Lake Bluff, Illinois
Knollwood Annexation Fiscal Impact Analysis

Camiros, Ltd. was retained to assist the Village of Lake Bluff in considering annexation of the Knollwood neighborhood. Annexation of the mile square unincorporated area into the village had been considered previously, however, the potential costs of annexation to property owners and the impacts on village services were never fully resolved. While financial matters were not the only considerations in the annexation question, they were basic to the decision. Therefore, Camiros' assignment had two objectives: 1) to determine the impact of annexation on public services; and 2) to quantify those impacts as they would affect the property tax bills of Knollwood and Lake Bluff property owners.

The annexation was anticipated to create a significant impact on the demand for public services in the Village of Lake Bluff. Adding the already developed area to the village increased its population by one-half and its right of way maintenance demands by one-third. The neighborhood comprised an entirely new service area for public services like trash disposal, police, and street maintenance. In addition, the annexation required combining two existing fire departments (Lake Bluff and the Knollwood Fire Protection District) into one new department. In order to be comprehensive, the study also considered a number of the less obvious costs of annexation including village administrative demands, legal fees, possible changes in public service contracts with other jurisdictions, library services, updating the village's zoning ordinance to accommodate development in the new area and even the cost of conducting a special census (necessary to secure state funds based on population increases).

The fiscal impact analysis indicated that annual expenses for providing public services to the new area would be covered by revenues generated from properties in Knollwood. These revenues included property tax, sales tax from retail establishments, population-based state rebates, vehicle licenses and building permits. In order to consider the impacts over time, a likely development scenario for vacant properties in the area was prepared and tax impacts projected. The cost to Knollwood residents would be about $300 per year. While they would begin paying village property taxes and fees, they would save the costs of contracting for trash delivery and other expenses. Since the cost of services would be covered by new revenues, this aspect of the annexation would not affect the property taxes of existing Lake Bluff residents.

However, the fiscal impact analysis did raise a significant problem. The one-time costs associated with purchasing new capital equipment (primarily public works and police vehicles), combined with an 18-month time lag until property tax revenues from Knollwood could be collected by the village, would create a shortfall of nearly $1.2 million over the first two years of the annexation. State taxing limitation and sound local public finance practices made it impossible to simply raise taxes for two years or defer expenditures. Therefore, a series of financing alternatives were prepared. These included creating a special service district in Knollwood (having those residents "finance" the short-term costs) or holding a referendum (as required by state law) to have the short-term cost covered by borrowing and repayment through property tax assessments on both Lake Bluff and Knollwood property owners.