Special Service Area Financing

By JAY R. HEDGES, Director
Department of Commerce and Community Affairs

Special service area financing is a technique that any city or village can use to provide a service, improvement or facility in a specific area of the community. This technique usually involves levying an additional property tax only in the particular area that receives the special service or improvement. Special service area financing enables the municipality to provide any public service to a portion of its jurisdiction without burdening the entire community with a debt or operating tax. It is the only financing method which permits a tax rate in one part of a municipal jurisdiction that will not apply in the rest of the municipality.

For example, perhaps the downtown merchants want the sidewalks in the central business district cleared of snow by city workers during the winter months. A special service area can be created to provide snow removal from sidewalks, and a special property tax can be imposed on the business district to finance the service. Under this arrangement, only the downtown merchants and property owners benefiting from this special service would pay the additional property tax.

Almost any type of municipal service, improvement or facility may be provided as a special service including: downtown malls, sidewalk beautification, industrial area improvements, landscaping, street construction, street lights, ambulance service, drainage and flood control projects, sewers, extra police patrol, neighborhood recreation programs, etc.

There has been substantial growth in the use of special service areas by Illinois municipalities.

		Total No. of Areas
1977		23
1980		85
1983		133
1984		149

Authority to establish a special service area is found in Chapter 120, Par. 1301 et. seq. of the Illinois Revised Statutes. The special service area must meet specific requirements.

1. The special service area cannot include the entire municipality.

2. It must be for a "special service". A special service is one which is not provided in the municipality as a whole. It may be an additional level or unique measure of community-wide service which benefits the property owners and electors in a limited area of the community.

The legally required procedures for establishing a special service area are:

1. The governing body of the municipality must adopt an ordinance which proposes the special service area. It must hold a public hearing on the proposal.

2. A hearing notice must be mailed to each property owner in the proposed area. Also, a newspaper notice must be published announcing the public hearing.

3. A public hearing must be conducted at the announced time allowing any interested person to present objections.

4. The governing body must wait 60 days before further action. During the 60 day period, objectors may circulate a petition to owners of property in the area and to electors (residents who are registered to vote). If 51 percent of the property owners and 51 percent of the electors sign the objecting petition, the proposal may not be put into effect. Thus, special service area procedures do not provide for referendum approval, but objector petitions are possible and just as effective if a 51 percent majority is opposed.

September 1986 / Illinois Municipal Review / Page 5

5. If a proper objecting petition is not filed within the sixty day waiting period, an ordinance placing the special service area into effect may be adopted. Then the municipality is authorized to proceed with the service or project.

Special service area financing has been very successful as a local development tool. There are four basic reasons for its success.

• It is flexible as to purpose. It may be used for virtually any type of municipal service or improvement as long as it meets the territorial and "special" status limitations. Thus, it may be used for virtually any public development activity or improvement. It may also be targeted to just one item, a sidewalk for example, or it may encompass the entire range of improvements needed, for instance, a downtown renewal project.

• It is flexible as to taxation and debt. No limits on amounts or rates are set by state law. Tax rates are set locally in relation to the funding need of the project. Also, taxes in addition to the property tax may be imposed to retire the area's debt. Furthermore, a recent addition to the Act authorizes a special tax on property owners that is based on a formula chosen locally. Special service area debt is not counted against the municipality's corporate debt limitation.

• It is flexible in geographic coverage. Boundaries of special service areas may be drawn freely to include only the properties and people who generally benefit from the service or improvement. Even territory outside the municipality may be included, with a resolution of consent from the county. It is not necessary to follow any existing governmental boundaries. In contrast to local government jurisdictions generally, special service areas also may leave out islands of territory within the general boundary, creating some "swiss cheese" effects. Equity is achieved through special service area financing generally because the people who benefit are those who pay the taxes, rather than the community as a whole paying for the "special service".

• It is flexible in its procedures, because of its simplicity and non-referendum character. It can be instituted any time during a calendar year. Ninety days are usually required for the legal mechanics, after the project or service is planned. Proposing and final ordinances, public newspaper and property owner mail notices, and a public hearing are the official procedures.

Special service area financing is now established as a reliable financing method for economic and community development projects. It can be used with other financial resources such as state and federal grants and loans, tax abatements, other municipal revenue, general corporate bonding, tax increment financing, and private financing in government-business partnerships. Its flexibility may make it attractive for your community.

For further information on special service areas, call DCCA's local government hotline, a toll-free number, 1-800-562-4688. •

Page 6 / Illinois Municipal Review / September 1986