Lake Zurich faces rough financial road

Lake Zurich residents have until Jan. 2 to petition against the village refinancing $16 million in existing loans borrowed for downtown redevelopment.

The village has roughly $26 million in outstanding debt but has spent more than $32 million in total redevelopment costs.

An ordinance approved this week authorizes the village to refinance part of those loans, pushing back principal and interest payments due within the next five years to 2017 and beyond.

Residents must petition the village with 882 signatures of registered voters to stop the bonds from being issued thereby forcing a referendum on the matter.

Some residents have said they don't trust the village's track record with borrowed money. To alleviate concerns, the village board this week adopted a resolution detailing what the bond proceeds would be used for.

"There was concern about having a backdoor referendum take place," Lake Zurich Village Administrator Bob Vitas said.

Vitas said a portion of the bonds issued in 2005 were not used as intended to pay off a bank loan. But he promised things would be different this time around.

Officials say it's necessary to restructure the loans because the village can't afford to pay its debt obligations next year.

The original redevelopment bonds were meant to be repaid with the tax on increasing property values captured from within a special financing district established in 2002 to fund downtown redevelopment or, alternatively, sales taxes, and ultimately property taxes.

Yet, the projected incremental revenues expected from two downtown redevelopment projects haven't materialized as both projects stalled in 2007 because of a housing market slump.

The village's yearly principal and interest payments on the redevelopment loans amount to roughly $1.7 million, yet it collects only about $1.3 million in TIF revenues from the only finished project within the district - the Concord Village subdivision.

With declining revenues from new home construction, Lake Zurich's finances are already stretched to the max, said Al Zochowski, Lake Zurich finance director.

It has begun affecting service levels and funding of such things as road improvements and police and fire pensions. The police and fire pension funds are each roughly $7 million short, partly because they were underfunded for years.

Zochowski said layoffs and further service reductions could come if the village is forced to use sales tax revenues to plug the deficit in the tax increment financing fund.

"The general operations of the village, police and fire protection, public works would all be affected," he said. "People's property taxes would go up significantly."

If residents force a referendum on the debt refinancing, the request must make the April 7 ballot or have to wait for the November 2010 election.