Gov. Bruce Rauner “didn’t help” by floating a plan to take over the Chicago Public Schools and pave the way for CPS to declare bankruptcy, but that’s not the reason an $875 million borrowing was abruptly put off, a top mayoral aide said Thursday.
“It didn’t help. But it wasn’t the reason for the delay in the bonds,” CPS CEO Forrest Claypool said.
“It’s very common to test the market [then] delay. Investors come in, ask a lot of questions. They want [answers]. It’s a structured deal that has a lot of complexity. Some of our significant investors asked for a little bit more time to look at the documents. Fairly routine.”
Earlier this week, CPS pulled back on an $875 million borrowing that would have been the largest junk bond rating ever done by a state or local government amid signs it would pay a heavy price — in the form of record-high interest rates — to attract investors.
It happened one day after a preliminary interest rate of 7.7 percent was sent out to investors.
Chief financial officers for the city and CPS tried to put the best possible face on the embarrassment.
They insisted that the borrowing needed to ease pressure on the CPS operating budget had not “failed”; that the financially strapped school system had not lost access to the credit markets; and that the “day-to-day” delay was simply intended to give investors more time to evaluate it.
Municipal finance experts said Rauner’s talk of bankruptcy “played a big role” in investor skittishness. So did the recent drop in the CPS bond rating deep into junk territory.
When the deal is revived, the experts said they would not be surprised to see the interest rate rise above 8 percent and the size of the borrowing shrink.
On Thursday, Claypool sloughed off concerns that a lengthy delay in the borrowing needed to keep CPS afloat while awaiting $480 million in state pension help built into the school budget could trigger a financial collapse.
“It’s a day-by-day, but we’ll definitely go to the market before next week. Early next week at the latest. . . . We think [the delay] will be in the investors’ favor, but also in the taxpayers’ favor,” he said.
Mayor Rahm Emanuel said he sees a glimmer of hope for CPS in the more conciliatory tone his old friend Bruce Rauner struck in this week’s State of the State address.
After a week of tough talk and saber-rattling, Rauner barely mentioned the state budget stalemate triggered by his unyielding demand for pro-business, anti-union reforms.
Instead, he talked about working with Illinois Senate President John Cullerton (D-Chicago), Emanuel’s closest ally in Springfield, to revise the state school aid formula and solve Illinois’ $30 billion pension crisis.
“I welcome the tone of openness. I welcome the tone of trying to hit the re-start button. . . . I welcome a more congenial tone of cooperation because the state has lost a year based on name-calling. . . . Calling people names — from the Supreme Court to others — has led to the most unproductive first year of any governor in recent memory,” the mayor said.
“Illinois students, schools, teachers, people providing basic social services, investments in our future have been put on hold in an acrimonious environment because of name-calling. So, I welcome [the change. But] obviously the follow-through is going to be important of creating an environment where people are ready to work with you and make compromises. They’re gonna do it — not because they were bludgeoned by name-calling, but because they found . . . common ground.”