Chicago to use more than half of $1.9 billion in federal relief to reduce city debt

More than half of the $1.9 billion avalanche of federal relief on the way to Chicago will be gobbled up by retiring $965 million in scoop-and-toss borrowing used to eliminate the pandemic-induced shortfall, aldermen were told Wednesday.

Mayor Lori Lightfoot has warned aldermen to keep their wish lists in their back pockets because the money will have strings attached and it’s “not a slush fund that we can use every way that we can.”

On Wednesday, top mayoral aides explained why.

Roughly half of the $1.9 billion in new federal funds earmarked for Chicago will be used to honor the promise the mayor made before the City Council approved her $12.8 billion budget by the narrowest margin Chicago has seen since Council Wars.

That promise: canceling the scoop-and-toss borrowing that was one of the most controversial elements of her 2021 budget.

The budget called for the city to refinance $1.7 billion in general obligation and sales tax securitization bonds and claim $949 million in savings in the first two years. That approach would have extended the debt for eight years and returned Chicago to the bad borrowing days that former Mayor Rahm Emanuel ended, although not nearly fast enough to satisfy Wall Street rating agencies.

“We said during budget season that, if we received federal funds, we would have to first repay our debts. That debt includes the $465 million of scoop-and-toss used to address the 2020 shortfall and the $500 million to address the 2021 shortfall,” Chief Financial Officer Jennie Huang Bennett told the Council’s Budget Committee Wednesday.

“The city committed to not return to the practice of scoop-and-toss. We used this mechanism in the midst of COVID and lack of certainty around federal funding purely because of the unprecedented nature of the COVID crisis. We need to make good on those commitments … by recommending that we eliminate the scoop-and-toss through the use of a portion” of new relief funds.

Ald. Jason Ervin (28th), chairman of the Council’s Black Caucus, couldn’t believe his ears.

“Are you asking to use $965 million to erase the debt from 2020 and 2021?” he asked.

Budget Director Susie Park replied: “That is our priority. We will have further discussions, I know, as the money comes in and there’s better understanding around the guidance. But ... we would like to replace the scoop-and-toss. That is a fiscal priority for us.”

Ervin countered that using half the revenue to eliminate scoop-and-toss borrowing would be a difficult pill to swallow for Chicagoans who’ve lost their jobs or seen their hours severely cut during the pandemic.

“It’s gonna be a tough sell to say, ‘Hey. We’re only gonna take care of our needs as government and not necessarily look at the needs of the people,’” he said.

“I understand that we need to deal with the debt that has been created and it’s a loss of revenue. But we also can’t just say we totally have to focus on repaying the debt. I hope there will be some conversation about the flexibility of some of this revenue being utilized for the extensive amount of support that many of our residents will need going forward.”

Budget Committee Chairman Pat Dowell (3rd) commended Ervin for asking the “right questions” about the “difficult balancing act” the Council faces in the next six months.

Ald. Michele Smith (43rd) noted the $1.9 billion in federal relief “just barely covers” the $1.7 billion in revenues lost to the pandemic during 2020 and 2012.

“So before we all get excited about cutting this pie up and doing all the programs that I would love to do, the fact is, we’re still not there anyway,“ Smith said.

Noting there’s also a projected $1 billion shortfall looming in 2022 tied, in part, to city pension obligations, Smith added: “If you did repay all the debt, you’d still be, what, $600 million behind?”

The pot of federal money on its way to Chicago is certain to trigger a furious political debate — one that got a preview at last month’s Council meeting.

That’s when a seemingly harmless resolution calling for the city to use a small chunk of money to launch a universal basic income pilot program turned into an emotional debate about reparations.

Although eliminating scoop-and-toss borrowing will be the city’s No. 1 priority, that still leaves nearly $1 billion to spend on urgent needs, such as reducing homelessness, providing affordable housing and strengthening Chicago’s public health network and mental health services.

“Please be assured that we will work with you to address the key pain points that we know Chicagoans are currently facing and make necessary investments to alleviate those pain points and set up for future economic growth,” Bennett said Wednesday.