The City Council overwhelmingly agreed Wednesday to refinance $3 billion in debt in a way that could dramatically reduce borrowing costs, in a complex arrangement some aldermen likened to the widely despised parking meter deal.
After a lengthy debate, the vote was 43-5.
It was rookie Ald. Carlos Ramirez-Rosa (35th) who raised the meter deal — the legislative equivalent of the bogeyman.
“What we are seeking to do today is to take a public asset — sales tax receipts — and turn that over for 40 years to Wall Street, to the banks. If this measure passes, I will be 60 years old before the public regains control of that money,” Ramirez-Rosa said.
“We are setting ourselves up for a long-term loss for a short-term gain. When we privatized the parking meters, yes, we got a lot of money. And if we move forward with this, we’ll get a $3 billion credit line. But we will lose $660 million per year in sales tax receipts.”
Ald. David Moore (17th) asked aloud, “What’s the rush?” He questioned why an independent analysis of the borrowing scheme was not completed before a City Council vote that will impact city finances for decades.
“On the surface, it sounds like a good deal. But do I really want to give — and is it worth giving — first lien to bondholders over the taxpayers,” he said. “Honestly, I’m not sure. But without time to fully vet it, my gut feel says no.”
Mayor Rahm Emanuel “totally rejected” the parking meter comparison, even as he acknowledged that the 75-year, $1.15 billion deal that privatized Chicago meters cast a “shadow” that forced him to approach the deal in a different way with more analysis and lead time.
“One is taking something the city owns and selling it. We don’t own that debt. We have to make payments on it. It’s there already. And we’re refinancing it at a much lower interest rate,” the mayor said.
Emanuel plans to place $661 million in state sales tax revenue into a the “special purpose corporation” and use that vehicle to refinance $3 billion in existing debt and possibly future debt for infrastructure projects.
The so-called “securitization” structure is expected to dramatically reduce borrowing costs because bondholders would get paid first, even if the worst happens and the city goes bankrupt.
Only after debt service is paid would sales tax revenue start to flow back to the city.
Well aware of the parking meter hangover, changes were made to appease aldermen, including oversight by the inspector general and making the corporation comply with the Freedom of Information and Open Meetings Acts.
Chief Financial Officer Carole Brown hopes to refinance the $3 billion in debt at a rate at least two full percentage points below the 6.25 percent attached to the last general obligation bond issue because the city’s bond rating remains “below investment grade.”
The borrowing will be completed in four stages, beginning later this year.
Ald. Pat O’Connor (40th), the mayor’s City Council floor leader called the $3 billion borrowing a “two-fer” because it will save the city tens of millions of dollars in annual borrowing costs and, ultimately, help Chicago shed its junk-bond rating.
“This takes us from a situation where we have difficulty selling our bonds to the point where people will be lining up to get them,” he said.
Ald. Leslie Hairston (5th), who led the charge against the 2008 parking meter deal, added: “No. This is not the same as the parking meter deal. This is not.”
But she ended up casting one of the five dissenting votes after demanding that aldermen take responsibility for creating the mountain of debt now choking Chicago taxpayers.
Joining Ramirez-Rosa, Moore and Hairston in casting the other “no” votes were Aldermen Scott Waguespack (32nd) and John Arena (45th).
“We keep pretending like we weren’t here voting on this for every deal that came before us that they told us was good. We believed them. We said yes. Some of ’em were good. Most of ’em were not. . . . We did this, so we need to own that,” Hairston said.
The five-member board that will oversee the special purpose corporation includes the chief financial officer, budget director and comptroller along with chairmen of the Finance and Budget Committees.