Mayor Rahm Emanuel won first-round approval Monday to borrow more than $1 billion to bankroll water and sewer projects, despite aldermanic concerns about Chicago’s plummeting bond rating and its mountain of debt.
Chief Financial Officer Lois Scott said there’s a dramatic difference between general obligation bonds backed by property taxes and the $575 million in “Water Revenue” bonds and the $475 million in “Wastewater Transmission Revenue” bonds authorized by the City Council’s Finance Committee.
The new round of borrowing is backed by Emanuel’s 2011 decision to double water and sewer rates over a four-year period, then impose annual increases tied to the inflation rate.
In a report released last week, Scott noted that Fitch applauded the city for the “wisdom” of a 2011 rate hike that allows the city to improve its aging infrastructure while still keeping water and sewer rates “competitive relative to other large utlities.”
“When Fitch looked at our water and sewer bonds they see it as an improving credit…They’re impressed that 60 percent is being financed through debt and 40 percent through pay-as-you-go financing….They made a particular note that the way we are going about the financing is a marked departure from past practice, which is to use too much debt,” Scott said.
Scott’s assurances were not enough to satisfy Ald. John Arena (45th).
He was particularly concerned about the decision to give Emanuel blanket authority to refinance $200 million in existing water and sewer bonds, if interest rates ever decline enough to justify it.
“I just find it disconcerting that this much authority [is being granted] — at a time when we’re concerned so much about our bond ratings dropping,” Arena said. “The amount of debt that we have, we’re continually told, is part of the problem in terms of how Moody’s, how other bond rating agencies consider us.”
The Finance Committee also signed off on a $5 million settlement that underscores the need to rebuild Chicago’s aging water and sewer systems.
On Nov. 20, 2008, Edwin J. Hill was a 24-year-old Chicago State University waiting for a bus at 95th and Indiana when he was hit by a car that skidded on black ice caused by a “chronically leaking” water main that the city knew about, but failed to adequately repair.
When the car jumped the curb, Hill’s leg was pinned against a light pole, “nearly severed on impact” and had to be amputated above the knee, aldermen were told.
First Assistant Corporation Counsel Leslie Darling said Hill’s allegations that the city was negligent in failing to repair the leak were bolstered by several factors.
Witnesses described a large patch of black ice at the accident scene, accounts verified by the city’s own investigator, and two business owners testified to “recurring leaks in the street over a number of years.” The city’s own records reflect “periodic reports of water in the street,” two of them in 2008 prior to the accident. And six months before the accident, repairs were supposedly made to the “water service found to be leaking after the accident,” Darling said.
“With the long-standing water leak in the main and the repeated repairs of that main, we feel that the plaintiff could make a very good case . . . that the city did know or should have known of the leaking water main at the time of the incident,” Darling said.
As always, Darling said the city is not “admitting fault” in settling the case. But she said, “It is highly likely that a jury would find this plaintiff extraordinarily sympathetic and that the city was a proximate cause of his injury.”
Earlier this year, the City Council blindly added $1.9 billion to Chicago’s mountain of debt even though aldermen had no idea how the money will be spent.
The borrowing measure and the settlement will go before the full city council this week for final approval.
