Mayor Rahm Emanuel is asking the City Council to approve $3 billion in new borrowing, by far the biggest of his tenure.
Seven months ago, aldermen reluctantly agreed to authorize a $1.1 billion borrowing after being told the city’s junk bond rating demanded it. The money was used to continue Emanuel’s debt restructuring plan and move away from risky financial practices that former Mayor Richard M. Daley used to “mask” the true cost of city government.
On Monday, the Finance Committee will be asked to approve a kitchen sink borrowing that’s nearly triple that size. It includes:
- $1.25 billion in general-obligation bonds backed by property taxes. The money includes $700 million to bankroll the city’s annual capital program for 2016 and 2017. G.O. bonds will also be used to eliminate the costly practice of “scoop-and-toss” borrowing, with those restructurings totaling $123 million this year, $139 million next year and $73 million in 2018.
- $900 million in Midway Airport bonds to refund existing debt, restructure bonds used to build a rental car facility and to bankroll Emanuel’s $248 million plan to confront the Southwest Side airport’s biggest weaknesses and passenger annoyances: parking, security and concessions.
- $700 million in water revenue bonds that, chief financial officer Carole Brown said, mark the “last variable rate conversion” involved in terminating complex deals known as swap contracts dating back to Daley’s tenure. When its bond rating fell below investment grade, Chicago could have faced paying billions to bankers under terms of those complex deals.
- $200 million in sales tax revenue bonds that includes $75 million for the treasured menu program that allocates $1.32 million yearly to each of the city’s 50 wards to spend on infrastructure repairs of the local alderman’s choosing.
It’s the first time that the menu program has not been financed by property taxes, and it could be part of a trend.
“Sales tax bonds are higher-rated that G.O. bonds. It would be cheaper to fund it using the sales tax,” Brown said. “I want to see what the benefit really is and whether that should be part of the city’s long-term strategy to try and fund capital from sources other than the property tax to preserve our levy and improve our rating. We have a lot of debt on the property tax. I’d like to diversify our portfolio.”
Emanuel argued Thursday that the massive borrowing is tailor-made to execute the plan he outlined to the Civic Federation after the election.
“It’s actually what the rating agencies wanted to see us do — to strengthen Chicago’s finances rather than leaving it vulnerable,” the mayor said.
“It’s following through on a commitment. The worst thing you could do is make a pledge, then not do it.”
Ald. John Arena (45th) questioned Emanuel’s kitchen sink approach at a time when the city’s debt rating has already cost Chicago taxpayers tens of millions of dollars in added borrowing costs.
“We passed a budget that said there was a schedule we were going to do this on, and now we’re accelerating that schedule and front-loading everything,” Arena said.
“The bond rating agencies still have us at junk status, and yet we’re issuing an excessive amount of debt. I want to let the market reset. We’ve made moves to increase our bond rating. We passed a huge property tax increase for police and fire pensions. We ought to let that sink into the market and get our bond rating up a little bit.”
Ald. Scott Waguespack (32nd) was equally skeptical.
“They’re bundling together so much of this when they don’t need to. They want upfront authority to have all of this done now so [they] can put it out on the market at their convenience,” Waguespack said.
Waguespack questioned why Midway bonds total $900 million when the improvements outlined by Emanuel carried a price tag less than one-third that size.
“There’s no plan other than, ‘Please give us a blank check.’ It’s not transparent, and it’s not even planning as we should be doing,” he said.
Civic Federation President Laurence Msall questioned whether the record borrowing is “the most efficient structure” for Chicago taxpayers.
“A $3 billion bond program is the largest the city has ever offered, and it’s coming at a time when the city’s credit rating is at an all-time worst since the Chicago fire,” Msall said.
“The key question is, what other alternative has the city considered rather than offering such a large amount of debt at a time when its credit rating is at a historic low? It’s understandable that the city wants to get out from under variable rate debt and scoop and toss. But this is a change from the plan the mayor outlined” in April.
Msall has been urging the mayor for years to get rid of the aldermanic menu program. He was disappointed when the mayor chose the political path of least resistance.
“Moving from the property tax to the sales tax for the menu program doesn’t make it more affordable, nor does it make it [a] good use of limited tax dollars,” he said.
“The entire capital spending program should be based on prioritizing the highest and best needs of the city — not projects to be named later by aldermen using their own criteria.”
Over the years, aldermen have been harshly criticized for signing off on massive borrowings without asking tough questions. That’s likely to change now that Emanuel has been wounded politically by his handling of the Laquan McDonald shooting video.