevail special assessments are a satisfactory and highly desirable method of financing local improvements even with the generally adverse situation as presently exists.

3. There is a large volume of local improvement work which is either unable to proceed or is being performed under financial programs neither as equitable nor as desirable as special assessment proceedings.

4. While the special assessment procedure is cumbersome and complicated, difficulty in disposal of the bonds is the greatest deterrent to a successful special assessment improvement.

5. There is a gradually increasing tendency and desire to again make special assessment financing available for suitable local improvements.

The above mentioned survey has shown more or less conclusively that special assessment financing is not only possible but may be regarded as highly satisfactory, even as regards disposal of the bonds, under proper circumstances. It would be well, then, to try to explore what these proper circumstances might be.

Judging from our own and from the experience of other Engineers it would appear that the major requisites for a satisfactory special assessment project are:

1. That the assessed property be of suitable character, largely

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developed, and having a full fair cash value exceeding the estimated cost of the improvement.

2. That the improvement project should be within the financial means of the property owners so that payments will not become unduly burdensome.

3. That collections be handled in a businesslike way and delinquencies be minimized by legal action where necessary.

It is of interest to note that where sound collection practices are followed, recent special assessment bond issues bearing relatively low interest rates have been satisfactorily disposed of with little or no discount.

No truly adequate substitute has been found for extensive special assessment financing. In years past almost all Illinois municipalities developed their street, sewer, and water systems by means of widespread special assessment programs. Owners of property which was improved by special assessments seldom look with favor upon the use of general funds of any description for "local improvement" projects In. other parts of the community and the use of such funds to provide local benefits can hardly be considered equitable. Within the framework of the special assessment acts suitable means are provided to properly apportion the cost of a local improvement between public and local funds.

In view of the pressing need to continue and expand the use of special assessment financing for local improvements, an appraisal of what could be done to make the special assessment acts more useful might be of interest. The following comments are not intended to advocate any particular program but are presented to stimulate discussion of the problem as a whole.

Since the new special assessment act was carefully written to avoid the faults discovered in the old act, much benefit would be received if it could be put into general use. The act could be made useful by securing a validating opinion from the Illinois Supreme Court by means of a proper test case of a procedure under the act. Such a test case could probably be financed by contributions from interested municipalities, Contractor's Associations, and bond investment houses.

Probably no wholesale attempt should be made to simplify special assessment procedure methods by amendment of the old act for fear of invalidating the act as a whole. However, it might be possible to make bonds issued under the old act more secure and more readily saleable by certain additive amendments which would not affect the validity of other portions of the act. Desirable amendments might be added which would (1) permit foreclosure proceedings for payment delinquencies by any bondholder rather than solely by elected municipal officials, (2) provide adequate safeguards against indiscriminate use of special assessments, and (3) limit the total amount of outstanding special assessments to some suitable percentage of the assessed valuation of any piece of property. Saleability of bonds would be further increased if provisions were made to give special assessment liens an equal status with general tax liens against property and special assessment collections would undoubtedly improve if the assessments were added to the general tax bill of the property owner.

Illinois stands out among its neighboring states by being without an adequate practical financial arrangement for the accomplishment of local improvements through special assessments. In Indiana the "Barrett" law, which covers any public works where the project cost is levied against the improved property, is extensively used. Bonds issued under the law are willingly taken by the contractors and are readily saleable at par or with no more than a slight discount depending on the prevailing market. In Iowa special assessment bond offerings must be sold by public bidding with the municipality then paying the contractor in cash. Under existing legislation in Iowa, special assessment bonds are sold at par. To Illinois municipalities, these facts make for a tragic comparison.

It is time that we in Illinois abandoned our lethargic attitude and took positive steps to fill the void in our municipal financial structure by returning special assessment financing to its former rightful extensive use.