The clout-heavy law firm where Mayor Lori Lightfoot once served as partner is expected to receive $107,500 in legal fees as part of the $1.5 billion debt refinancing that will help balance the mayor’s 2020 budget.
Lightfoot plans to generate $210 million in savings by using general obligation and sales tax securitization bonds to refinance existing debt at reduced interest rates.
The mayor also plans to claim those savings up-front to chip away at the city’s $838 million budget shortfall.
Mayer Brown LLP, the law firm where Lightfoot was a senior partner until resigning to run for mayor, was retained by the Sales Tax Securitization Corporation board in 2017 to act as corporate counsel.
The firm will continue in that role, providing a legal opinion at the closing of each bond issue, as required by bond purchase agreements the corporation enters into with underwriters in order to sell its bonds.
The sales tax securitization portion of the new refinancing is expected to be the larger of the two borrowings, generating an estimated $107,500 in fees for Mayer Brown.
That’s “comparable” to fees the firm has received for work on four previous bond issues.
The “securitization” structure has dramatically reduced city borrowing costs because sales tax revenues are isolated in a separate fund and bondholders get paid first, even if the city were to go bankrupt.
Only after debt service is paid does sales tax revenue flow back to the city.
That makes it popular with investors, but not so popular with a handful of aldermen, who have likened the setup to the widely despised parking meter deal.
“The mayor’s previous employment with Mayer Brown was not a consideration in this transaction, as it was the STSC — not the mayor — deciding to contract with the firm,” Law Department spokesman Bill McCaffrey wrote in a statement to the Sun-Times.
“The mayor did not have any role in selecting counsel and was not aware of Mayer Brown’s role until reporters’ inquiries. She would not obtain any financial benefit from the issuance of the STSC bonds.”
An economic disclosure statement attached to the bond ordinance lists attorney David Narefsky as the contact. Narefsky, a Mayer Brown partner, specializes in bond deals and served on Lightfoot’s transition team.
“Mayor Lori Lightfoot was a partner at the Disclosing Party until her resignation from the Firm on May 31, 2018,” the statement says.
“As is customary for partners after resignation or other separation from the Firm, the Disclosing Party has within the last 12 months, and expects that it will, within the next 12 months, pay to Mayor Lightfoot the value of her partnership interest all of which was earned prior to her resignation from the Firm.”
The massive refinancing is expected to get final City Council approval Tuesday, along with Lightfoot’s 2020 budget, paving the way for bonds to be sold by year’s end or early next year.
Although the generated savings are a big chunk of Lightfoot’s deficit reduction strategy, Chief Financial Officer Jennie Huang Bennett has insisted it has nothing to do with past “scoop-and-toss” practices that saddled another generation of Chicagoans with heavy debt.
“Debt service in every year will be lower than the refunded debt service. This is not a scoop-and-toss. A scoop-and-toss increases your debt service — or, alternatively, extends debt service,” the CFO told reporters earlier this week.
Huang Bennett also defended Lightfoot’s decision to claim the entire $210 million in savings up-front. That’s one-time revenue and won’t be available next year, when the pension ramp imposes an even more crushing burden on the city.
“Finding $838 million of structural relief all in one year taxes the system. Either you’re increasing revenues or you’re reducing expenditures,” she said.
“We believe that we have a financial plan over the next three years to get us to full structural balance. This is really just giving us some runway to do that.”
