City debt refinancing not a ‘scoop and toss’ with long-term pain, finance chief says
Jennie Huang Bennett acknowledges the accounting treatment makes the savings a one-time revenue source, but insists it is a responsible budgeting move.
Working to close an $838 million deficit, Mayor Lori Lightfoot’s administration said Monday it will book a one-time savings of $200 million by refinancing $1.3 billion in bonds, a practice the mayor’s finance chief said differs from the “scoop and toss’’ maneuver of the past.
While the savings from reduced interest costs will occur over the next 20 years, the entire amount will be taken upfront, Chief Financial Officer Jennie Huang Bennett said. She said the city hopes to reduce the average interest rate on the bonds to from 3% to 3.5% from 4.9%.
“We are not extending the debt service. We are not extending the maturities” of the bonds, which are still to be retired in 2040, Bennett said.
She distinguished the move from the criticized “scoop and toss” technique of former mayors Rahm Emanuel and Richard M. Daley, who used refinancing with extended maturities to reduce short-term costs but saddle the city with more long-term debt. Emanuel in 2017 announced he would no longer use the maneuver as long as he was mayor.
Bennett acknowledged the accounting treatment makes the savings a one-time revenue source, but insisted it was a responsible budgeting move given the magnitude of the city deficit. She called it part of the city’s “proactive efforts to take advantage of the low interest-rate environment.”
Lightfoot is scheduled to reveal more in her budget address to the City Council on Wednesday. Bennett urged reporters to wait until the address for more details, including whether the city will draw surplus funds from its tax-increment financing (TIF) accounts as a one-time fix, as it has done in recent years.
Bennett declined to specify how much TIF money might be available. “It’s a number we had to work through,” she said.
After touring a Boys & Girls Club providing services to Chicago Public Schools students during the teachers strike, Lightfoot defended the decision to use the one-time savings to help balance her first budget.
“I’m not gonna get into the budget speech. But you’re gonna see that we placed a huge emphasis on structural changes that are not one-timers — that don’t just get us through next year’s budget, but really provide structural change in the out-years as well,” she said.
Chicago aldermen solicited for their deficit reduction ideas have suggested the city raise parking meter rates frozen for the last five years and pocket the money, instead of forwarding it to Chicago Parking Meters LLC.
That’s even though the widely-despised parking meter deal has 65 more years to run and has a clause that states:“The Concessionaire shall, during the Term, have the right to collect and retain all of the Metered Parking Revenue derived from the Concession Metered Parking Spaces, and the right to pledge and assign such Metered Parking Revenues as security for any indebtedness incurred by the Concessionaire.”
Lightfoot plans to take them up on that idea, but she didn’t say by how much.
She firmly believes she’s on solid ground in raising the rates and keeping the money for the city budget.
“Everything that we’ve done is clearly allowed within the rules. The increases that we will be proposing regarding parking meters is allowed within the context of the contract — a terrible contract, I might add,” the mayor said.
Lightfoot also defended her plan to raise the city’s tax on restaurant meals by one-quarter of one percent.
“If you look at the restaurant tax compared to some of our suburban areas, we’re actually way below that. ... We think the modest increase that we’re asking for is certainly fair,” the mayor said.
“Everything else that we’re proposing is an effort to make sure that we’re being fair, that we’re raising revenues in a constructive way and that we’re not doing it on the backs of people who are least able to handle it.”
Overall, Bennett said she expects to close about 60 percent of the deficit, or $500 million, using “new revenues or reduced expenditures,” with the remainder addressed through one-time fiscal plugs.
The refinancings involve General Obligation and Motor Fuel Tax bonds. In turn, the city would issue General Obligation and Sales Tax Securitization Corp. debt, the latter repayable from sales tax receipts.
The proposal would need City Council approval. The bonds could be issued as early as December, Bennett said.
She said the budget will not include other one-time solutions, such as borrowing for legal settlements and judgments against the city, significantly drawing down cash reserves or issuing pension obligation bonds. Lightfoot had cracked the door open to a smaller version of the pension borrowing.